International Management MGT 480/680

International Management MGT 480/680
Spring 2009 Dr. Yvonne Stedham 1

International Management
Seniors, Juniors, Majors??? Travelled to other countries? USAC? Speak other languages? 2 2

Why this course? What do you expect to learn? 3

This week Purpose of this course What do you know? Introduction Course
Content Format - Syllabus Personal Instructor Students – Background Sheet 4

Purpose What new management/business knowledge could you possibly learn in this class? Globalization, Democracy, Free Markets, and the Bottom Line 5

Website Location 6

Current Developments National Public Radio (NPR) The Economist
FM KUNR FM 90.5 – Cap Radio The Economist - Student Subscription 12 weeks $19.95 Faculty ID: 4430 Wall Street Journal Sign-up sheet 7

For February 5 Global Update – Web/Handout
Questions to be handed out in class – next week 8

Student Group International Business Student Chapter (IBSC) NEWTRAC
or Adam Cole NEWTRAC Nevada World Trade Council 9

What do you know? List the five largest countries based on population.
What is the world population? What is “GDP”? What is the GDP/capita in the U.S.? What is a typical GDP growth rate for the U.S.? Which three countries have the highest GDP/capita? Which countries are culturally most similar to the U.S, which ones most dissimilar? How many countries are there in the world? 10

What do you know? I. Five largest countries China 1.3 Bill India 1Bill
U.S. 301Mill Indonesia 220Mill Brazil 190Mill Japan 127.5Mill II. World Population World 6.6 Bill 11

What do you know? III. GDP/capita GDP/capita in U.S.: ~ $46,000
Growth rate in U.S.: less than 3% Mexico: Population ~110 Mill; $10,700 12

New Internet Sources Index of Economic Freedom What is economic freedom? Economic freedom is defined as the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, people are free to work, produce, consume, and invest in the ways they feel are most productive. How do you measure economic freedom? To measure economic freedom and rate each country, the authors of the Index study 50 independent economic variables. These variables fall into 10 broad categories, or factors, of economic freedom: Trade policy , Fiscal burden of government, Government intervention in the economy, Monetary policy, Capital flows and foreign investment, Banking and finance, Wages and prices, Property rights, Regulation, Informal market activity. 13 13

Some Data (APPROX.) Japan China Brazil US World ? Population
127.5 Mill 1.3Bill 190 Mill 301 Mill 6.6Bill GDP growth 2.2% 10.7% 3.7% 3.2% 5.3% GDP/ Capita $33,100 $7,700 $8,800 $46,780 $10,200 Industry ? 14

What do you know? 4. Which 5 countries have the highest GDP/capita
Luxembourg $102,284 Norway $ 79, 154 Qatar $ 70,754 Iceland $ 62, 976 Ireland $ 58,883 Denmark $ 57,035 Switzerland $ 56,711 UK $ 47,300 US $ 46, 780 Netherlands $ 45,429 15

What do you know? 5. Which countries are culturally most similar to the U.S. Anglo Countries Canada Australia New Zealand U.K. Ireland South Africa 16

What do you know? 6. Number of countries in the world
Total number of countries: Kosovo, Vatican, and Taiwan United Nations 192 17

Quiz #1 – January 29th Deresky Adler Chapter 1 Chapter 2
Chapter 1: pp 1-16 18

Class on February 3rd Attend COBA Business Summit: Navigating the Ethics Maze Details and Syllabus

World Economic Forum Davos 1/28-2/1
Committed to improving the state of the world 20

World Economic Forum is an independent, international organization incorporated as a Swiss not-for-profit foundation. Our motto is ‘entrepreneurship in the global public interest’. We believe that economic progress without social development is not sustainable, while social development without economic progress is not feasible. It aims to be: the foremost organization which builds and energizes leading global communities; the creative force shaping global, regional and industry strategies; the catalyst of choice for its communities when undertaking global initiatives to improve the state the world. 21

World Economic Forum We enjoy a unique global standing by recognizing and responding to two new developments: The world’s key challenges cannot be met by governments, business or civil society alone In a world characterized by complexity, fragility and ever greater synchronicity, strategic insights cannot be passively acquired. They are best developed through continuous interaction with peers and with the most knowledgeable people in the field. To carry out its mission, the World Economic Forum has developed an integrated value chain by involving world leaders in communities, inspiring them with strategic insights and enabling them through initiatives. 22 22

World Economic Forum Members represent the world’s 1,000 leading companies. Partners are select member companies who are actively involved in the organization's activities and contribute their expertise and resources. Members comprise in principle the foremost 1,000 global enterprises. Characteristics of Members include: · Their rank among the top companies within their industry and/or country · The global dimension of their activities · A leading role in shaping the future of their industry and/or region Every year, more than 100 of the world’s most influential companies partner with the World Economic Forum to tackle the most complex challenges facing humanity. Recognizing that each company’s business needs are unique, the Forum offers the possibility for partners to engage in a specific community, project or event. 23

Cost – Benefit – Risk Analysis
24

Personal Introductions
Students – background sheets Introduction Major Traveled internationally Speak other language 25

International Government Materials
International financial statistics yearbook Trade policy review. [country name] We also have extensive holdings of international government publications on microfiche, with most titles searchable in the catalog. In many cases this is the only format we own (that is, we don’t own a duplicate paper copy). Patrick Ragains Business and Government Information Librarian

Don’t confuse APEC OPEC 27 27

APEC - Asia Pacific Economic Cooperation
Premier forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region. It is one of the world's most important regional groupings, encompassing 21 member economies who collectively represent over 2.6 billion people and account for approximately half of global GDP and trade. The primary focus of APEC is promoting trade and investment liberalization and business facilitation in the Asia-Pacific region. 28 28

APEC Members Australia Brunei Darussalam Canada Chile People's Republic of China Hong Kong, China Indonesia Japan Republic of Korea Malaysia Mexico 29 29

APEC Members New Zealand Papua New Guinea Peru Philippines Russia Singapore Chinese Taipei Thailand United States Viet Nam 30 30

APEC Australia 2007™ Business Summit
The is a significant, invitation-only, annual meeting that provides unparalleled opportunities for strategic engagement and networking with prominent business leaders, international opinion setters, policy makers and leaders of Asia-Pacific Economic Cooperation (APEC) Member Economies. The two-day forum was part of the APEC meetings hosted by the Australian Government in 2007, which culminated in APEC Leaders Week and the Business Summit in September in Sydney. The Business Summit, formerly the CEO Summit, has been held each year since It was instituted to enable business leaders to interact with APEC leaders during Leaders Week. The APEC Australia 2007™ Business Summit will play a key role in supporting APEC's work by bringing together a select group of influential business and government leaders with opinion setters and policy makers at a single event to examine some of the key issues facing the region. 31 31

