2International Management Review -- Session #1 and 2Personal IntroductionCourse IntroductionManagement PrinciplesContent OverviewQuestionsWhat is different about an international organization?Can you apply what you have learned about “running or managing a business” in an international context?Expect to learn?FrameworkFormat Overview (Syllabus) – Questions? Quiz vs Readings? Termpaper Sign-up
3.Organizations and Organizational Effectiveness What is an organization? Why do organizations exist?When is an organization effective?Efficiency vs effectiveness?
4.Organizations and Organizational Effectiveness What is an organization? Why do organizations exist?Organizations = PeopleMission, goals, objectives --- concerted effort; efficiency; effectiveness.When is an organization effective?Distinguish between efficiency and effectiveness. Distinguish effectiveness measures for the short, intermediate, and long run.
5Measurement of organizational effectiveness Long run?Intermediate run?Short run?A contingency approach to management
6Measurement of organizational effectiveness Long run: SurvivalIntermediate run: Adaptation, ResponsivenessShort run: Productivity, EfficiencyA contingency approach to management (as opposed to “administrative theory” of management): It’s management’s task to create the best possible fit between the external and internal environments of the organization and must ensure internal consistency between the organization’s elements.
9Current InformationNational Public Radio (NPR)FM 88.7, 90.5
10The International Organization What is “internationalization”?Reasons for going internationalTypes of international organizationsStages of Development to an International O.Effectiveness of Internationalization
11Internationalization is the process by which firmsincrease their awarenessof the influence of international activities on their futureand establishand conducttransactions with firms from other countries.
12Reasons for becoming an international organization Profit = Revenue – Cost = (Volume*Price) - CostA desire for continued growth.2. Domestic market saturation3. The potential to now exploit a new technological advantage4. Preferable suppliers (quality, cost)5. Labor market (supply, quality, cost)6. Government involvement/restrictions
137. Reducing distance to customers (cost) 8. Tariff barriers9. Increased foreign competition in home country10. Reduce general business risk by diversifyinginto other countries
14Types of "international" organizations International organization:Any organization that exports to/imports from organizations in other countries with primarily domestic production - Multidomestic.Multinational organization: An organization with operations in different countries but each is viewed as a relatively separate enterprise.Global organization: An enterprise structured so that national boundaries become blurred. The best people are hired irrespective of national origin. Transnational
15Graphic Representation Headquarters – Subsidiary RelationshipLevel of Global Participation
16The Relationship between Level of Internationalization and Firm Performance There is a strong relationship between the degree of internationalization and organizational performanceDegree of internationalization is measured as "sales generated by foreign affiliates" and MNE (multinational enterprise) performance is measured as "profit to sales" or "profit to assets".Performance is at a max. at a level of internationalization of 60 to 80% and then decreases with continuing internationalization
17Stages Model of Internationalization Outward looking perspective: activities/issues related to the other countries (e.g., exporting) vs an inward perspective (e.g., importing)DescriptiveReflects the commonly observed pattern of increased commitment to international business
18Four stages:1.indirect/ad hoc exporting - perhaps from unsolicited export orders2.active exporting and/or licensing3.active exporting, licensing, and joint equity investments in foreign manufacture4.full-scale multinational marketing and production
19An International Organization Definition:operates in multiple environments, home country and one or more host countries, has foreign sales, and a nationality mix of managers and owners.Characteristics:1. centralized ownership2. common pool of resources3. global, integrated strategy
20Review Types of international organizations Criterion -- Level of Global ParticipationInternational/Multi-DomesticMultinationalTransnational/GlobalStages of Development to an International O.Descriptive ModelEffectiveness of InternationalizationRelationship between extent of internationalization and performanceHeadquarters of well-known companies (Exercise)
21External Environment: Theory CompetitivenessInternational CompetitivenessPorter Diamond: The major determinants of national competitive advantage - why some nations succeed and others fail in international competition. Porter's research is based on studying 100 industries in 10 nations.- Reading: Competitive Advantage of Nations, PorterGabbye, Lance, Dan
22National Competitive Advantage PORTER DIAMONDNational Competitive AdvantageFour broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage:1. Factor endowments or conditions2. Demand conditions3. Related and supporting industries4. Firm strategy, structure, rivalry
