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FOUNDATIONS OF MANAGEMENT Fall 2008

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1 FOUNDATIONS OF MANAGEMENT Fall 2008
Reading Assignment Jones and George Chapter 2, Chapter 3, pp Chapter 4, pp Chapter 6, pp Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

2 Content: The New Realities…
A very different phase of globalization Rapid pace of technological advances Emerging Markets Globalization of finance Global sourcing / Offshoring Diversity of IB participants: Born Globals (international entrepreneurship), SMEs, Logistics firms… Internationalization of services Corporate social responsibility & ethics... Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

3 Globalization Globalization is a mega trend with profound implications
Together with the other megatrend -- advances in technology -- it has transformed business, the marketplace, and diplomacy. The Internet and the IT provide: Connectivity mitigating physical distance Virtual communities and relationships Efficiency in value adding activities Universal and instantaneous access to knowledge Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

4 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Globalization - 2 Globalization is best characterized as a force that connects national economies, a macro concept; industries are also globalizing Internationalization of the individual firm is a direct consequence of globalization Globalization can be studied as a driver, process, or consequence Globalization brings about both convergence and divergence It has profound implications for economic welfare, environment, politics Globalization is controversial CSR and ethical conduct are real challenges for the manager Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

5 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Phases of Globalization 1st Phase: 1830, peaking around 1880; Aided by railroads, ocean transport; resulting in the rise of manufacturing and trading companies 2nd Phase: 1900, peaking late 1920s; Fueled by electricity and steel; early MNEs 3rd Phase: 1948, peaking around 1970; GATT, end of WW II, Marshall Plan; gradual reduction of barriers to trade 4th Phase: 1980, peaking around 1997; Fueled by Internet and other technologies: rapid liberalization in Emerging Markets Next phase? Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

6 Diversity of Participants
IB participants are a diverse set Focal firms: manufacturers or service firms Channel intermediaries Facilitators IB is not just MNE activity: SMEs, BGs Born global companies Smaller enterprises with entrepreneurial drive Service firms are very active in IB Professional service firms such as engineering/design firms, accounting, banking, advertising, research, etc. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

7 Global Business GLOBAL BUSINESS
The buying and selling of goods and services by people from different countries Includes Foreign Investment in U.S. & U.S. Investment Abroad Companies from many countries own U.S. businesses U.S. companies have made large direct foreign investments throughout the world Direct foreign investment worldwide is worth 1 trillion a year Direct foreign investment is an important and common method of conducting global business Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

8 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Global Integration American Companies No Longer Dominate the World Markets U.S. has a 31 percent share of the global high-technology market U.S. producers are leading suppliers of high-tech products globally U.S. companies product 30 percent of the world GNP Only 5.3 percent of multinational corporations are U.S. based Nearly 90 percent of Americans consider the competitiveness of U.S. companies to be a serious problem. Yet data from the National Science Board (shown in Exhibit 8.3) indicate that U.S. companies lead Japan, Germany, France, UK, China and South Korea in global high-technology market share. Why do Americans believe the U.S. is falling behind? U.S. companies once dominated global markets, including over 50 percent of the world’s GNP after World War II. Today that figure is 30 percent. The U.S. faces stiff competition throughout the world. Another sign is the decline in the number of multinational corporations located in the U.S. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

9 Americans Want American-Made Goods
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Americans Want American-Made Goods Americans say they want to “Buy American” Country of manufacture where the product is made Consumers don’t know or care. Country of origin company’s home country Customers confuse country of origin with country of manufacture. Americans say they prefer to "buy American," but if they do, why does the demand for imported products increase year after year? There are a number of potential explanations. The first is that consumers often don't know or pay attention to country of manufacture when making purchases. Stop reading for a minute. Take your shoes off. Where were they made? What about the VCR in your house, or your computer, or your backpack? Did you learn where these products were manufactured before you purchased them? Chances are, you didn’t. Many consumers don't know or care about country of manufacture. A second explanation for rising imports is that consumers want to buy American and think they are buying American but, in fact, are unknowingly buying imported products. For example, take your Uncle Fred, who bleeds red, white, and blue. That Chrysler minivan in his driveway—he bought it because it was a good "American" car. However, Chrysler assembles most of its minivans in Canada. That Honda Accord Uncle Fred's been giving you a hard time about—it was made in Marysville, Ohio. Uncle Fred has confused the country of manufacture, where the product is made, with the country of origin, which is the company’s home country. However, this is an easy mistake to make in today's global marketplace. The third explanation for the continued increases in sales of imported products is that consumers know that many products they purchase are imported, but they just don't care. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