OPEC – Organization of Petroleum Exporting Countries
Eleven members – Algeria, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela (Hugo Chavez) OPEC’s mission is to coordinate & unify the petroleum policies of Member Countries & ensure the stabilization of oil prices in order to secure an efficient, economic & regular supply of petroleum to consumers, a steady income to producers & a fair return on capital to those investing in the petroleum industry. 32 32

Women World Leaders G7 (G8) Countries
US, Canada, Germany, France, Italy, UK, Japan, (Russia) Never a female leader: US, Italy, Japan Female leaders: First UK, then France, Canada, Germany Other countries with female leaders: Finland, Ireland, India, Indonesia, Chile 33 33

World Economic Forum Update Program

Introduction Course Content – Culture, Globalization, Cost-Benefits-Risk Format - Syllabus Personal – Background Sheet Framework of an international organization Globalization Reasons for going international Types of international organizations 35

Framework Organizations and Organizational Effectiveness
What is an organization? Why do organizations exist? When is an organization effective? Efficiency vs effectiveness? 36

Organizations and Organizational Effectiveness
What is an organization? Why do organizations exist? Organizations = People Mission, goals, objectives When is an organization effective? Distinguish between efficiency and effectiveness. Distinguish effectiveness measures for the short, intermediate, and long run. 37

Measurement of organizational effectiveness
Long run? Intermediate run? Short run? A contingency approach to management 38

Measurement of organizational effectiveness
Long run: Survival Intermediate run: Adaptation, Responsiveness Short run: Productivity, Efficiency A contingency approach to management (as opposed to “administrative theory” of management) It is 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. 39

The Organization 40

The International Organization
41

Globalization Thomas Friedman Why change?
Characteristics of the global system Previous system? 42

Globalization Thomas Friedman (NY Times) The Lexus and the Olive Tree
The World is Flat Hot, Flat, and Crowded With the #1 bestseller The World Is Flat, he helped millions of readers see and understand globalization in a new way. Now Thomas L. Friedman explains how America can lead the green revolution in the 21st century. 43

Globalization Globalization is not just an economic fad and it is not just a passing trend. It is an international system that replaced the Cold War System after the fall of the Berlin wall The World is ten years old (1999) 44

Characteristics of the new system
Separation and independence VS Integration and interdependence 45

Free market capitalism Homogenization of culture – Americanization Defining technologies: computerization, miniaturization, digitization, satellite communications, fiber optics, the Internet 46

Defining measurement: Weight (missles) VS Speed .. Of travel, innovation, communication, commerce 47

Defining economists: Karl Marx and Keynes VS Schumpeter Capitalism and Creative Destruction 48

Defining political views: Friends and Enemies VS Competitors 49

Reminder Extra Credit IBSC Meeting AB 107 – February 10 - 12:15pm 50

Termpaper List – DRAFT 2/10/09 – 2:30
COUNTRY STUDENT NAMES Comment Italy E Christian, Blake, Tony Norway E Josh, Andrew, Enrique Australia Steven, James, Gabe Argentina LA Amy, Valerie, Shawna Ireland E Amanda, Addie, Greg Thailand A Jace, Chris, Chanut Germany E Katie, Andrea, Chad, Stephan Uruguay LA Michael, Iris, Raymond China A Emily, Lia, Brian Afghanistan Jennifer, Josh, Breann Brazil or Chile LA Sandra, Russell, Brittany, Brian, (Stephan) 5 students Chile Sandra, Russell, Brittany 51

Termpaper List – 2/12/09 – 2:30 April 14 April 16 April 21 April 23
COUNTRY STUDENT NAMES PRESENTATION Ireland Amanda Mack, Addie Munson, Greg Welch April 14 Norway Enrique Ramos, Andrew Herr, Josh Sells April 16 Germany Katie Schwarzrock, Andrea Avent, Chad Grayot, Stephan Graves April 21 Italy Blake William, Anthony Gallian, Christian Reviglio Afghanistan Jennifer Noel, Josh Orolofo, Breann Boustang April 23 Uruguay Mihael Sperry, Iris Figuera, Raymond Gurries Argentina Amy Beaupre, Valerie Lear, Shawna Hankins April 28 Chile Sandra Vasquez, Russell Elder, Brittany Warner Thailand Jace O’Mallan, Chris Gerace, Chanut Sriphyak April 30 China Lia Shim, Emily Kao (Chiung-Tzu), Brian Bausinger Australia Steven Wear, James Furman, Gabe Scheel May 5

Termpaper List – DRAFT 2/5/09 – 4:00
COUNTRY STUDENT NAMES Comment Turkey Steven, Lauren, Alyssa Egypt Ashley, Jenna, Lacy Czech Republic Matt, Jack, Brett 1 spot South Korea Vanessa, Tyler, Kelsey Germany Ben, Chris Graduate – 2 person group Italy Meghan, Kevin, Amber Japan Jeanette, Marion, Matt France Ben, Erika, Jason, Lucas Norway Katelyn, Drew, Chris Poland Jill, Janenne, Katherine Ireland Jared, Seamus, Phil 53

Termpaper List – 2/12/09 – 4:00pm
Country Student Names Presentation Ireland Jared Becher, Seamus Murphy, Phil Bowman April 14 Norway Katelyn Zuppan, Drew Haitt,Chris Thompkins April 16 Germany Ben Larson, Chris Hofman April 21 Poland Jill Collins, Janenne Johnson, Katherine Tooker Czech Republic Matt Smith, Jack Darlington, Lucas Draeger April 23 France Ben David, Erika Ibaibarriaga, Jason Shurtleff, Kelsey Poentis Italy Meghan Bartley, Kevin Lynch, Amber Wadginski April 28 Turkey Steven Schnell, Lauren Rosensteel, Alyssa Durham Egypt Ahsley Cray, Jenna Henning, Lacey Sourkup April 30 South Korea Vanessa Briones, Tyler Schafer, Brett Kishkis Japan Jeanette Dory, Marion Dillon, Matt Ruggiero May 5

Groups Why do organizations go international? List at least 3 reasons
55

Reasons for becoming international
A desire for continued growth. Domestic market saturation The potential to now exploit a new technological advantage Preferable suppliers (quality, cost) Labor market (supply, quality, cost) Government involvement/restrictions Reducing distance to customers (cost) Tariff barriers Increased foreign competition in home country Reduce general business risk by diversifying into other countries 56

Internationalization
Process by which firms increase their awareness of the influence of international activities on their future and establish and conduct transactions with firms from other countries. 57

An International Organization
operates in multiple environments, home country and one or more host countries, has foreign sales, and a nationality mix of managers and owners. 58