23Porter’s DiamondWhy a nation achieves success in a particular industry?Why Japan -- automobile, camerasWhy SUI -- precision instruments, pharmaceuticalsWhy Germany and U.S. -- chemicalDiamond of four mutually reinforcing factors1. Factor Endowment -- Basic, Advanced (Nokia, Ericsson)2. Demand Conditions -- Quality, Innovativeness3. Related Industries -- Suppliers (U.S. - semiconductor/comp)4. Strategy, Structure, Rivalry -- Executive background=> Domestic environment encourages the development of characteristics that make company internationally competitive
24Rugman-Verbeke Model: 1. Firm specific advantages: relative to competitors -- technological experience, salesforce, customer loyalty2. Country specific advantages: source of advantage lies outside the firm -economic (labor - qual., quan., cost; natural resources); - non-economic (social, cultural); -governmental (property rights, free enterprise)Compare to Porter’s model
25References for Porter1. Michael Porter, The Competitive Advantage of Nations. Free Press2. M. Grant, The Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12,
26External Environment: Theory - Trade Agreements Why? Protectionism? Pro /ConTrade AreaCommon tariffs among members -- individual tariffs with non-members. NAFTA, ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam Mill)Customs UnionCommon tariffs for non-members. ANDEAN (Bolivia, Ecuador, Peru, Columbia, Venezuela)Common MarketFree flow of goods and labor. Mercosur (Brazil, Paraguay, Uruguay, Argentina, Chile)Economic UnionEuropean Union Members; Euro; European Parliament, Court of JusticePolitical UnionIncreasing economic integration
27The External Environment Political EnvironmentForm of governmentPolitical stabilityForeign policyState companiesRole of militaryLevel of terrorismRestrictions on imports/exportsEconomic EnvironmentEconomic systemStage of developmentEconomic stabilityGNPInt’l financial standingMonetary/fiscal policiesForeign investment
28The External Environment Regulatory EnvironmentLegal systemPrevailing int’l lawsProtectionist lawsTax lawsRole of contractsProtection for proprietary propertyTechnological EnvironmentLevel of technologyAvailability of local technical skillsTechnical requirements of countryTransfer of technologyInfrastructureEnvironmental protection
29External Environment: Current Developments- Overview Relevant variables: GDP ; GDP/capita ; GDP growth; factor endowments; demand conditionsThe GDP (gross domestic product):The value of the final output of goods and services produced by the residents of an economy (World Bank). There are several methods to calculate the GDP. The PPP (purchasing power parity) method reflects the cost of a basket of goods in two countries in their local currencies.
30The top 7 economies (PPP GDP) ‘90s: US ($ 7.1 trillion); China ($ 3.8); Japan ($ 2.6); Germany ($ 1.6); India ($ 1.5); France ($ 1.4); Italy ($ 1.0)The next 7 economies: UK ($ .9); Brazil ($ .85); Indonesia ($ .7); Russia ($ .68); Canada ($ .60); Mexico ($ .58); Spain ($ .57)
31The wealthiest nations GDP per capita: Luxembourg ($37,930); US ($26,980); Switzerland ($25,860); Kuwait ($23, 790); Sweden ($23,630); Hong Kong ($22,950); Singapore ($ 22,770); Japan ($22,110); Norway ($21,940); Belgium ($21,660); Austria ($21,250); Denmark ($21,230); Canada ($21,130); France ($21,030); Iceland ($20,460); Germany ($20,070)
32Largest cities and cost of living index: Tokyo 26 mill (150); New York 17 mill (100); Sao Paulo 16 mill (100); Mexico City 15 mill (75); Shanghai 15 mill (100); Bombay 15 mill (50); Los Angeles 13 mill (100)Largest populations:China 1.2 bill; India 900 mill; US 258 mill; Indonesia mill; Brazil 156 mill; Russia 148 mill; Japan 124 mill; Pakistan 122 mill;
33External Environment: Current Developments - Regions International Investmentand TradeLevel of International Activities
34Major Regions North America United States - which industries most internationally active? Why?Mexico - wage rate maquiladora industry (1965)
35Europe delayed differentiation acquisitions/alliances EU -15 member countries: Belgium, Britain, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Finland, Sweden, AustriaEU – The Euro
36European Union The European Commission The Council of Ministers (counterbalance to Commission)The European ParliamentThe European Court of Justice
37European Union What kind of trade agreement? Governance? The European Commissionproposes policies and legislationresponsible for the administration of the EUensures - provisions of the EU treaties+the decisions of the other institutions are properly implementedone rep per country(two for the 5 larger countries)represent, protect, further the European interest + its members do not represent or take orders from their national governments
38Eastern Europe - Break-up of The Soviet Union (Dec )- Russia (glasnost, perestroika)- The Ukraine- Czech Republic- Poland
39Asia Japan China MITI (Ministry of International Trade and Industry) keiretsus (chaebols in South Korea)Current economic conditionsChinaGDP growth of 10%low wage rates
40Newly industrialized countries: The Four TigersSouth Korea, Hong Kong,Singapore, TaiwanBaby TigersThailand, Malaysia, Indonesia
41Less developed countries Large population, high unemployment, inflation, low or negative economic growth, low literacy rateIndia, Arab Countries, Africa, Central and South America Major economic regions:North America,Europe, Asia
42Economic Superpowers The Triad - The Golden Triangle: The United States, the EU(dominated by Germany??), JapanDominates foreign direct investment and international tradeFDI Clusters
43External Environment: National Culture Harry and Sally in Saudi ArabiaWhat went wrong?Why did things go wrong?What were the consequences of these mistakes?