10 Trade Rules and Agreements
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Trade Rules and Agreements Tariff and Non-Tariff Trade Barriers Trade Agreements Historically, governments have actively used trade barriers to make it much more difficult or expensive (or sometimes impossible) for you to buy imported goods. Protectionism is the use of trade barriers to protect local companies and their workers from foreign competition. A tariff is a direct tax on imported goods. Like the Canadian excise tax on U.S. magazines, tariffs increase the cost of imported goods relative to domestic goods. Nontariff barriers are nontax methods of increasing the cost or reducing the volume of imported goods. There are five types of nontariff barriers: quotas, voluntary export restraints, government standards, government subsidies, and customs valuation/classification. Quotas are specific limits on the number or volume of imported products. Voluntary export restraints are similar to quotas in that there is a limit on how much of a product can be imported annually. The difference is that the exporting country rather than the importing country imposes the limit. However, the "voluntary" offer to limit imports usually occurs because of the implicit threat of forced trade quotas by the importing country. Many nations also use subsidies, such as long-term, low-interest loans, cash grants, and tax deferments, to develop and protect companies in special industries. European and Japanese governments have invested billions of dollars to develop airplane manufacturers and steel companies, while the U.S. government has provided subsidies for manufacturers of computer chips. Not surprisingly, businesses complain about unfair trade practices when other companies receive government subsidies. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

11 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Trade Barriers Nontariff Barriers Tariff Voluntary export restraints Government import standards Customs classification Quotas Subsidies Historically, governments have actively used trade barriers to make it much more difficult or expensive (or sometimes impossible) for you to buy imported goods. Protectionism is the use of trade barriers to protect local companies and their workers from foreign competition. A tariff is a direct tax on imported goods. Like the Canadian excise tax on U.S. magazines, tariffs increase the cost of imported goods relative to domestic goods. Nontariff barriers are nontax methods of increasing the cost or reducing the volume of imported goods. There are five types of nontariff barriers: quotas, voluntary export restraints, government standards, government subsidies, and customs valuation/classification. Quotas are specific limits on the number or volume of imported products. Voluntary export restraints are similar to quotas in that there is a limit on how much of a product can be imported annually. The difference is that the exporting country rather than the importing country imposes the limit. However, the "voluntary" offer to limit imports usually occurs because of the implicit threat of forced trade quotas by the importing country. Many nations also use subsidies, such as long-term, low-interest loans, cash grants, and tax deferments, to develop and protect companies in special industries. European and Japanese governments have invested billions of dollars to develop airplane manufacturers and steel companies, while the U.S. government has provided subsidies for manufacturers of computer chips. Not surprisingly, businesses complain about unfair trade practices when other companies receive government subsidies. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

12 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Trade Agreements General Agreement on Tariffs and Trade (GATT) European Union NAFTA Regional Trading Zones Because of the trade barriers described above, buying imported goods has often been much more expensive and difficult than buying domestic goods. During the 1990s, however, the regulations governing global trade were transformed. The most significant change was that 123 countries agreed to adopt the General Agreement on Tariffs and Trade (GATT). Although GATT was replaced by the World Trade Organization (WTO) in 1995, the changes made continue to encourage international trade. FTAA ASEAN and APEC Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

