1 Objectives 1. Describe the alternatives available to a company that wants to internationalize 2. Explain the factors that can make international joint ventures successful. 3. Understand management “centrism”, i.e., management attitudes toward foreign operations. 4. Understand the dimensions on which national cultures may differ, and the applicability of American management theories in foreign cultures.

2 Tariff Tariff A tax that government imposes on imported or, occasionally, exported goods. A tax that government imposes on imported or, occasionally, exported goods. Intended to protect domestic industry and jobs from foreign competition Intended to protect domestic industry and jobs from foreign competition Other countries usually retaliate their own tariffs, actions that eventually reduce the overall amount of trade and impedes economic growth. Other countries usually retaliate their own tariffs, actions that eventually reduce the overall amount of trade and impedes economic growth. International Trade

3 Free-Trade Doctrine Free-Trade Doctrine The idea that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources The idea that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources If India is more efficient in making textiles, and the United States is more efficient in making computer software, then each country should focus on their respective strengths and trade for the other’s goods. If India is more efficient in making textiles, and the United States is more efficient in making computer software, then each country should focus on their respective strengths and trade for the other’s goods. International Trade

4 North American Free Trade Agreement (NAFTA) North American Free Trade Agreement (NAFTA) Abolishes 99% of tariffs on goods traded between Mexico, Canada and the United States Abolishes 99% of tariffs on goods traded between Mexico, Canada and the United States Unrestricted cross-border flows of resources Unrestricted cross-border flows of resources Increased investment by U.S. firms in Mexican manufacturing facilities due lower wage costs in Mexico Increased investment by U.S. firms in Mexican manufacturing facilities due lower wage costs in Mexico Opportunities and Threats Opportunities and Threats The opportunity to serve more markets The opportunity to serve more markets Increased competition from NAFTA competitors Increased competition from NAFTA competitors International Trade

5 Distance Distance Markets were essentially closed because of the slowness of communications over long distances. Markets were essentially closed because of the slowness of communications over long distances. Culture Culture Language barriers and cultural practices made managing overseas businesses difficult Language barriers and cultural practices made managing overseas businesses difficult Changes in Distance and Communication Changes in Distance and Communication Improvement in transportation technology and fast, secure communications have greatly reduced the barriers of physical and cultural distances. Improvement in transportation technology and fast, secure communications have greatly reduced the barriers of physical and cultural distances.

6 International Competition Forces Shrinking Globe Forces Shrinking Globe Air travel Air travel Modern information technology Modern information technology Corporate Globalism Corporate Globalism International Management International Management The pursuit of organizational objectives in international and intercultural settings. The pursuit of organizational objectives in international and intercultural settings.

7 Global Organizations for a Global Economy The Internationalization Process The Internationalization Process Stage I: Licensing Stage I: Licensing Authorizing companies in foreign countries to produce and/or market a given product within a specified territory in return for a fee. Authorizing companies in foreign countries to produce and/or market a given product within a specified territory in return for a fee. Stage 2: Exporting Stage 2: Exporting Goods produced in one country are sold to customers in foreign countries. Goods produced in one country are sold to customers in foreign countries. Stage 3: Local warehousing and selling Stage 3: Local warehousing and selling Goods produced in one country are shipped to the parent company’s storage and marketing facilities located in overseas countries. Goods produced in one country are shipped to the parent company’s storage and marketing facilities located in overseas countries.

8 Global Organizations for a Global Economy (cont’d) The Internationalization Process (cont’d) The Internationalization Process (cont’d) Stage 4: Local Assembly and Packaging Stage 4: Local Assembly and Packaging Components, rather than finished products, are shipped to company-owned foreign facilities for final assembly and sales. Components, rather than finished products, are shipped to company-owned foreign facilities for final assembly and sales. Stage 5: Joint Ventures (also Strategic Alliances or Partnerships) Stage 5: Joint Ventures (also Strategic Alliances or Partnerships) A company in one country pools its resources with another foreign company or companies to create and market products and jointly share profits and losses. A company in one country pools its resources with another foreign company or companies to create and market products and jointly share profits and losses.