44Culture and International Management Relevance:Cross-cultural literacyCost of doing bus in a particular culture
45Internationalization Decision Benefits from internationalization into a specific countryCost associated with internationalization into a specific countryRisk associated with internationalization into a specific country.Decision = f (benefit-cost-risk tradeoff)
46Cultural dimensions What is the nature of people? All peoples have common life problems (?) – choose different solutionsSix basic dimensions describe the cultural orientations of societiesWhat is the nature of people?What is a person's relationship to nature?What is a person's relationship to other people?What is the primary mode of activity?What is the conception of space?What is the temporal orientation?
47Cultural dimensions What is the nature of people? Good/evil/change Six basic dimensions describe the cultural orientations of societiesWhat is the nature of people? Good/evil/changeWhat is a person's relationship to nature?Dominant/harmony -subjugationWhat is a person's relationship to other people?Individualistic/group – hierarchical/lateralWhat is the primary mode of activity?Doing/beingWhat is the conception of space?Private/publicWhat is the temporal orientation?Future/present/past
48Determinants of Culture (Values and Norms) 1. Social structureSocial stratification (class consciousness)Class membership is a function of ??Social mobility
492. Religion - Christianity 1 bill; 20%; Protestant work ethic Islam 750 mill; all embracing way of life, governing the totality of a Muslim being; prayer five times a day; free enterprise/hostile to socialist ideals - earning a legitimate profit through commerce and trade; Koran; contractual obligations, keeping one's word)
50Hinduism 500 mill; spiritual achievement; nirvana Buddhism 250 mill; Central and Southeast Asia, China, Korea, Japan; "life is suffering; misery is everywhere and originates in people's desire for pleasure; Noble Eightfold Path: right views, right intention, right speech, right action, right livelihood, right effort, right awareness, right concentration)
516.Language (spoken; non-verbal) 3.Political philosophyPolitical freedom – dominant political orientation4.Economic philosophyFree market – to what extent5.EducationImportance – access - type6.Language (spoken; non-verbal)Communication
52Ignoring Culture Religion: Language: Ads for refrigerator, airlines (Middle East)Language:Baby Food in Africa, English candy “Zit”, Finnish product unfreezes car locks “Super Piss”, Electrolux sucks (Sweden)
53Measurement of Culture Four dimensions of culture1. Individualism/Collectivism:Individualism exists when people define themselves as individuals. It implies loosely knit social frameworks in which people are supposed to take care only of themselves and their immediate families. Collectivism is characterized by tight social frameworks in which people distinguish between their own groups, "in-groups", (relatives, clans, organizations) and other groups. People expect in- groups to look after their members, protect them, and give security in exchange for members' loyalty.
542. Power distance: indicates how a society deals with the inequality among people's physical and intellectual capabilities. A culture with high power distance allows inequality to grow to inequality in power and wealth, one low in power distance aims at removing such inequalities. Indicates to what extent the unequal distribution of power is accepted.
553. Uncertainty avoidance: The extent to which people in a society feel threatened by ambiguous situations and the extent to which they try to avoid these situations by providing greater career stability, establishing more formal rules, and rejecting deviant ideas and behavior. Lifetime employment is more common in countries with high uncertainty avoidance - the reverse is true for job mobility.
564. Masculinity/Femininity: Masculinity is defined as the extent to which the dominant values of society emphasize assertiveness and acquisition of money and things (materialism). Femininity is defined as the extent to which the dominant values in society emphasize relationships among people, concern for others, and the overall quality of life.
575. Confucian dynamism/Long-term orientation (1993): refers to the time perspective in a society for the gratification of people's needs. A high CD or long-term oriented society is one which emphasizes thrift and perseverance. A low CD or short- term oriented society focuses on gratifying needs here and now.
58Culture Review What is culture? Why is it relevant? What are the dimensions of culture?What are determinants and characteristics of culture?How is understanding the dominant religion in a country important to international management?
59Culture Review What is culture? Values and norms; socialization Why is it relevant? Cross-cultural literacy; Benefit-Cost- Trade-offWhat are the dimensions of culture? Nature of People, Relationship to Nature, People, Temporal, Space, Mode of activityWhat are determinants and characteristics of culture?How is understanding the dominant religion in a country important to international management?