13 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 GATT GATT made it easier and cheaper for consumers in all countries to buy foreign products By 2005, average tariffs will be cut worldwide by 40 percent Tariffs were eliminated in 10 specific industries GATT established protections for intellectual property Through tremendous decreases in tariff and nontariff barriers, GATT will make it much easier and cheaper for consumers in all countries to buy foreign products. First, by the year 2005, GATT will cut average tariffs worldwide by 40 percent. Second, GATT eliminated tariffs in ten specific industries: beer, alcohol, construction equipment, farm machinery, furniture, medical equipment, paper, pharmaceuticals, steel, and toys. Third, GATT put stricter limits on government subsidies. For example, GATT put limits on how much national governments can subsidize company research in electronic and high-technology industries. Fourth, GATT protects intellectual property such as trademarks, patents, and copyright. Protection of intellectual property has been an increasingly important issue in global trade because of widespread product piracy. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

14 World Trade Organization (WTO)
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 World Trade Organization (WTO) Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations ( ) Membership: 146 countries (as of 4 April 2003) Budget: 154 million Swiss francs for 2003 Secretariat staff: 550 Head: Supachai Panitchpakdi (director-general Functions: Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organizations Exhibit 8.4 provides an overview of the WTO and its functions. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

15 Regional Trade Agreements
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Regional Trade Agreements The map shown in Exhibit 8.5 shows the extent to which free trade agreements govern global trade. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

16 Maastricht Treaty of Europe – (EU)
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Maastricht Treaty of Europe – (EU) Originally, 12 (now 15) European countries 13 other countries have recently been included Transformed these different countries into the European Union Opened up trade among member nations Created the “Euro” currency In 1992, the countries of Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Denmark, Ireland, United Kingdom, Greece, Portugal, and Spain implemented the Maastricht Treaty of Europe. The purpose of this treaty was to transform their 12 different economies and 12 currencies into one common economic market, called the European Union, and one common currency, the euro. Austria, Finland, and Sweden are now members, too. On 1 January 2002, a single common currency, the Euro, went into circulation in 12 of the EU’s members. Prior to the treaty, trucks carrying products were stopped and inspected by customs agents at each border. Furthermore, since the required paperwork, tariffs, and government product specifications could be radically different in each country, companies often had to file 12 different sets of paperwork, pay 12 different tariffs, and produce 12 different versions of their basic product to meet various government specifications. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

17 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 NAFTA North American Free Trade Agreement between Canada, United States, & Mexico Liberalizes trade among these three nations Eliminates most tariffs and barriers NAFTA, the North American Free Trade Agreement between the United States, Canada, and Mexico, went into effect January 1, More than any other regional trade agreement, NAFTA liberalizes trade between countries so that businesses can plan for one market, North America, rather than for three separate markets, the U.S., Canada, and Mexico. One of NAFTA's most important achievements was to eliminate most product tariffs and prevent Canada, the United States, and Mexico from increasing existing tariffs or introducing new ones. Since NAFTA went into effect, both Mexican and Canadian exports to the U.S. have doubled. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

18 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 FTAA Free Trade Area of the Americas Proposed agreement to establish a free trade zone through out the Western Hemisphere Reduce trade barriers to zero Standardize financial markets Process for handling trade disputes The goal of FTAA, Free Trade Area of the Americas, is to establish a free trade zone similar to NAFTA throughout the Western Hemisphere. If created, FTAA would be the largest trading zone in the world, consisting of 800 million people in 34 countries in both North and South America, with a combined GDP of $11 trillion. Similar to NAFTA, FTAA pledges to support trade "without barriers, without subsidies, without unfair practices, and with an increasing stream of productive investments." Negotiations may take a decade. However, leaders from each of the 34 countries have agreed to finish FTAA negotiations by 2005. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