Types of "international" organizations
Multi-domestic organization Multinational organization Global or transnational organization 59

Multi-domestic organization: Any organization that exports to/imports from organizations in other countries with primarily domestic production. 60

Multinational organization: An organization with operations in different countries but each is viewed as a relatively separate enterprise. 61

Global or transnational organization: An enterprise structured so that national boundaries become blurred. The best people are hired irrespective of national origin. 62

Headquarters – Subsidiary Relationship
Graphic Representation Headquarters – Subsidiary Relationship 63

Stages Model of Internationalization
Outward looking perspective: activities/issues related to the other countries (e.g., exporting) vs an inward perspective (e.g., importing) Descriptive Reflects the commonly observed pattern of increased commitment to international business 64

Four stages of internationalization
Indirect/ad hoc exporting - perhaps from unsolicited export orders Stage 2: Active exporting and/or licensing Stage 3: Active exporting, licensing, and joint equity investments in foreign manufacture Stage 4: Full-scale multinational marketing and production See also: Adler Chapter 1 pages 8 and 9 65

International Orientation
Ethnocentric Polycentric Geocentric Regiocentric 66

International Orientation
PCN – Parent Country National HCN – Host Country National TCN – Third Country National 67

More international => more performance?????
The Relationship between Level of Internationalization and Firm Performance More international => more performance????? 68

The Relationship between Level of Internationalization and Firm Performance
There is a strong CURVILINEAR relationship between the degree of internationalization and organizational performance 69

Degree of internationalization:
The Relationship between Level of Internationalization and Firm Performance Degree of internationalization: "sales generated by foreign affiliates" MNE (multinational enterprise) performance: "profit to sales" or "profit to assets". 70

Performance is at a max. at a level of internationalization of
The Relationship between Level of Internationalization and Firm Performance Performance is at a max. at a level of internationalization of 60 to 80% and then decreases with continuing internationalization 71

Profit = Revenue – Cost Profit = (Volume*Price) - Cost 72 72

Profit = Revenue – Cost = (Volume*Price) – Cost A desire for continued growth. VOLUME Domestic market saturation VOLUME The potential to now exploit a new technological advantage V Preferable suppliers (quality, cost) PRICE, COST Labor market (supply, quality, cost) PRICE, COST Government involvement/restrictions COST Reducing distance to customers COST Tariff barriers COST Increased foreign competition in home country VOLUME, PRICE Reduce general business risk by diversifying into other countries 73 73

CBR Analysis Cost Benefits (= reasons for “going” international) Risk
Cultural differences Lack of infrastructure Taxes Resources Benefits (= reasons for “going” international) Larger volume Lower cost Higher quality Less competition => Higher price Risk Political, Economic, Operational 74 74

Case 1 Corporate Social Responsibility Colombia Mexico India
Stakeholders

The Multiple Responsibilities of Business
Economic Responsibility Legal Responsibility Social Responsibility

Business Ethics from a Stakeholders’ Perspective
Relationship of the firm to its employees: Hiring, promotion and other employee-related decisions. Fair wages. Respect for employee’s beliefs. Accountability. Right to privacy. Relationship of employees to the firm: Conflicts of interest. Secrecy. Relationship of the firm to other stakeholders - CSR 78

Theory – Competitive Advantage
External Environment Theory – Competitive Advantage Competitiveness International Competitiveness 79

External Environment Porter 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. 80 80

National Competitive Advantage
PORTER DIAMOND National Competitive Advantage Why a nation achieves success in a particular industry? Why Japan -- automobile, cameras Why CH (Switzerland) -- precision instruments, pharmaceuticals Why Germany -- engineering 81

Porter Diamond Four broad attributes of a nation
that shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage Diamond of four mutually reinforcing factors 82

Porter Diamond Factor Endowments or Conditions– Basic Advanced
Examples: Nokia, Ericsson 2. Demand Conditions – 1. Quality 2. Innovativeness 3. Variety - customization 83

Porter Diamond <=> 3. Related and Supporting Industries –
Suppliers (U.S. - semiconductor/comp) 4. Firm Strategy, Structure, Rivalry – Executive background <=> Domestic environment encourages the development of characteristics that make company internationally competitive 84

Porter’s Diamond The Michael Porter Diamond Theory (Porter, 1998) fascinated me in its simplicity and how it reined true in so many of the case studies that were put forward. Whether it was fax machines in Japan, watches in Switzerland or fast cars in Italy, the Diamond Theory seemed to hold true. Figure 1: Michael Porter Diamond Theory The four key factors, which Porter refers to as the "Diamond of Competitive Advantage," are based on case studies from around the world: factor conditions, such as a specialised labor pool, infrastructure, and sometimes selective disadvantages that drive innovation; home demand, or demanding local customers who push companies to innovate, especially if their tastes or needs anticipate global or local demand; related and supporting industries, internationally competitive local supplier industries who create business infrastructure and spur innovation and spin-off industries; and industry strategy, structure, and rivalry, intense local rivalry among local industries that is more motivating than foreign competition, and a local "culture" which influences individual industries" attitudes toward innovation and competition. In addition to these four areas, Porter includes the roles of chance and government. Often historical accident and/or government actions play significant roles in the early development or site location of local industry clusters. There are a number of premises in which Porter’s approach is based (Lewis et al, 1999); Firms compete, not nations. Nations are competitive because they have companies that have competitive advantages. Competitive advantage comes from innovation – in technology, marketing, organization and management. Innovations turn into competitive advantage when resources and expertise can be turned into saleable products/services. Competitive advantage is only maintained through continuous improvement. Companies can “fall in love” with their own success. For sustained success, they must change. Most government policies aimed at helping industries compete are directed in the wrong areas. Porter recommends some strategies for business (Lewis et al, 1999) to gain advantage and it is interesting to see how my company NGIS Australia is addressing these; Create pressures for innovation by selling to difficult buyers and channels – NGIS has done this in the past. But to be honest, I think we are getting a touch lazy as we start getting bigger and develop a large market share. Need to look at difficult customer sectors such as Petroleum, Federal Government and Mining and sell harder. Seek out most capable competitors to motivate change – ESRI would be our most intense rival. As a group we should use them to motivate us and we do now. Establish early warning systems – in WA well developed. Elsewhere, we are not on the ground enough. Improve the national diamond – most senior people at NGIS are involved in industry groups of some sort. Welcome domestic rivalry – we have being trying to eliminate it…maybe not the right move. Use strategic alliances only selectively – we are becoming better at developing these. NGIS used to have strategic alliances with everyone under the sun but now this is limited to key partners.