60Sources for International Research Hofstede, Geert (1980): Culture’s ConsequencesHofstede, Geert (1991): Cultures and OrganizationsHofstede, Geert (1984): Culture’s Consequences: International Differences in Work-Related ValuesHofstede, Geert and Michael Harris Bond (1984): The Confucius Connection: from cultural roots to economic growth. Organizational Dynamics, 16, 4, 4-21
61Measurement of Culture Four dimensions of culture1. Individualism/Collectivism:Individualism exists when people define themselves as individuals. It implies loosely knit social frameworks in which people are supposed to take care only of themselves and their immediate families. Collectivism is characterized by tight social frameworks in which people distinguish between their own groups, "in-groups", (relatives, clans, organizations) and other groups. People expect in- groups to look after their members, protect them, and give security in exchange for members' loyalty.
622. Power distance: indicates how a society deals with the inequality among people's physical and intellectual capabilities. A culture with high power distance allows inequality to grow to inequality in power and wealth, one low in power distance aims at removing such inequalities. Indicates to what extent the unequal distribution of power is accepted.
633. Uncertainty avoidance: The extent to which people in a society feel threatened by ambiguous situations and the extent to which they try to avoid these situations by providing greater career stability, establishing more formal rules, and rejecting deviant ideas and behavior. Lifetime employment is more common in countries with high uncertainty avoidance - the reverse is true for job mobility.
644. Masculinity/Femininity: Masculinity is defined as the extent to which the dominant values of society emphasize assertiveness and acquisition of money and things (materialism). Femininity is defined as the extent to which the dominant values in society emphasize relationships among people, concern for others, and the overall quality of life.
655. Confucian dynamism/Long-term orientation (1993): refers to the time perspective in a society for the gratification of people's needs. A high CD or long-term oriented society is one which emphasizes thrift and perseverance. A low CD or short- term oriented society focuses on gratifying needs here and now.
66U.S. Japan GermanyIndividualism:Power distance:Uncertaintyavoidance:Masculinity:ST/LT:
67Session #13 Review External Enviro: Culture Cultural Stereotypes Video October 18 – First GuestspeakerReviewMeasurement of CultureApplication of Hofstede’s DimensionsExternal Enviro: CultureCultural StereotypesVideoExternal Environment: Political RiskQuiz #3
68Applying Hofstede’s Dimensions Lawyers per 100,000 populationU.S.GermanyGreat BritainJapanItalyFrance
70Laurent’s Research-See Adler 9 Western countries, US, 2 Asian countriesMore than sixty common work situationThe main reason for hierarchical structure is so that everybody knows who has authority over whomIn order to have efficient work relationships, it is often necessary to bypass hierarchical linesIt is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work
71Laurent’s ResearchThe main reason for hierarchical structure is so that everybody knows who has authority over whomUS 18% agree, Germany 24% agree, Italy 50% agreeFrance, 45% agree, Japan 52% agree - POWIn order to have efficient work relationships, it is often necessary to bypass hierarchical linesUS 32% disagree, Germany 46% disagree, Italy 75% daIt is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their workUS 18% agree, Germany 46% agree, Italy 66% agree, Japan 78% agree - UNC
72Session #14 Review External Environment: Political Risk Articles H-O Comments to Midterm ExamReviewExternal Enviro: CultureCultural StereotypesVideoExternal Environment: Political Risk
73Fons Trompenaars Riding the Waves of Culture (1998; 2nd edition) Dimensions (see textbook pg 119):Universalistic–Particularistic (Obligation)Neutral-Affective (Emotional Orientation in Relationships)Specific-Diffuse (Involvement in Relationships)Achievement-Ascription (Legitimization of Power)
74Cultural Stereotypes What is a stereotype? Good or Bad? Effect on cross-cultural adaptationOur researchExercise
75Cultural Stereotypes Good or Bad?? Exercise: Countries: Germany, Italy, Switzerland, UK, FranceJobs: Government, Cooks, Policemen, Engineers, LoversBest Case and Worst Case Scenarios
78Overall Attractiveness of a Country Trade-off betweenBenefitsCostsRisks
79Overall Attractiveness of a Country Trade-off betweenBenefits: market size, wealth (purchasing power), future wealth, resources (quality and cost)Costs: legal requirements, availability of resources, infrastructure, level of economic development, free market?Risks: the likelihood that political, economic, legal forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a particular business enterprise.
80External Environment: Political Risk What is risk?What is economic risk?What is political risk?
81External Environment: Political Risk Definitionthe likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a particular business enterprise.