19 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 ASEAN and APEC ASEAN Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam APEC Australia, Canada, Chile, China, Hong Kong, Japan, Korea, Mexico, New Zealand, Papua New Guinea, Peru, Russia, Taiwan, United States, and ASEAN members (except Cambodia, Laos, and Myanmar) ASEAN, the Association of South East Nations, and APEC, Asia‑Pacific Economic Cooperation, are the two largest and most important regional trading groups in Asia. ASEAN is a trade agreement between Indonesia, Thailand, Philippines, Malaysia, Singapore, and Brunei that, together, form a market of more than 330 million people. APEC is a broader agreement between the U.S., Canada, Japan, South Korea, Australia, New Zealand, China, Taiwan, Hong Kong, and members of ASEAN. U.S. trade with ASEAN countries is sizable, exceeding $75 billion a year. In fact, the United States is ASEAN's largest trading partner, while the member nations of ASEAN are the U.S.’s fifth largest trade group. ASEAN member countries have agreed to create an ASEAN free trade area beginning in 2015 for the six original countries and in 2018 for the newer member countries. APEC is a broader agreement of 21 member countries, with a combined GDP of over $19 trillion. APEC countries began reducing trade barriers in 2000, but it will take until 2020 for all the reductions to be completely phased in. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

20 Ways in Which Companies can enter the Global Market Place
How to go Global Ways in Which Companies can enter the Global Market Place Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

21 Consistency or Adaptation?
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Consistency or Adaptation? When a multinational company has offices/plants indifferent countries and uses the same rules, guidelines, policies, and procedures Global Consistency When a multinational company modifies its rules, guidelines, policies, and procedures to adapt to differences in foreign customers, governments, and regulatory agencies Global consistency means that when a multinational company has offices, manufacturing plants, and distribution facilities in different countries, it will run those offices, plants, and facilities based on the same rules, guidelines, policies, and procedures. Managers at company headquarters value global consistency, because it simplifies decisions. Local adaptation is a company policy to modify its standard operating procedures to adapt to differences in foreign customers, governments, and regulatory agencies. Local adaptation is typically more important to local managers who are charged with making the international business successful in their countries. Multinational companies struggle to find the correct balance between global consistency and local adaptation. If they lean too much toward global consistency, they run the risk of using management procedures poorly-suited to particular countries' markets, cultures, and employees. However, if companies focus too much on local adaptation, they run the risk of losing the cost efficiencies and productivity that result from using standardized rules and procedures throughout the world. Local Adaptation Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

22 International Expansion
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 International Expansion Basic Question To what extent do we customize products and marketing for different national conditions? Global strategy Selling the same standardized product and using the same basic marketing approach in each national market Multi-domestic Strategy Customizing products and marketing strategies to specific national conditions Helps gain local market share Raises production costs Standardization provides for lower production cost. Ignores national differences that local competitors can address to their advantage. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

23 Forms for Global Business
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Forms for Global Business Strategic Alliances Exporting Cooperative Contracts Wholly Owned Affiliates Historically, companies have generally followed the phase model of globalization. This means that companies made the transition from a domestic company to a global company in sequential phases. When companies produce products in their home countries and sell those products to customers in foreign countries, they are exporting. When an organization decides to expand its business globally, but does not want to make large financial commitments to do so, it will sign a cooperative contract with a foreign business owner, who pays the company a fee for the right to conduct that business in his or her country. There are two kinds of cooperative contracts: licensing and franchising. Under a licensing agreement, a domestic company, the licensor, receives royalty payments for allowing another company, the licensee, to produce its product, sell its service, or use its brand name in a particular foreign market. A franchise is a collection of networked firms in which the manufacturer or marketer of a product or service, the franchisor, licenses the entire business to another person or organization, the franchisee. Companies forming strategic alliances combine key resources, costs, risks, technology, and people. The most common strategic alliance is a joint venture, which occurs when two existing companies collaborate to form a third company. The two founding companies remain intact and unchanged, except that, together, they now own the newly created joint venture. Approximately one-third of multinational companies enter foreign markets through wholly owned affiliates. Unlike licensing, franchising, or joint ventures, wholly owned affiliates are 100 percent owned by the parent company. However, three trends have combined to allow companies to skip the phase model when going global. With sales, employees, and financing in different countries, global new ventures are new companies founded with an active global strategy. Global New Ventures Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

24 Exporting Advantages Disadvantages
Less dependence on home market sales Greater degree of control over research, design, and production decisions Advantages Many exports are subject to tariff and nontariff barriers Transportation costs can increase price Companies may depend on foreign importers for product distribution Disadvantages Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