9 Why alliances? Share risks and costs, avoid irreversible resource commitments … faster fit! Share risks and costs, avoid irreversible resource commitments … faster fit! Explore - Discover new opportunities (e.g., R&D-joint research) Explore - Discover new opportunities (e.g., R&D-joint research) Exploit - Increase productivity of current assets (e.g., Marketing-New Market Entry, Manufacturing-Cost Sharing) Exploit - Increase productivity of current assets (e.g., Marketing-New Market Entry, Manufacturing-Cost Sharing) Strategic Alliances (Joint Ventures and Strategic Partnerships)

10 Strategic Alliances Advantages Advantages Facilitate entry into foreign markets. Facilitate entry into foreign markets. Enable partners to share fixed costs and risks associated with new products and processes. Enable partners to share fixed costs and risks associated with new products and processes. Facilitate transfer of complementary skills between companies. Facilitate transfer of complementary skills between companies. Help establish technological standards. Help establish technological standards. Disadvantages Disadvantages Risk of giving away technological know- how. Risk of giving away technological know- how. Risk of opening local market access to foreign alliance partner. Risk of opening local market access to foreign alliance partner. Risk of not getting anything in return. Risk of not getting anything in return.

11 Recommendations for Achieving Success Recommendations for Achieving Success 1. Be very clear about the alliance’s purpose 2. Select partners to minimize risk: 1. partner capability 2. trust/reputation 3. you & partner’s current/future competitive position 3. Agree on ground rules about the rights and responsibilities of all parties at the outset 4. Structure the alliance based on alliance purpose and risk Strategic Alliances (Joint Ventures and Strategic Partnerships)

12 Structure Alliances to Reduce Risk “Walling off”

13 Global Organizations for a Global Economy (cont’d) The Internationalization Process (cont’d) The Internationalization Process (cont’d) Stage 6: Direct Foreign Investment Stage 6: Direct Foreign Investment The production and marketing of products through a wholly owned subsidiary in a foreign country. The production and marketing of products through a wholly owned subsidiary in a foreign country.

14 From Global Companies to Transnational Companies Global Company Global Company A multinational venture centrally managed from one country. A multinational venture centrally managed from one country. Has global strategies for product design, financing, purchasing, manufacturing, and marketing. Has global strategies for product design, financing, purchasing, manufacturing, and marketing. Transnational Company Transnational Company A global network of productive units with a decentralized authority structure and no distinct national identity. A global network of productive units with a decentralized authority structure and no distinct national identity. Relies on a blend of global and local strategies. Relies on a blend of global and local strategies.

15 Toward Greater Global Awareness and Cross-Cultural Competence Travelers: Travelers: Engage in short-term visits to foreign countries. Engage in short-term visits to foreign countries. Have limited knowledge of local history, culture, and customs. Have limited knowledge of local history, culture, and customs. Have limited local language skills. Have limited local language skills. Don’t attempt to adapt to the local environment. Don’t attempt to adapt to the local environment. Settlers Settlers Take assignments lasting up to five years. Have in-depth insights into the host country’s history, customs, and culture. Speak the local language well or fluently. Are culturally-trained to “go native.”

16 Contrasting Attitudes Toward International Operations Ethnocentric Ethnocentric The view that assumes the home country’s personnel and ways of doing things are best. The view that assumes the home country’s personnel and ways of doing things are best. Polycentric Polycentric The view that assumes local managers in host countries know best how to run their own operations. The view that assumes local managers in host countries know best how to run their own operations. Geocentric Geocentric A world-oriented view that draws upon the best talent from around the world. A world-oriented view that draws upon the best talent from around the world.

17 The Cultural Imperative Culture Culture A population’s taken-for-granted assumptions, values, beliefs, and symbols that foster patterned behavior. A population’s taken-for-granted assumptions, values, beliefs, and symbols that foster patterned behavior. Cultural Profile of American Managers Cultural Profile of American Managers Positive: Informal, creative, open-minded Positive: Informal, creative, open-minded Negative: Educationally and professionally narrow Negative: Educationally and professionally narrow

18 The 3 levels of Culture (Schein) 1. Artefacts and creations - the things one can see, hear and observe. Dress codes Dress codes Patterns of behaviour, Patterns of behaviour, Physical symbols Physical symbols Organizational ceremonies Organizational ceremonies Office layout Office layout

19 The 3 levels of Culture (Schein) 2. Values and Beliefs – can be identified from stories 2. Values and Beliefs – can be identified from stories language language symbols symbols how people explain justify what they do how people explain justify what they do

20 The 3 levels of Culture (Schein) 3. Basic assumptions – beliefs so deeply embedded in a culture that members are no longer consciously aware of them.