82Political RiskCharacteristics of countries with a higher likelihood for political risk: Social unrest - Strikes, demonstrations, terrorismSocial Unrest: more than one ethnic nationality, competing ideologies battle for political control, high inflation and falling living standards
83Results of Social Unrest: Change in gov/gov policyResults of Political Change:ExpropriationIndigenization
84Risk Assessment Euromoney Magazine’s Country Risk Ratings Analytical Indicators: political risk (20%) - measures stability and potential fall out from instability, economic indicators and risk(20%)Credit IndicatorsMarket IndicatorsPolitical Risk Yearbook
85The 2001 Corruption Perceptions Index ( top 24 countries from Exhibit 2-4) Country Rank Country CPI Score1 Finland2 Denmark3 New Zealand4 IcelandSingapore6 Sweden7 Canada8 Netherlands9 Luxembourg10 Norway11 Australia12 Switzerland
86The 2001 Corruption Perceptions Index (contd.) Country Rank Country CPI Score13 United Kingdom14 Hong Kong15 Austria16 IsraelUSA18 ChileIreland20 Germany21 Japan22 Spain23 France24 Belgium
87Political Risk Data - Example Dun & Bradstreet’s Guide to Doing Business around the World (pages )1997 Comparative Country Risk RankingsOverall Ratings: Political Risk, GDP Growth, Per Capita Income, Trade Flow with the US, Monetary Policy, Trade Policy, Protection of Property Rights, Foreign Investment ClimateList countries low/high in political risk
88Political Risk Data - Example List countries low/high in political riskLow (5 = best): Italy, Denmark, Netherlands, Japan, Australia, Ireland, Germany, Sweden, France, Switzerland; USHigh (1 = worst): Mexico, Brazil, Egypt, Venezuela, Peru, Russia
90Integrative Approach Become part of the host country’s infrastructure Good relationship with host governmentProduce locally … in-country suppliersJoint venturesLocal R&DEffective in long-run
91Protective/Defensive Approach Discourage host government from interferingAs little as possible local manufacturing and R&DCapital from local banks and outsideDiversify production among several countries
92Three primary factors to be considered: Contingency ApproachOverall risk for an international company depends on the polit. risk and characteristics of the firm.Three primary factors to be considered:1.Political risk type - Transfer risk/Operational Risk/Ownership risk2.General investment type -Conglomerate/Vertical/ Horizontal3. Specific Investment (1=most risky) - Sector (primary=1 /industrial=3/service=2) Technology (science=2/non-science=1) Ownership (wholly=1/partially owned=2)
93Political RiskPolitical Risk Insurance - covers the loss of firm’s assets, not the loss of revenueOverseas Private Investment Corp (OPIC)inability to repatriate profits, expropriation, nationalization, damage from war, terrorismForeign Credit Insurance Associationwar, revolution, currency inconvertibility, cancellation of import or export licenses
94Session #17 October 25th Comments to Guestspeaker? Articles P-ZQuiz #4Midterm Exam ?Comments to Guestspeaker?Progress Reports – First Presentations Nov.6Articles: Chris, Travis, Jennifer, Steve, DeniseReviewExternal Enviro: Political RiskStrategic Planning – PorterInternal Environment
95Quiz #4 Ch. 12 Ch. 13 Adler Chapter 6 Motivation and Leadership Starbuck’s in China pp 405/407Mazda in Flint, Michigan p 431Motivation in China p 414Motivation in Mexico p 417Management - Middle East/ WestCh. 133 Com Illinois p 439Airbus p 443Groupe Bull p 444Adler Chapter 6 Motivation and Leadership
96Review Why assessing risk in internationalization decisions? Define “risk”. What is political risk?Social unrest is an indicator of political risk - explain.What conditions precede social unrest?What are the consequences of political risk?Where to get info about political risk?
100Strategic PlanningStrategy: The science and art of conducting military campaign on a broad scale. A plan or technique for achieving some end.
101Strategic management: The set of decisions andsubsequent actionsused to formulate andimplement strategies that willoptimize the fit between the organization and its environment in an effort to achieve organizational effectiveness.Strategic plan: The overall "blueprint" that defines how an organization will deploy its capital and human resources in pursuit of its mission and goals.
102Profit = Volume * Price - Cost Strategy and the FirmPurpose of any business: Provide products or services that are desired by society and, hence, to make a profitProfit = Revenue - CostProfit = Volume * Price - Cost
103Profit: If the price the firm can charge for its output is greater than its costs of producing that output.To do this, a firm must produce a product that is valued by consumers.Thus the firm must engage in value creation. The price that consumers are willing to pay indicates the value/worth of the product to the consumer.Porter, Michael’s Model (Distinguish from Michael Porter’s Diamond - National Competitive Advantage)
104Strategy Firms can increase profit in two ways: 1.adding value to a product so that consumers are willing to pay more for it (improve quality, provide service, customize product to consumer needs)2. by lowering the costs of value creation (perform value creation activities more economically).