25 Cooperative Contracts
A domestic company receives royalty payments for allowing another company to produce its product, sell service, or use its brand name in a specified foreign market Licensing A collection of networked firms in which the manufacturer or marketer of a product/service licenses the entire business to another person or organization Franchising Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

26 Licensing Advantages Disadvantages
Allows companies to earn profits without investing more money The licensor invests in production equipment and facilities Helps companies avoid tariff and nontariff barriers Advantages Disadvantages Licensor gives up control over quality of the product or service sold by the foreign licensee Licensees can eventually become competitors Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

27 Franchising Advantages Disadvantages Fast way to enter foreign markets
Good strategy when a company’s domestic sales have slowed Advantages Franchisors face a loss of control Franchising success may be culture-bound Disadvantages Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

28 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Strategic Alliances Strategic Alliance An agreement in which companies combine key resources, costs, risk, technology, and people Strategic Alliance An agreement in which companies combine key resources, costs, risk, technology, and people Joint Venture A strategic alliance in which two existing companies collaborate to form a third, independent company Companies forming strategic alliances combine key resources, costs, risks, technology, and people. The most common strategic alliance is a joint venture, which occurs when two existing companies collaborate to form a third company. The two founding companies remain intact and unchanged, except that, together, they now own the newly created joint venture. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

29 Joint Ventures Advantages Disadvantages
Help companies avoid tariff and nontariff barriers to entry Participating companies bear only part of the costs and risks Advantageous to smaller local partners Advantages Companies must share profits Joint venture represent a merging of four cultures With equal ownership, power struggles and a lack of leadership Disadvantages Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

30 Wholly Owned Affiliates (Build or Buy)
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Wholly Owned Affiliates (Build or Buy) Parent company receives all of the profits and has complete control Advantages Expense of building new operations or buying existing business Losses can be immense if the venture fails Disadvantages Approximately one-third of multinational companies enter foreign markets through wholly owned affiliates. Unlike licensing, franchising, or joint ventures, wholly owned affiliates are 100 percent owned by the parent company. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

31 Finding the Best Business Climate
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Finding the Best Business Climate Access to Growing Markets Location to Build Minimal Political Risk When going global, companies try to find countries or regions with promising business climates. An attractive global business climate positions the company for easy access to growing markets, is an effective but cost-efficient place to build an office or manufacturing site, and minimizes the political risk to the company. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

32 Themes to Address: Emerging Markets
Some 30 high-growth, high-potential developing economies have fueled the most recent phase of globalization Market liberalization, rapid industrialization, modernization, and urbanization are trademarks Unique countries in terms of dominance of family conglomerates, political risk, partnering styles, cultural idiosyncrasies, etc. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

33 Emerging Market Dynamics
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Emerging Market Dynamics Source of customers, suppliers, ideas, and human capital. One billion new consumers will enter the global markets in the next decade! Household income will reach threshold level of $5,000 in many EMs. Consumer spending will increase from $4 trillion to more than $9 trillion by 2015, nearly matching Western Europe. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

34 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Attractions and Challenges of EMs Dynamic, rapidly transforming Low competitive intensity Dominated by family conglomerates Political instability Bureaucracy, redtape, lack of transparency Legal, institutional vacuum Safeguarding intellectual property Cultural distance… Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

35 Attractions and Challenges of EMs
The emerging world now accounts for over half of global economic output. They are driving global growth. the economic power is shifting away from the advanced economies towards emerging ones, especially in Asia. Their share of exports has jumped to 43%. the emerging markets have now become low-cost source countries. In the footwear industry, besides China, Vietnam, Brazil, Romania, in Asia, India, and Thailand have become low-cost source countries. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

36 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 The Aspiring Consumer in EMs Young demographics Rapidly urbanizing Middle class coming into its own Engaged in technological leapfrogging Exposed to western brands Rising expectations Eager to consume material things Highly brand conscious Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