References for Porter 1. Michael Porter, The Competitive Advantage of Nations. Free Press 2. M. Grant, The Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12, 86

Final Comments Additional Thoughts and Examples
Japan – high priced land – JIT inventory technique Sweden – short building season – pre-fabricated houses Clustering – Related and Supporting Industries Silicon Valley Detroit Italy – leather/shoes S. Korea Example

Review External Enviro – Theory Types of international organizations
Criterion -- Level of Global Participation International/Multi-Domestic Multinational Transnational/Global Stages of Development to an International O. Descriptive Model Effectiveness of Internationalization Relationship between extent of internationalization and performance External Enviro – Theory National Competitive Advantage Porter Diamond Trade Agreements 88

External Environment - Theory
2. Trade Agreements Why? Protectionism? Pro /Con 89

Types of Trade Agreements
Trade Area Common tariffs among members -- individual tariffs with non-members. NAFTA, ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam Mill) Customs Union Common tariffs for non-members. ANDEAN (Bolivia, Ecuador, Peru, Columbia, Venezuela) Common Market Free flow of goods and labor. Mercosur (Brazil, Paraguay, Uruguay, Argentina, Chile) Economic Union Common currency, common overseeing institutions European Union Members; Euro; European Parliament; Court of Justice Political Union 90

External Environment - Addendum
You need to know this about -- 91

Level of International Activities International Investment
International Trade 92

North America United States - which industries most internationally active? Why? US-Canada Free Trade Agreement (1989) – NAFTA …. Mexico - wage rate; maquiladora industry (1965) 93

Europe delayed differentiation acquisitions/alliances
EU members ….. EU – The Euro 94

European Union EU (27): Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, UK, France, Germany, Ireland, Greece, Romania (07), Bulgaria (07) EMU (13): Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Slovenia 95

European Union - continued
The European Commission The Council of Ministers (counterbalance to Commission) The European Parliament The European Court of Justice 96

European Union The European Commission
proposes policies and legislation responsible for the administration of the EU ensures - provisions of the EU treaties+the decisions of the other institutions are properly implemented one 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 97

Eastern Europe Russia (glasnost, perestroika) The Ukraine
Break-up of The Soviet Union (Dec ) Russia (glasnost, perestroika) The Ukraine Czech Republic Slovakia Poland 98

New Internet Sources Emerging markets/ economies in transition
99 99

Limitations on foreign ownership Centralization of authority
Russia Gazprom – Europe (25%) Limitations on foreign ownership Centralization of authority Weak infrastructure 100

External Environment Latin America Middle (Central) and South
Mexico, Costa Rica, El Salvador, Nicaragua Peru, Colombia, Venezuela Brazil Argentina Chile 101

External Environment Asia Japan South Korea - chaebols China
MITI (Ministry of International Trade and Industry) keiretsus Current economic conditions South Korea - chaebols China GNP growth of 10% (80s) low wage rates 102

External Environment What about Australia? 103

External Environment Baby Tigers Thailand, Malaysia, Indonesia
The Four Tigers South Korea, Hong Kong, Singapore, Taiwan Baby Tigers Thailand, Malaysia, Indonesia 104

Less developed countries
Large population, high unemployment, inflation, low or negative economic growth, low literacy rate India, African countries, Central and South American countries, Middle East 105

Kenya and Tanzania Kenya Tanzania USA
34 Mill; 6.7% HIV; 85% literacy; $1,200 GDP/capita; growth 5%; UE 40% Tanzania 37 Mill; 8.8% HIV; 78% literacy; $700 GDP/capita; growth 6% USA 301 Mill; .6% HIV; 95% literacy; $48,600; 3.2% 106 106

Major economic regions
North America Europe Asia 107

The Triad Economic Superpowers The United States
The EU (dominated by Germany), Japan Dominates foreign direct investment and international trade 108

FDI Clusters For the U.S. Latin America For EU Eastern Europe 109

Thailand, Malaysia, Indonesia
FDI Clusters - For Japan The Four Tigers South Korea, Hong Kong, Singapore, Taiwan Baby Tigers Thailand, Malaysia, Indonesia 110

Data US Japan Germany 301 Mill 127.5 Mill 82.5 Mill. 3.2% 2.2% 2.7%
Population 301 Mill 127.5 Mill 82.5 Mill. GDP growth 3.2% 2.2% 2.7% GDP/ Capita $44,800 $33,100 $31,900 CPI ECF 7.3 (20) 5 7.6 (17) 18 8.0 (16) 19 111

Group Dynamics Why groups? 112

Group Dynamics Group performance =
Sum of individual performance PLUS group dynamics Group dynamics can be positive or negative Higher quantity and quality of solutions 113

Group Dynamics Different viewpoints Differences in expertise
Advantages – Benefits Different viewpoints Differences in expertise Differences in training and experience Cultural differences Value differences 114

Group Dynamics Process losses Loafing Intra-group conflict
Miscommunication Wrong leader In appropriate role and task assignments Role ambiguity Role conflict Informal, dysfunctional norms 115

Group management - Handout
Group Dynamics Group management - Handout Roles What – List of tasks Who – Is responsible for what, based on expertise How - Enforcement Timeline When – Specific deadlines What – Effective communication Who - Commitment 116

Group Dynamics Group management Leadership Formal Why
Expertise and role Norms Must be explicit Agreed upon by all Consequences of norm violations 117

National Culture Harry and Sally in Saudi Arabia What went wrong?
External Environment National Culture Harry and Sally in Saudi Arabia Lack of prep -> ????? -> Loss of contract What went wrong? Specific examples! 118

What went wrong? Specific examples!
Sabbath Flights Language - Taxi Coffee – Refusal – Rude Food Role of women Negotiation – Relationship- building Why did things go wrong? Lack of preparation – Cultural knowledge Cross-Cultural sensitivity 119

Culture and International Management
Relevance Cultural Toughness – Cultural Distance Cross-cultural literacy Cost of doing bus in a particular culture 120

Internationalization Decision
Benefits from internationalization into a specific country Cost associated with internationalization into a specific country Risk associated with internationalization into a specific country. Decision = f (benefit-cost-risk tradeoff) 121

All people have common life problems such as ….
Cultural Dimensions All people have common life problems such as …. Possible solutions to such problems ….. Different people choose different solutions ….  Culture 122

Six basic dimensions describe the cultural orientations of societies
Cultural Dimensions Six basic dimensions describe the cultural orientations of societies What 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? 123

Cultural dimensions Six basic dimensions describe the cultural orientations of societies 1. What is the nature of people? Good/evil/change 2. What is a person's relationship to nature? Dominant/harmony –subjugation 3. What is a person's relationship to other people? Individualistic/group – hierarchical/lateral 124