105Value creation activities: The firm is a value chain composed of a series of distinct value creation activities.Value creation activities:1. Primary activities - Production and marketing2. Support activities - Materials management, R&D, Human resource management
106Strategy - Michael Porter Michael’s model - Strategy: Thesteps a firm takesto ensure that the cost of value creation are reduced andthat value creation activities are performed in such a way that consumers are willing to pay more for the product than it costs to produce it.Strategy is about identifying and taking actions that will reduce the cost of value creation and /or will add value by better serving the consumer needs.
107Strategy Firms increase their profits BY 1.adding value to a product so that consumers are willing to pay more for it (improve quality, provide service, customize product to consumer needs)2. by lowering the costs of value creation (perform value creation activities more economically).
108Value creation activities: The firm is a value chain composed of a series of distinct value creation activities.Value creation activities:1. Primary activities - Production and marketing2. Support activities - Materials management, R&D, Human resource management
109Strategy and Global Expansion Performing certain value creation activities may have two benefits for the value chain1. Lower the cost of value creation2. Improve the quality of the product - create more value= Firms realize location economies by dispersing particular value creation activities to those locations where they can be performed most efficiently and effectively.
110Location economies:Basing each value creation activity that the firm performs at that location where economic, political, and cultural conditions, including relative factor costs, are more conducive to the performance of that activity.Consider transportation costs (weight-to-value ratio) and trade barriers.
111Strategy and Global Expansion Firms that expand to international markets will gain greater returns from their distinctive skills or core competencies.Core Competencies - Skills within the firm that competitors cannot easily match or imitate. Examples.
112Strategy and Global Expansion Constrains on transferring core competencies result from the need for local responsivenessNeed for local responsiveness results from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions, and government policies - these constrain the firm's ability to transfer core competencies and realize location economies.
113Strategy of an international organization concerns identifying andtaking actions that willreduce the cost of value creation and/orwill add valueby better serving the consumer needsthrough transferring core competencies andrealizing location economies takinginto account national differences.
114Strategic Predispositions Ethnocentric: strategic decisions are made at headquarters, key jobs at both domestic and foreign operations are held by headquarters management personnel (PCN's).
115Polycentric: the MNC's subsidiaries are treated as distinct national entities with extensive decision-making autonomy (HCN's mane the foreign operations).Geocentric: tries to worldwide, integrated business strategy and decision-making.Regiocentric: reflects the geographic structure of the MNC.
117Strategic Planning Process External Scanning and Internal Scanning (SWOT)Opportunities/Threats Strengths/WeaknessesVision, Mission, Goals, Objectives, StrategiesStrategy Implementation
118Three Traditional Strategies (Bartlett/Goshal, 1989) Global Strategy: focus on cost reduction and product standardization that is marketed worldwide.International Strategy: limited local responsiveness, focus on transfer of valuable skills and products where indigenous competitors lack those skills and products.Multidomestic Strategy: like international but extensive local responsiveness.
119Pressures for Local Responsiveness 1. Differences in consumer tastes and preferences2. Differences in infrastructure and traditional practices3. Differences in distribution channels
120Session #19 Midterm Exam - at end of class Quiz #4 back next time Articles:ReviewArticlesStrategic Planning – PorterInternal EnvironmentOrganizational CulturePeople - BehaviorMotivation, Leadership, Multicultural Teams
121The Internal Environment of an International Organization CulturePeopleProcessesStructure
122Organizational Culture What is it?Relevance? Why is it important?Where does it come from?What happens when two companies merge? Boeing-McDonnel DouglasWhat happens when two companies from different countries merge?
124Organizational Culture What is organizational culture?The shared values, beliefs, norms, and patterns of behavior in an organization.Schein's Three Layer Model:Artifacts, Values,Basic AssumptionsMeasurement of organizational cultureIn the workplace cultural differences are accounted for by work practices.