37 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Growing Markets Purchasing Power comparison of a standard set of goods and services in different countries more means greater growth potential Degree of Global Competition the number and quality of companies already in the market Two factors help companies determine the growth potential of foreign markets: purchasing power and foreign competitors. Purchasing power is measured by comparing the relative cost of a standard set of goods and services in different countries. Consequently, countries with high levels of purchasing power are good choices for companies looking for attractive global markets. The second part of assessing growing global markets is to analyze the degree of global competition, which is determined by the number and quality of companies that already compete in foreign markets. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

38 Outsourcing vs. Offshoring
Outsourcing - the process of contracting with another organization to accomplish a non-critical responsibility more efficiently for a firm, either domestically or overseas Payroll, Distribution, Fabrication Offshoring - the process of outsourcing to firms in foreign countries Generally involves exploiting the competitive advantage of cheaper labor Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

39 Choosing Facilities Locations
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Choosing Facilities Locations Quality factors work force quality company strategy Quantity factors kind of facility tariff and nontariff barriers exchange rates transportation and labor costs Companies do not have to establish an office or manufacturing location in each country they enter. They can license, franchise, or export to foreign markets, or they can serve a larger region from one country. Thus, the criteria for choosing an office/manufacturing location are different from the criteria for entering a foreign market. Rather than focusing on costs alone, companies should consider both qualitative and quantitative factors. Two key qualitative factors are work force quality and company strategy. Work force quality is important because it is often difficult to find workers with the specific skills, abilities, and experience that a company needs to run its business. Quantitative factors, such as the kind of facility being built, tariff and nontariff barriers, exchange rates, and transportation and labor costs, should also be considered when choosing an office/manufacturing location. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

40 Minimizing Political Risk
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Minimizing Political Risk Political uncertainty risk of major changes in political regimes Policy uncertainty risk associated with changes in laws and government policies directed at businesses Strategies avoidance control cooperation When conducting global business, companies should attempt to identify two types of political risk: political uncertainty and policy uncertainty. Political uncertainty is associated with the risk of major changes in political regimes that can result from war, revolution, death of political leaders, social unrest, or other influential events. Policy uncertainty refers to the risk associated with changes in laws and government policies that directly affect the way foreign companies conduct business. This is the most common form of political risk in global business and perhaps the most frustrating. Several strategies can be used to minimize or adapt to the political risk inherent to global business. An avoidance strategy is used when the political risks associated with a foreign country or region are viewed as too great. If firms are already invested in high-risk areas, they may divest or sell their businesses. If they have not yet invested, they will likely postpone their investment until the risk shrinks. Control is an active strategy to prevent or reduce political risks. Firms using a control strategy will lobby foreign governments or international trade agencies to change laws, regulations, or trade barriers that hurt their business in that country. Another method for dealing with political risk is cooperation, which makes use of joint ventures and collaborative contracts, such as franchising and licensing. Although cooperation does not eliminate political risk of doing business in a country, it does limit the risk associated with foreign ownership of a business. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

41 Organizational Culture
The Sociocultural Environment Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

42 Organizational Culture
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Organizational Culture The shared knowledge, beliefs, ideals, values, common modes of behavior and ways of thinking in a society Shared set of beliefs, expectations, values, norms, and work routines that influence how members of an organization relate to one another and work together to achieve organizational goals The shared set of beliefs, expectations, values, norms and work routines that influence the ways in which individuals, groups and teams interact with one another and cooperate to achieve success Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College 21

43 Organizational Culture
Cultural factors are more complex than political and economic factors. It is imperative that international managers understand and deal with local cultures. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

44 The Role of National Culture
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 The Role of National Culture Values Ideas about what a society believes to be good, desirable and beautiful. Provides conceptual support for democracy, truth, appropriate roles for men, and women. Usually not static but very slow to change. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

45 The Role of National Culture
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 The Role of National Culture Norms Informal, unwritten rules and codes of conduct that prescribe how people should act in particular situations. Folkways—routine social conventions of everyday life Mores - norms that are considered to be central to functioning of society and to social life Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