21 Universal Human needs Symbolic Meanings Cultural Norms Cultural Values Cultural Beliefs Cultural Traditions Language and Verbal Symbols Nonverbal Symbols Cultural artefacts (eg. fashion, popular culture) LEVELS OF CULTURE We can see and hear We cannot see; these are hidden Ting-Toomey, 1999

22 SOURCES OF ORGANIZATIONAL CULTURE the national culture (Hofstede, 1991) the national culture (Hofstede, 1991) the vision, management style and personality of the founder or other significant dominant managers (Schein, 1985) the vision, management style and personality of the founder or other significant dominant managers (Schein, 1985) the nature of the business, the type of products and the environment within which the organisation operates (Gordon, 1991) the nature of the business, the type of products and the environment within which the organisation operates (Gordon, 1991)

23 National cultures (Hofstede) Hofstede researched 40 countries in terms of national cultures in work Hofstede researched 40 countries in terms of national cultures in work He determined 4 dimensions of difference in national cultures He determined 4 dimensions of difference in national cultures Power distance Power distance Uncertainty avoidance Uncertainty avoidance individualism individualism Masculinity Masculinity

24 POWER DISTANCE Dependence relationships in a country Dependence relationships in a country Small power distance Small power distance Limited dependency of subordinates on bosses Limited dependency of subordinates on bosses Consultative style of decision making Consultative style of decision making High Power Distance countries: High Power Distance countries: Latin countries (France, Spain, Latin America), Asian and African countries Latin countries (France, Spain, Latin America), Asian and African countries Low Power Distance countries: Low Power Distance countries: USA, UK, Netherlands, Scandinavian countries USA, UK, Netherlands, Scandinavian countries

25 Power Distance in Organizations LOW Decentralization popular Decentralization popular Narrow salary range Narrow salary range Consultative decision making Consultative decision makingHIGH Hierarchical organizations Hierarchical organizations Centralization Centralization Wide salary range Wide salary range Subordinates expect rules Subordinates expect rules

26 Uncertainty avoidance This is a measure of the degree to which people are willing to accept change and work in uncertain circumstances. This is a measure of the degree to which people are willing to accept change and work in uncertain circumstances. The higher the degree of uncertainty avoidance the more structured people like things to be. The higher the degree of uncertainty avoidance the more structured people like things to be. Examples: Low= Sweden, High = France Examples: Low= Sweden, High = France

27 Individualism and collectivism This refers to degree to which people see themselves as being part of a group or as individuals. This refers to degree to which people see themselves as being part of a group or as individuals. Examples include for individualistic= USA, UK, Australia Examples include for individualistic= USA, UK, Australia Examples for Collectivist= Norway, Japan Examples for Collectivist= Norway, Japan

28 Masculinity/ femininity Masculine cultures place a high value on things like Heroism, success, achievement, Leading. Masculine cultures place a high value on things like Heroism, success, achievement, Leading. Feminine cultures place a high value on groups, quality of life, caring. Feminine cultures place a high value on groups, quality of life, caring. Examples- Masculine= Germany, USA Feminine= Sweden, Denmark, Finland Examples- Masculine= Germany, USA Feminine= Sweden, Denmark, Finland

29 Culture (cont’d) High-Context Cultures High-Context Cultures Cultures in which nonverbal and situational messages convey primary meaning (e.g. Japan). Cultures in which nonverbal and situational messages convey primary meaning (e.g. Japan). Status of an individual is important in determining relationships. Status of an individual is important in determining relationships. Low-Context Cultures Low-Context Cultures Cultures in which words convey primary meaning (e.g., UK). Cultures in which words convey primary meaning (e.g., UK). Nonverbal messages are secondary to spoken words. Nonverbal messages are secondary to spoken words. The terms of the deal are more important building a business relationship. The terms of the deal are more important building a business relationship.

30 Culture (cont’d) Other Sources of Cultural Diversity (cont’d) Other Sources of Cultural Diversity (cont’d) Time Time Monochronic time: a perception of time as a straight line broken into standard units. Monochronic time: a perception of time as a straight line broken into standard units. Timely arrivals and keeping appointments is considered important. Timely arrivals and keeping appointments is considered important. Polychronic time: a perception of time as flexible, elastic, and multidimensional. Polychronic time: a perception of time as flexible, elastic, and multidimensional. Appointment schedules are considered approximations and are not kept precisely. Appointment schedules are considered approximations and are not kept precisely.