Cultural dimensions Six basic dimensions describe the cultural orientations of societies What is the primary mode of activity? Doing/being What is the conception of space? Private/public 6. What is the temporal orientation? Future/present/past 125

Characteristics of Culture - Values and Norms
Social structure Religion Political philosophy Economic philosophy Education Language 126

1) Social structure Social stratification Class consciousness
Class membership is a function of ? Social mobility 127

2) Religion www.adherents.com Minimal level of self-identification
Non-religious 14% Christianity 2 bill; 33% Protestant work ethic Catholic vs Protestant/Lutheran Take care of your neighbor and the less fortunate 10 commandments 128

Sunni and Shi’ite – best known branches
Islam 1.3 bill; 22% Sunni and Shi’ite – best known branches 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 role of women and men 129

Hinduism 900 mill; 15% Buddhism 360 mill; 6% spiritual achievement;
Nirvana; Samsara – birth, death, re-birth; Buddhism 360 mill; 6% 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 Japan – Temples, Shrines (Shinto) 130

Characteristics of Culture (Cont’d)
3) Political philosophy Political freedom – dominant political orientation 4) Economic philosophy Free Market – to what extent Economic freedom - 5) Education Importance Access Type 6) Language (verbal/spoken; non-verbal) Communication; word equivalency 131

Ignoring 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) 132

The US Culture???? Describe …. 133

Culture Relevance Three aspects CBR Analysis Cultural toughness
Cross-cultural literacy Cultural sensitivity Three aspects Basic Assumptions Characteristics Measurement Application of cultural dimensions

Measurement of Culture
Purpose ???? Geert Hofstede – 1970’s IBM employees 100,000 across 30+ countries Survey – typical work situations Identify systematic differences – Factor Analysis Four independent factors Follow up research: Culture’s consequences (2001) Culture: Collective programming of the mind 135

Individualism/Collectivism Power Distance Uncertainty Avoidance
Dimensions of culture Individualism/Collectivism Power Distance Uncertainty Avoidance Masculinity/Femininity Confucian Dynamism 136

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. 137

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. 138

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. 139

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. 140

Confucian dynamism or 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. 141

Sources for International Research
Hofstede, Geert (1980): Culture’s Consequences Hofstede, Geert (1991): Cultures and Organizations Hofstede, Geert (1984): Culture’s Consequences: International Differences in Work-Related Values Hofstede, Geert and Michael Harris Bond (1984): The Confucius Connection: from cultural roots to economic growth. Organizational Dynamics, 16, 4, 4-21 websites 142

U.S. Japan Germany Individualism: 91 46 67 Power distance: 40 54 35
Uncertainty avoidance: Masculinity: ST/LT: 143

Applying Hofstede’s Dimensions
Lawyers per 100,000 population U.S. Germany Great Britain Japan Italy France 144

Applying Hofstede’s Dimensions
Lawyers per 100,000 population (1996) U.S Germany 190 Great Britain 134 Japan 106 Italy 81 France 49 145

Laurent’s Research-See Adler
9 Western countries, US, 2 Asian countries More than sixty common work situation (yes/no) The main reason for hierarchical structure is so that everybody knows who has authority over whom In order to have efficient work relationships, it is often necessary to bypass hierarchical lines It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work 146

Laurent’s Research The main reason for hierarchical structure is so that everybody knows who has authority over whom US 18% agree, Germany 24%, Italy 50% France 45%, Japan 52% Power Distance 147

Laurent’s Research US 68% agree, Germany 54%, Italy 25%
In order to have efficient work relationships, it is often necessary to bypass hierarchical lines US 68% agree, Germany 54%, Italy 25% Uncertainty Avoidance 148

Laurent’s Research US 18% agree, Germany 46%, Italy 66%, Japan 78%
It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work US 18% agree, Germany 46%, Italy 66%, Japan 78% Uncertainty Avoidance 149

Fons Trompenaars Riding the Waves of Culture (1998; 2nd edition)
Dimensions (see textbook): Universalistic–Particularistic (Obligation) Neutral-Affective (Emotional Orientation in Relationships) Specific-Diffuse (Involvement in Relationships) Achievement-Ascription (Legitimization of Power) 150

Expatriate Assignment
Why to use expatriates? Ethnocentric, polycentric, regiocentric, geocentric Culture Shock Selection KSA Requirements KSA Assessment Training Type and rigor of training Failure Rates Reasons 151

Four stages cross-cultural adaptation:
Honeymoon Irritation and hostility Gradual adjustment Biculturalism 152

The Expatriate Assignment
Experience of uncertainty Anticipatory and in-country adjustment Expatriate Selection Relevant KSA’s? Technical, Managerial Adaptiveness Measurement SMILE: Speciality; management ability; international flexibility; language facility; endeavor (Matsushita) Spouse and Family - Failure rates 40% on average; lower for European and Japanese 153

Failure rates Rosalie Tung: Reasons Selection is based on headquarter criteria Lack of training, preparation, orientation Alienation/lack of support from headquarters Inability to adapt to local culture/work enviro Problems with spouse, family Compensation Poor programs for career support/repatriation 154

Training Techniques and Rigor of Training
Area studies Culture assimilators Language training Sensitivity training Field experiences 155

Training Cultural toughness – China, Brazil, India, Japan, Russia, Mexico, Saudi Arabia, South Korea, France Less than 1/3 of expatriates receive training Pre-departure training, post-arrival training, reentry training Culture, language, everyday matters Cross-cultural training to ease the adjustment to the new environment by reducing “culture shock”: a state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture 156

Training – Examples ABB (Asea Brown Bovari) rotates 500 managers around the world .. Every two to three years PesiCo orientation program for foreign managers … one year at U.S. bottling division plants Honda of America Japanese language, culture, lifestyle training .. Tokyo up to 3 years GE engineers and managers must have global perspective .. Regular language and cross-cultural training 157

Compensation $100,000 manager in U.S. -> $300,000 in London, $1mill in Tokyo or Stockholm Equity and goodwill Purchasing power and standard of living Tax differentials and tax equalization Balance sheet approach Allowances – Cost of living, housing, education, home leave, shipping and storage Repatriation – Reverse Culture Shock 158