46 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Value System Multiple beliefs that are compatible and supportive of one another Greatly affect how a manager: Views other people/groups, thus influencing interpersonal relationships Perceives situations and problems Goes about solving problems Determines what is and is not ethical behavior Leads and controls employees Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

47 Attitudes, Moods and Emotions
A collection of feelings and beliefs Organizational Commitment The collection of feelings and beliefs that employees and managers have about their organization as a whole Mood A feeing or state of mind Emotions Intense, relatively short lived feelings Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

48 Factors Affecting Organizational Culture
Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

49 Levels of Organizational Culture
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Levels of Organizational Culture Symbolic artifacts Behaviors 1. Surface Level SEEN What people say How decisions are made 2. Expressed Values and Beliefs HEARD Beliefs and assumptions Rarely discussed Unconsciously Held Assumptions and Beliefs BELIEVED As shown in exhibit 2.8, organizational culture exists on three levels: At surface level, the reflections of an organization’s culture can be seen, heard, or observed. Next are the values and beliefs expressed by the company. By listening to what people say and how decisions are made, those values and beliefs become clear. Finally, unconsciously held assumptions and beliefs are buried below the surface. These are the unwritten views and rules that are strongly held and widely shared, but are not discussed or thought about unless someone attempt to change them or violates them. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

50 Changing Organizational Cultures
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Changing Organizational Cultures Behavioral addition is the process of having managers and employees perform a new behavior Behavioral substitution is having managers and employees perform a new behavior in place of another behavior Change visible artifacts such as the office design and layout, company dress codes, etc. One way of changing a corporate culture is to use behavioral addition or behavioral substitution to establish new patterns of behavior among managers and employees. Behavioral addition is the process of having managers and employees perform a new behavior, while behavioral substitution is having managers and employees perform a new behavior in place of another behavior. The key in both instances is to choose behaviors that are central to and symbolic of the “old” culture you’re changing and the “new” culture that you want to create. The second way in which managers can begin to change corporate culture is to change visible artifacts of their old culture, such as the office design and layout, company dress codes, and who benefits (or doesn’t) from company benefits and perks like stock options, personal parking spaces, or the private company dining room. Corporate cultures are very difficult to change. Consequently, there is no guarantee that behavioral substitution, behavioral addition, or changing visible cultural artifacts will change a company’s organizational culture. However, these methods are some of the best tools that managers have for changing culture, because they send the clear message to managers and employees that “the accepted way of doing things” has changed. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

51 Socialization Organizational socialization – process by which newcomer’s learn an organization’s values and norms and acquire the work behaviors necessary to perform jobs effectively Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

52 Unit 2 – International Management and Diversity
BUAD 230 C, Fall 2008 Cultural Differences Recognize cultural differences Decide how to adapt your company to those differences Do not base adaptations on outdated and incorrect assumptions about a company’s culture Cultural differences affect perceptions, understanding, and behavior. The steps on understanding different cultures are listed above. However, cultural differences are based on averages, therefore, you should not assume that overall cultural statements about a society automatically apply to an individual. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

53 Becoming Aware of Cultural Differences
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Becoming Aware of Cultural Differences Cultural Dimensions (Geert Hofstede) National culture is the set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country. The first step in dealing with culture is to recognize that there are meaningful differences in national cultures. Geert Hofstede has spent 20 years studying cultural differences in 53 countries. His research has identified five consistent cultural dimensions across countries. Power distance is the extent to which people in a country accept that power is distributed unequally in society and organizations. Individualism is the degree to which societies believe that individuals should be self-sufficient. In individualistic societies, employees put loyalties to themselves first, and loyalties to their company and work group second. Short-term/Long-term orientation addresses whether cultures are oriented to the present and seek immediate gratification, or to the future and defer gratification. Not surprisingly, countries with short-term orientations are consumer driven, whereas countries with long-term orientations are savings driven. Masculinity, and its opposite, femininity, capture the difference between highly assertive and highly nurturing cultures. Masculine cultures emphasize assertiveness, competition, material success, and achievement, whereas feminine cultures emphasize the importance of relationships, modesty, caring for the weak, and quality of life. The cultural difference of uncertainty avoidance is the degree to which people in a country are uncomfortable with unstructured, ambiguous, unpredictable situations. After becoming aware of cultural differences, the second step is deciding how to adapt your company to those cultural differences. Unfortunately, studies investigating the effects of cultural differences on management practice point more to difficulties than to easy solutions. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