125Midterm Exam Sixty percent of students have A and B Mean was 79 points The highest score was 95Frequencies> 8 = 20%> 16 = 40%> 6 = 15%> 7 = 17%below 60 4
126Midterm Specific scores Approximate letter grades 95 * 1 92 * 3 91 * 1 90 * 389 * 187 * 386 * 485 * 1Approximate letter gradesA 91, A- 88, B+84, B 81, B- 78, C+ 74, C 71, C- 68, D+ 64, D 61, D- 58
127Midterm a. in detail describe -- specify, explain, relationships Q#1:a. in detail describe -- specify, explain, relationshipsb. what is the difference …Q#2:Apply Hofstede dimensions to explain .. Correct dimension 3 points; explanation 2 pointsQ#3:a. describe the differences in external envirob. 1) explain ..countries dominate trade and FDI .. FDI clusters; Tiger countries … Baby Tigersb.2) developing countries .. Which ones, GDP growth rateb.3) criteria -- less developed country.. ExamplesQ#4a. benefits and cost .. Explain each..Pick a country for overall assessmentb.1) how to assess risk .. Social unrest .. Sourcesb.2) Three risky countriesb.3) Firm specific charactersiticsc. Integrative vs protective/defensive approach
128Midterm b. EU one large market -- macro .. Yes; micro.. No Q#5 a.1) EU trade agreement facilitates trade for US firms .. Common standards; currencya.2) EU trade agreement hinders trade .. Specifications; Eu firms prefer Eu firms; funding advantagesb. EU one large market -- macro .. Yes; micro.. Noc. EURO .. How introduced..benefits..problemsQ#61) Describe2)Compare the cultures of US, Japan, Germany3)based on cultural characteristics - social stratific; religion, education, political and economic philosophy, language4)based on Hofstede dimensions5)which is most culturally tough
129Session #20 Quiz #4 back - end of class October 6: Germany and Austria; IrelandOctober 8: NorwayArticles: Ryan - Swissair; Jon - Ford; Jake and Kwang Min - Steel Industry; Bret - Internet/Terrorism; JJ - Terrorism/external enviro; Ryan - ChinaReviewInternal EnvironmentOrganizational CulturePeople - BehaviorMotivation, Leadership, Multicultural Teams
130Termpaper evaluation Presentation 1. Evaluated by the seminar leader and the seminar participants.2. Max. 100 points total.3. Criteria: Content (60 points)ComprehensivenessRelevanceEffectiveness with respect to generation of understanding
131Format (40 points) Structure of presentation Appropriate (quantity, quality) presentation methods)Stimulation of discussion and critical thinkingWritten paper1.Evaluated by seminar leader. Team members evaluate each other - after presentation.2. Max. total of 100 points.3. Criteria:Content comprehensiveness, relevance, logical integration, ANALYSIS
133Organizational Culture, Processes, and Structure Structure Communication Decision Making RewardProcess OrientedResults OrientedJob OrientedEmployee OrientedParochialProfessionalClosed SystemOpen SystemTight ControlLoose ControlNormativePragmatic
134Organizational Culture Creating and changing the culture of an organization?National and Organizational CultureOrganizations in Japan, Germany, the U.S. are likely to have which org. culture characteristics?The Organizational Culture of a MNCA universal org. culture?
135Internal Environment: Behavior Individual BehaviorP = f (A, M)Motivation defined!Homeostasis --- applied to psychological needsMotivationTheories ---Applicability across cultures??Content TheoriesMaslow’s Need HierarchyTwo Factor Theory of MotivationMcClelland Achievement Motivation
136Internal Environment: Behavior Process TheoriesEquity Theory of MotivationGoal - SettingExpectancy Theory of MotivationvalenceEffort Performance Outcome expectancy instrumentality
137Motivation and Hofstede High UNC - job securityLow UNC - fast-track, more risky opportunitiesLow POW - motivation through teamwork and peersHigh POW - motivation depends on bossHigh IND - motivation through opportunities for individual advancementLow IND - motivation through appeals to group goals and supportHigh MASC - comfortable with traditional division of work rolesFeminine - looser definition of roles, more flexible
138The Meaning of Work Tied to economic necessity What else? Thai: work = ngan(same word as the word for play)Work centrality - relative importance of workSix functions of work: needed income, interesting & satisfying, contact with others, serve society, keeps one occupied, status and prestigeThese may be satisfied through other aspects of lifeStudy results: Britain (lowest), Germany, Netherlands, Belgium, USA, Israel, Japan (page 411)
139Group Behavior Group effectiveness = individual behavior + Mature group = effective groupStages of developmentTwo main characteristics for the analysis of GroupsLeadership and composition
140Leadership Which Hofstede dimensions? Types of leadership styles: autocratic, participative, groupauthoritarian, democratic, laissez-faireTheory X, Theory Y
141Across cultures: Haire, Ghiselli, Porter Research:traits, behaviors, contingency approachVroom - YettonAcross cultures: Haire, Ghiselli, PorterSouth-European and Nordic-European --- more autocratic, more Theory XSouth-European give a little more autonomy to employees in working out details
142Both support participative leadership practices Smaller companies participativeJapanese Theory Y --- employees learn from mistakesGermans Theory X --- autocratic, stop poor performance asap
144Group Behavior: Group Composition --- Multicultural Teams Impact of cultural diversity on group performance?group productivity = f(task, resources, process)actual productivity = potential productivity - losses due to faulty processactual productivity or =potential productivity or - losses or
145benefits associated with cultural diversity: # of alternatives generated;quality of alternatives;creativity/divergence;no groupthink
151Session #21 and 22 Quiz #5 on Nov 9 France Review: Norway (Peer Evaluation) - Luis, Jeff, IlaAny Questions?Population Size? GDP/capita?Employment Legislation? Labor Unions?Benefits/Cost/Risk?Culture - Characteristics? Hofstede Dimensions? Cultural Toughness?Management - Motivation? Leadership? Decision-Making?Unique Features?