Expatriate Assignment
DVD

Case 2 - Expatriate in China
What other concerns do you have about Controls’ HRM Strategy? Selection of employees for expatriate assignments not very well structured. Orientation well planned but not carefully implemented – checklist not completed in a timely manner Language training was not completed Preparatory training should have included details on the specific plant where James would be working, including physical aspects of the plant and management aspects as well as interaction with the government and unions. Sudden, unexpected termination of the assignment is a main issue. What will James position be back in the U.S.? What changes would you recommend to Controls’ Management? Or its parent? In addition to the general orientation and preparatory training for the assignment in China, Controls needs to provide an orientation to the specific situation the expatriate will face. Also, the expatriate needs to be fully aware of the relationship between and the respective roles of the parent company and Controls. The expatriate assignment should be planned thoroughly from beginning to end. Was James Randolf a good choice for this position? Justify your arguments. Yes, he had the appropriate technical skills as well as the ability to adjust and adapt to another culture. Positive was as well that his wife was very supportive and interested in the assignment. What were some aspects of the Chinese business environment (including culture) that James had to deal with? Concept of face and time Chinese think about thinking and relationships Importance of gift-giving Concept of “privacy” does not exist Guanxi Strict Human Resource Management rules applying to Joint Ventures in the Special Economic Zones Personnel files Effect of type of work done and where worked on employee’s reputation Rank Quality control Lack of infrastructure Mostly young female employees Terrible conditions in the factory Ongoing negotiations James’ role relative to the role of the managing director Huge difference between managers’ education and workers’ education Importance of being a “role model” as a manager

Cultural Stereotypes What are stereotypes? Why stereotypes? Good/bad?
Exercise – Five jobs!

European Scholars Conference
EU – Economic Restructuring Funds – Geography Globalization – Manageable/Unmanageable East – West Divide v North-South Divide Hungary – hi capital , hi skill Bulgaria – hi capital, low skill (Mining) Slovakia – low capital, hi skill (high Tech) Romania – low capital, low skill (Textile) EU – Consumer Protection – Public Health Task Force – WHO Obesity (BMI Index: 30+) – U.S. 33%; UK 22%, G 12%, Switzerland 8%, Italy 9% Europe – Migration World Competitiveness Yearbook 162

Overall Attractiveness of a Country
Trade-off between Costs Benefits Risks 163

Overall Attractiveness of a Country
Trade-off between Costs: legal requirements, availability of resources, infrastructure, level of economic development, free market? Benefits: market size, wealth (purchasing power), future wealth, resources (quality and cost) 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. 164

What is risk? What is economic risk? What is political risk?
165

will cause drastic changes in a country's business environment
Political Risk Definition the likelihood that political forces will cause drastic changes in a country's business environment that adversely affect the profit and other goals of a particular business enterprise. 166

Political Risk Characteristics of countries
with a higher likelihood for political risk: Social unrest* (see below) Demonstrations Terrorism *Social Unrest More than one ethnic nationality Competing ideologies battle for political control High inflation and falling living standards Strikes 167

Results of Social Unrest: Change in government and/or policy
Results of Political Change: Expropriation Indigenization 168

Risk 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 Indicators Market Indicators Political Risk Yearbook 169

Political Risk Data - Example
Dun & Bradstreet’s Guide to Doing Business around the World (textbook) Comparative Country Risk Rankings Overall Ratings: Political Risk, GDP Growth, Per Capita Income, Trade Flow with the US, Monetary Policy, Trade Policy, Protection of Property Rights, Foreign Investment Climate 170

Risk Management Management Integrative Protective/Defensive 171

Integrative Approach Become part of the host country’s infrastructure
Good relationship with host government Produce locally … in-country suppliers Joint ventures Local R&D Effective in long-run 172

Protective/Defensive Approach
Discourage host government from interfering As little as possible local manufacturing and R&D Capital from local banks and outside Diversify production among several countries 173

Contingency Approach Three primary factors to be considered:
Overall 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 risk 2.General investment type - Conglomerate/Vertical/ Horizontal 3. Specific Investment (1=most risky) - Sector (primary=1 /industrial=3/service=2) Technology (science=2/non- science=1) Ownership (wholly=1/partially owned=2) 174

Political Risk Insurance
covers the loss of firm’s assets, not the loss of revenue Overseas Private Investment Corp (OPIC) inability to repatriate profits, expropriation, nationalization, damage from war, terrorism Foreign Credit Insurance Association war, revolution, currency inconvertibility, cancellation of import or export licenses 175

A Risky Country: unstable government unstable economy
war/revolution/terrorism unfriendly/hostile people unacceptable customs/values/attitudes 176

A Risky Company: type of product and/or service offered
type of industry structure of ownership level of technology 177

Political Risk ONDD Office National Du Ducroirce

Progress Report #2 Questions? 179

Termpaper – Integration of course material
The purpose of your paper is to report the cost-benefits-risk associated with internationalizing into “your” country. What do you know about the cost, benefits, risk associated with “your” country? The first section in your country analysis is an assessment of the external environment to determine cost-benefits-risk. What aspects of the environment will you review? What of the material that we have covered in class will you be using for that assessment? What is the population size of “your” country? What is the GDP/capita? How will you address the cultural aspects of “your” country? Is “your” country culturally tough for Americans? We started a review of the internal environment of an international organization. You will be reporting on the components of the internal environment in businesses in your country and determine the associated cost-benefits-risk. Give examples of the issues that will have to be addressed in this section of the report. 180 180

Integration of Course Material
Strategic Management Four components of the internal environment Behavior – Group and Individual Leadership Motivation, Rewards, and Compensation Processes Communication Decision-making HR processes Structure Hierarchical versus open Formal versus informal Organizational Culture Six dimensions – tight vs loose control, open vs closed etc 181 181

Self-Assessment (Group) for Termpaper and Peer Evaluation
Rubric provided to students Completed self-assessment - submitted when the termpaper is handed in Each group member evaluates each group member Peer Evaluation - Completed form to be submitted with the termpaper 182 182

Strategy The science and art of conducting military campaign
on a broad scale. A plan or technique for achieving some end. 183

Strategic management set of decisions and subsequent actions
used to formulate and implement strategies that will optimize the fit between the organization and its environment in an effort to achieve organizational effectiveness. 184

Strategy and the Firm Profit = Revenue - Cost
Purpose of any business: Provide products or services that are desired by society and, hence, to make a profit Profit = Revenue - Cost Profit = Volume * Price - Cost 185

Profit If the price the firm can charge for its output is greater than its costs of producing that output. 186

Profit To do this, a firm must produce a product that is valued by consumers. 187

Value Thus the firm must engage in value creation. 188

Value to Customer The price that consumers are willing to pay indicates the value/worth of the product to the consumer. 189

Strategy Porter, 1985 Strategy Model
(Distinguish from Porter’s Diamond - National Competitive Advantage) 190

Strategy 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). 191

The firm is a value chain composed of a series of distinct
value creation activities Value creation activities Primary activities Production and marketing 2. Support activities Materials management, R&D, Human resource management 192

Strategy - Michael Porter
The steps a firm takes to ensure that the cost of value creation are reduced and that 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. 193