54 Preparing for an International Assignment
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Preparing for an International Assignment Language and Cross-Cultural Training Consideration of Spouse, Family, and Dual-Career Issues The average cost of sending an employee (an expatriate) on an international assignment can run between $500,000 and $3 million. Failure in those assignments can be quite expensive. The chances for success in an international assignment can be increased through language and cross-cultural training and consideration of spouse, family, and dual-career issues. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

55 Language and Cross-Cultural Training
Unit 2 – International Management and Diversity BUAD 230 C, Fall 2008 Language and Cross-Cultural Training Documentary Training Cultural Simulation Intercultural Training Expatriates who receive predeparture language and cross-cultural training make faster adjustments to foreign cultures and perform better on international assignments. Unfortunately only a third of managers receive any kind of training. Documentary training focuses on identifying specific critical differences between cultures. Next, cultural simulation allows practice at adapting to cultural differences. Field simulation places trainees in an ethnic neighborhood for three to four hours to talk to residents about cultural differences. Adaptability Screening Field Experiences Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

56 Domestic and International Diversity
Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

57 Domestic and International Diversity
The Increasing Diversity of the Workforce and the Environment Differences among people in age, gender, race, ethnicity, religion, sexual orientation, socioeconomic background, and capabilities/disabilities Diversity Concerns and Issues The ethical imperative for equal opportunity The illegality of unfair treatment Diversity’s positive effect on organizational performance The continuing bias toward diverse individuals Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

58 The ethical imperative for equal opportunity
Diversity Concerns The ethical imperative for equal opportunity Effectively managing diversity can improve organizational effectiveness The continuing bias toward diverse individuals Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

59 Components of Diversity
AGE – Demographic Changes and Legal Constraints GENDER – Glass Ceiling , Pay Differentials RACE and ETHNICITY – Differential Growth Rates for Minority Populations RELIGION – Different Religious Holidays CAPABILITIES and DISABILITIES – Reasonable Accommodation SOCIOECONOMIC BACKGROUND – Widening Differentials b/w Rich and Poor Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

60 Sources of Diversity in the Workplace
Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

61 Workforce Diversity Glass Ceiling
A metaphor alluding to the invisible barriers that prevents minorities and women from being promoted to top corporate positions. 2008: Projected New Entrants in the U.S. Labor Force Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

62 Managing Diversity What a Diversity of Employees Provides
A variety of points of view and approaches to problems and opportunities can improve managerial decision making. Diverse employees can provide a wider range of creative ideas. Diverse employees are more attuned to the needs of diverse customers. Diversity can increase the retention of valued organizational members. Diversity is expected/required by other firms Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

63 How to Manage Diversity
Steps in Managing Diversity Effectively Secure top management commitment Strive to increase the accuracy of perceptions Increase diversity awareness Increase diversity skills Encourage flexibility Pay close attention to how organizational members are evaluated Consider the numbers Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

64 How to Manage Diversity (cont’d)
Steps in Managing Diversity Effectively (cont’d) Empower employees to challenge discriminatory behaviors, actions, and remarks Reward employees for effectively managing diversity Provide training utilizing a multipronged, ongoing approach Encourage mentoring of diverse employees Mentoring A process by which an experienced member of an organization (the mentor) provides advice and guidance to an less experienced member (the protégé) and helps the less experienced member learn how to advance in the organization and in his or her career. Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College

65 FOUNDATIONS OF MANAGEMENT Fall 2008 - The End
Dr. Eliot S. Elfner Professor of Business Administration St. Norbert College Copyright © 2008 by Dr. Eliot S. Elfner, St. Norbert College


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