152Russia Population: 160 Million Factor Endowment: Basic -- high (natural resources … oil); Advanced -- very low.History: 55 years of Communist rule; means of production = common good; classless society (?!); suppression of oppositionGorbachev - mid 80’s; perestroika (economic restructuring - building the infrastructure; technological advancement); glasnost (openess);Culture ?? - MASC; UNC; IND; POW; ST ???
153Mc Donald’s in Russia McDonald’s in Moscow: 1. What do you find most amazing about McD’s story in the Soviet Union?2. Explain how McD was able to enter the Societ Market?3. How long did the McD management have to negotiate with the Soviet government? Why did such negotiations take so long?4. What benefits did the Soviet government expect from the agreement with McD?5. What were the main challenges for McD in opening the first restaurant?6. Describe a typical Russian employee as portrayed in the video.
154Expatriates or not?McD chose to staff their stores in Russia with HCN’s. Why?Exercise: How to staff -- PCN’s, HCN, TCN’s?Country groupsUse the info about your country for this exercise.
155Session #23 and 24 Presentations - Europe - Review Review GreeceSpainAdditional QuestionsReviewPopulation Size? GDP/capita?Employment Legislation? Labor Unions?Benefits/Cost/Risk?Culture - Characteristics? Hofstede Dimensions? Cultural Toughness?Management - Motivation? Leadership? Decision-Making?Unique Features?
156Session #25 Today: Latin America - Mexico and Brazil Presentation IsraelAdditional Questions??ReviewPopulation Size? GDP/capita?Employment Legislation? Labor Unions?Benefits/Cost/Risk?Culture - Characteristics? Hofstede Dimensions? Cultural Toughness?Management - Motivation? Leadership? Decision-Making?Unique Features?
157Session #27 Latin America Mexico Brazil Market - Population, GDP/capitaPorter’s Diamond - Factor EndowmentCulture - Cultural ToughnessHofstede’s Dimensions and ManagementSpecific QuestionsSummary: Benefits - Cost - Risk and RecommendationsBrazil
161Micro -Level Body Language Stereotyping Explicit vs Implicit CommunicationNon-verbal communicationBody LanguageEmblemsIllustratorsAffect DisplayRegulatorsAdaptorsSpace (proxemics)TouchVoiceDermal Code
162Decision Making in an International Organization Relevance: Quality of decisions-- ->Organizational EffectivenessDifferences across Cultures:Why/why not?
163Decision-Making Process: 1. Setting Objectives2. Problem Recognition3. Information Search4. Alternative Generation5. Choice6. Implementation
164DM Process and Culture 1. Setting Objectives 2. Problem Recognition 3. Information Search4. Alternative Generation5. Choice6. Implementation
165International Negotiations Definition:the process in which at least two partners with different needs and viewpoints try to reach an agreement that is acceptable to all on matters of mutual interestInternational managers spend more than 50% of their time negotiating
167Recommendations (Fisher and Ury "Getting to Yes"): 1. Separate the people from the problem2. Focus on interest, not position3. Insist on objective criteria4. Invent options for mutual gain
168Apply the following models to summarize and remember the relevant information about the countries we discussed:Porter Diamond: National competitive advantageExistence and importance of basic factors? Existence and importance of advanced factors?
169Course Summary ==> Europe? Asia? Latin America? Australia? Specific countries?Internationalization Strategy: Generalizations??Purpose of internationalizationMarket growth (pop size; income)Value creation activities (labor cost, exp.)Benefits = Location economies (transportation cost)Political Risk .... South America? Asia? Europe?Cost … Management - cultural differences ...religion, education; Hofstede and Trompenaars==> Generalizations across countries/regions??
171Managing the International Organization 1.External Environment ... Porter Diamond; Status Quo; Culture (Hofstede)2.Strategy ... Value creation activities; Location economies3.Internal Environment ... Behavior: Individual (Motivation) and Group (Leadership; Multicultural Teams) Processes: Communication -- Macro (communication flow); Micro (communication process); Next -- Nonverbal communication Decision Making ; Negotiation; HR Processes (The Expatriate Assignment).
172Market Entry ModesExporting - Turnkey Projects - Licensing (mftg)- FranchisingJoint Ventures - Wholly Owned SubsidiariesStrategic Alliances- refers to cooperative agreements between potential or actual competitors ... formal joint ventures to short-term contractual agreements in which two companies agree to cooperate on a particular task.
174Expatriate Assignment Why expatriates?Culture shock - cross-cultural adaptationFailure of U.S. expatsStrategic purpose/involve HRMSelection: Technical skills/Adaptation skills/Family and SpouseTraining: When? Purpose? Type - rigor/methodsRepatriation: Communication and Valuation