Strategy and Global Expansion
Performing certain value creation activities may have two benefits for the value chain 1. Lower the cost of value creation 2. Improve the quality of the product - create more value Perform value creation in “best” location 194

Firms realize location economies by dispersing particular value creation activities to those locations where they can be performed most efficiently and effectively. 195

Location economies and/or experience economies:
Basing each value creation activity that the firm performs at the 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. 196

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. 197

Constrains on transferring core competencies result from the need for local responsiveness Need 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. 198

Strategy of an international organization
concerns identifying and taking actions that will reduce the cost of value creation and/or will add value by better serving the consumer needs through transferring core competencies and realizing location economies taking into account national differences. 199

Strategic Predispositions
Ethnocentric: strategic decisions are made at headquarters, key jobs at both domestic and foreign operations are held by headquarters management personnel (PCN's). 200

the MNC's subsidiaries are treated as distinct national entities
Polycentric: 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 integrate business strategy and decision-making. Regiocentric: reflects the geographic structure of the MNC. 201

Strategic Planning Process
External Scanning and Internal Scanning (SWOT) Opportunities/Threats Strengths/Weaknesses Vision, Mission, Goals, Objectives, Strategies Strategy Implementation 202

Three Traditional Strategies (Bartlett/Goshal, 1989)
Multinational 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. 203

Pressures for Local Responsiveness
1. Differences in consumer tastes and preferences 2. Differences in infrastructure and traditional practices 3. Differences in distribution channels 204

Privatization http://www.privatizationbarometer.net/ Register but free
Library – ask business librarian for help 205

The Internal Environment of an International Organization
Organizational Culture People Processes Structure 206

Organizational Culture
What is it? Relevance? Why is it important? Where does it come from? What happens when two companies merge? Boeing-McDonnel Douglas; GE and Bently NV What happens when two companies from different countries merge? 207

What is organizational culture? The shared values, beliefs, norms, and patterns of behavior in an organization. Schein's Three Layer Model: Artifacts, Values, Basic Assumptions Measurement of organizational culture In the workplace cultural differences are accounted for by work practices. 208

Dimensions of Organizational Culture
Process ↔ Results oriented Tight ↔ Loose Control Job ↔ Employee oriented Parochial ↔ Professional oriented Closed system ↔ Open system Normative ↔ Pragmatic 209

Culture and Org Characteristics
Structure Communication Rewards Decision-Making Process Results Job Employee Tight Loose Parochial Professional Open Closed Normative Pragmatic 210

Creating and changing the culture of an organization? National and Organizational Culture Organizations in Japan, Germany, the U.S. are likely to have which org. culture characteristics? Hofstede The Organizational Culture of a MNC A universal org. culture? 211

Homeostasis---applied to psychological needs
Behavior Individual Behavior P = f (A, M) Motivation defined! Homeostasis---applied to psychological needs MotivationTheories --- Applicability across cultures?? 212

MotivationTheories Behavior Content Theories Maslow’s Need Hierarchy
Two Factor Theory of Motivation McClelland Achievement Motivation 213

Motivation Theories - International Context
How applicable are the motivation theories proposed by Maslow and Herzberg in the international context? 214

Motivation Theories in the International Context
Maslow’s needs, in particular the upper-level ones, are important at the managerial level Ronen concluded that need clusters are constant across nationalities and that Maslow’s need hierarchy is confirmed by these clusters. Also, Herzberg’s categories are confirmed by the cross-national need clusters. 215

Behavior - Motivation Process Theories valence 
Equity Theory of Motivation Goal - Setting Expectancy Theory of Motivation valence  Effort  Performance  Outcome   expectancy instrumentality 216

Motivation and Hofstede
High UNC - job security Low UNC - fast-track, more risky opportunities Low POW - motivation through teamwork and peers High POW - motivation depends on boss High IND - motivation through opportunities for individual advancement Low IND - motivation through appeals to group goals and support High MASC - comfortable with traditional division of work roles Feminine - looser definition of roles, more flexible 217

Hofstede and Internal Environment
UNC POW MAS/F IND/C ST/LT Motivation and Rewards Leadership Decision Making Communication Org. Culture Structure

Reinforcement Theory Applicability? Assumptions??
Behavior is a function of its consequences 219

220

Motivation Theories - Summary
Theory Main Attributes International Applicability Maslow – Need Hierarchy Herzberg – Two Factor Theory McCelland – Learned Needs Stacy Adams – Equity Theory House – Goal Setting Vroom – Expectancy Reinforcement

Motivation Theories - Summary
Theory Main Attributes International Applicability Maslow - Need Hierarchy Five needs With modification – order of needs Herzberg – Two Factor Theory Hygiene factors – work context and Motivators – work content With modification – best in individualistic environment McCelland – Learned Needs Three needs With modification – Collectivistic vs individualistic Stacy Adams – Equity Theory Social comparisons With modification – does not work in collectivistic culture House – Goal Setting Goal commitment, difficulty, MBO With modification – best in ST environment Vroom – Expectancy Effort, performance, outcome, expectancies, instrumentalities, valence Applicable – all factors are explicit and can be determined based on culture Reinforcement Behavior is a function of its consequences Applicable – very BASIC model

The Meaning of Work Tied to economic necessity What else? 223

The Meaning of Work Six functions of work: needed income,
interesting & satisfying, contact with others, serve society, keeps one occupied, status and prestige These may be satisfied through other aspects of life 224

MOW - Work Centrality “the degree of general importance that working has in the life of an individual at any given point in time.”  As the mean work centrality score increases, the more motivated and committed the workers would be. 225 225 225

Study results Britain (lowest), Germany, Netherlands, Belgium, USA,
Israel, Japan 226

Work Centrality 8.0 7.78 Japan N = 3144 7.75 7.5 7.30
Mean work centrality score 8.0 7.78 Japan N = 3144 7.75 7.5 7.30 (former) Yugoslavia N = 521 Work is more important and more central in life 7.25 7.10 Israel N = 893 N = 996 N = 446 7.0 6.94 USA 6.81 Belgium 6.75 6.69 Netherlands Germany N = 976 N = 1276 6.67 6.5 6.36 Britain N = 409 6.25 6.0 227

Group effectiveness =  individual behavior + 
Group Behavior Group effectiveness =  individual behavior +  Mature group = effective group Stages of development (F, S, N, P) Two main characteristics for the analysis of groups Leadership Composition 228

Leadership Which Hofstede dimension? Types of leadership styles:
autocratic, participative, group authoritarian, democratic, laissez-faire Theory X, Theory Y 229