31 Culture (cont’d) Other Sources of Cultural Diversity (cont’d) Other Sources of Cultural Diversity (cont’d) Interpersonal space Interpersonal space Some cultures prefer a close rather than wide distance between conversing individuals. Some cultures prefer a close rather than wide distance between conversing individuals. Language skills Language skills Language fluency opens insights into another culture. Language fluency opens insights into another culture. Religion Religion Religion has many effects on personal and professional activities in many cultures. Religion has many effects on personal and professional activities in many cultures.

32 Ouchi’s Theory Z: The Marriage of American and Japanese Management Theory Z Organizations Theory Z Organizations Organizations that successfully combine the traits of typical American and Japanese companies. Organizations that successfully combine the traits of typical American and Japanese companies. Successful geocentric managers are not prisoners of their own culture. Successful geocentric managers are not prisoners of their own culture.  Japanese-like qualities –Long-term employment –Slower promotions –Cross-functional career paths –Emphasis on self-control –Participative decision making –Concern for employees  American qualities –Emphasis on individual responsibility

33 A Cross-Cultural Study of Work Goals Findings’ implications Findings’ implications Managers need to adapt the motivation programs to local preferences. Managers need to adapt the motivation programs to local preferences. An international contingency approach to motivation is called for. An international contingency approach to motivation is called for.

34 An International Contingency Model of Leadership Model’s Assumptions/Guidelines Model’s Assumptions/Guidelines Leadership must be adapted to the local culture. Leadership must be adapted to the local culture. Participative leadership is the most applicable style where workers trust their leader. Participative leadership is the most applicable style where workers trust their leader. Directive leadership is considered the least appropriate style of leadership. Directive leadership is considered the least appropriate style of leadership.

35 Staffing Foreign Positions Why Is the U.S. Expatriate Failure Rate So High? Why Is the U.S. Expatriate Failure Rate So High? Sink-or-swim approach taken by companies in not preparing managers for foreign assignments. Sink-or-swim approach taken by companies in not preparing managers for foreign assignments. Family and personal adjustment problems that arose after arriving in the foreign assignment. Family and personal adjustment problems that arose after arriving in the foreign assignment.

36 Cross-Cultural Training Cross-Cultural Training Cross-Cultural Training A guided experience that helps people live and work in foreign cultures. A guided experience that helps people live and work in foreign cultures. Specific Training Techniques Specific Training Techniques Documentary programs to familiarize expatriate with assignment destination. Documentary programs to familiarize expatriate with assignment destination. Culture assimilator exposed expatriate to simulated intercultural incident and situations. Culture assimilator exposed expatriate to simulated intercultural incident and situations. Language instruction builds the expatriate’s conversational skills in a foreign language. Language instruction builds the expatriate’s conversational skills in a foreign language.

37 Cross-Cultural Training (cont’d) Specific Training Techniques (cont’d) Specific Training Techniques (cont’d) Sensitivity training provides experiential exercises to teach expatriates to be aware of the impact of their actions on others in another culture. Sensitivity training provides experiential exercises to teach expatriates to be aware of the impact of their actions on others in another culture. Field experiences provide firsthand exposure to ethnic subcultures that heightens expatriates’ cultural awareness. Field experiences provide firsthand exposure to ethnic subcultures that heightens expatriates’ cultural awareness.

38 Cross-Cultural Training (cont’d) Conclusions Conclusions A combination of documentary and interpersonal training is the best combination for expatriates. A combination of documentary and interpersonal training is the best combination for expatriates. Provide orientation for both expatriate and family. Provide orientation for both expatriate and family. Have family sponsors or assigned mentors available at the foreign assignment. Have family sponsors or assigned mentors available at the foreign assignment. Repatriation is an importance part of the entire foreign assignment experience. Repatriation is an importance part of the entire foreign assignment experience.

39 North American Women on Foreign Assignments Women are above-average in being successful in foreign assignments. Women are above-average in being successful in foreign assignments. Strongest barriers to foreign assignments has been self-disqualification and the prejudice of home country managers. Strongest barriers to foreign assignments has been self-disqualification and the prejudice of home country managers. Culture is a bigger hurdle than gender: women on foreign assignments are seen as North Americans first, then women. Culture is a bigger hurdle than gender: women on foreign assignments are seen as North Americans first, then women.

40 Relying on Local Management Advantages of Using Foreign Nationals Advantages of Using Foreign Nationals They know the language and culture. They know the language and culture. They do not require huge location expenses. They do not require huge location expenses. Host governments favor more local control. Host governments favor more local control. Disadvantage Disadvantage Local managers may not be attuned to home- office goals and procedures. Local managers may not be attuned to home- office goals and procedures.