Traits, Behaviors, Contingency approach
Leadership Research Traits, Behaviors, Contingency approach Kouzes and Posner: Challenging the process, inspiring shared vision, enabling to act, modeling the way, encouraging the heart Across cultures: Haire, Ghiselli, Porter South-European and Nordic-European --- more autocratic, more Theory X South-European give a little more autonomy to employees in working out details 230

Japanese  Theory Y --- employees learn from mistakes
Germans  Theory X --- autocratic, stop poor performance asap 231

Culturally-Contingent Beliefs Regarding Effective Leadership Styles
Country N Charisma Team Self- Part. Humane Auton. Protective Austria Brazil * * China Denmark England India * 3.85 Japan Mexico * Russia * USA * Scale 1 to 7 in order of how important those behaviors are considered for effective leadership (7 = highest) 232

Culturally-Contingent Beliefs - Effective Leadership Style
Americans appreciate two kinds of leaders. They seek empowerment from leaders who grant autonomy and delegate authority to subordinates. They also respect the bold, forceful, confident, and risk-taking leader, as personified by John Wayne. The Dutch place emphasis on egalitarianism and are skeptical about the value of leadership. Terms like leader and manager carry a stigma. If a father is employed as a manager, Dutch children will not admit it to their schoolmates. Arabs worship their leaders – as long as they are in power! 233

Iranians seek power and strength in their leaders.
Culturally-Contingent Beliefs Regarding Effective Leadership Styles (contd.) Iranians seek power and strength in their leaders. Malaysians expect their leaders to behave in a manner that is humble, modest, and dignified. The French expect their leaders to be “cultivated” – highly educated in the arts and in mathematics. R. House, et al. 234

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 process actual productivity  or  = potential productivity  or  - losses  or  235

Benefits associated with cultural diversity:
# of alternatives generated; quality of alternatives; creativity/divergence; no groupthink 236

Process Losses: potential for miscommunication increases;
cohesiveness decreases; negative attitudes (dislike, mistrust); perceptual problems (stereotyping); stress 237

Group development stages:
Multicultural teams have the potential to be the most or the least effective teams Group development stages: entry, work, action Task: innovative or routine 238

Manage culturally diverse teams through:
task-related selection recognition of differences super-ordinate goals equal power mutual respect feedback 239

Communication: Macro - Level
Communication Flows upward/downward formal/informal 240

Communication: Micro - Level
Micro/Interpersonal Level Definition: Transmission of meaning through the use of common symbols Sender -> Message -> Receive (Encoding) (Medium) (Decoding) 241

Interpersonal communication Process encoding message decoding 242

Communication barriers language perception - stereotyping culture nonverbal communication projected similarity parochialism 243

Micro -Level Explicit vs implicit communication High vs low context
High vs low contact 244

Opening Profile: Keeping Your Foot out of Your Mouth
Small slips can be big errors: “Hello, wife of the boss” “Thank you for your hostility” Patting someone on the head Do you shake hands, bow, hug, or kiss when meeting someone? The opening profile provides several examples of unintentional gaffes made by business people outside their home countries. These examples of miscommunication are both verbal and nonverbal. Fortunately, most communication mistakes are not deal breakers. Nonetheless, it is worthwhile for international managers to do their cultural homework. The latter is especially true given that culture and communication are closely intertwined and that managers may spend between 50% and 90% of their time communicating.

The Communication Process
Communication is the process of sharing meaning by transmitting messages through media such as words, behavior, or material artifacts. As shown in this figure, there are several stages in this process in which meaning can be distorted. Anything that undermines the communication of an intended message is referred to as noise. Noise exists because people filter, or selectively understand, messages consistent with their own expectations and perceptions of reality, and their values and norms of behavior. As such, the more dissimilar the cultures of those involved, the more likely it is misinterpretation will occur.

Cultural Noise Behavior Attribution
American: “How long will it take to finish this report?” American: I asked him to participate. Greek: He is the boss. Why doesn’t he tell me? Greek: “I don’t know. How long should it take?” American: He refuses to take responsibility. Greek: I asked for an order. When a member of one culture sends a message to a member of another culture, intercultural communication occurs. The message contains the meaning intended by the encoder, but the decoder’s culture ends up becoming part of the meaning as he/she interprets the message. Attribution is the process in which people look for an explanation of another person’s behavior. When someone does not understand another, he/she usually blames the confusion on the other’s “stupidity, deceit, or craziness.” This slide illustrates miscommunication and cultural noise by highlighting a portion of the example in Exhibit 4-7.

Trust in Communication
Business transactions based on long-standing vs. arm’s length relationships High propensity to trust: Nordic countries, China, Canada, US, Britain Low propensity to trust: Brazil, Turkey, Romania, Slovenia, Latvia Effective communication depends on the informal understandings among the parties involved that are based on the trust developed between them. When trust exists, there is implicit understanding within communication, cultural differences may be overlooked, and problems can be dealt with more easily. The meaning of trust and how it is developed and communicated vary across societies. Similarly, some cultures have a greater propensity to be trusting than others.

The GLOBE Project and Communication
High performance orientation (e.g., US)  present objective information directly and explicitly Low assertiveness (e.g., Sweden)  two-way discourse and friendly relationships High humane orientation (e.g., Ireland)  avoid conflict, be supportive The GLOBE research discussed in Chapter 3 also illustrates culturally appropriate communication styles and expectations. These examples show how to draw implications for appropriate communication styles from research on cultural differences.

Cultural Variables in Communication
Attitudes Stereotyping Social organization e.g., United Auto Workers (UAW) Thought patterns The meaning of double lines These cultural variables (and those on the next slide) can affect communication via a person’s perceptions. The effects of these variables are interdependent and inseparable. Attitudes underlie our behavior, communication, and interpretation. Ethnocentric attitudes are a particular source of noise. Stereotyping occurs when a person assumes that every member of a society or subculture has the same characteristics. Astute managers deal with people as individuals. The kinds of social organizations we belong to can influence our perceptions. Examples of social organizations include one’s nation, tribe, religious sect, or profession. The logical progression of reasoning varies widely across cultures. Managers cannot assume others use the same reasoning processes. The text provides an example of a Canadian who misunderstood the meaning of double lines on the road in Thailand. He automatically assumed the lines meant “no passing”—just as they do in Canada.

Roles Language “Come out of the grave with Pepsi” When “yes” doesn’t mean “yes” Cultures differ in terms of their perceptions regarding who should make decisions and who has responsibility for what. When two people do not share a common language, communication problems arise. Even in countries that share the same language, problems can arise from the subtleties and nuances inherent in language. Because of increasing diversity, managers often have to deal with workforces that speak a variety of languages—even within a single country. Translation can be problematic as well. Pepsi provides one example of translation problems. As another example, when many Asians say “yes,” it often means only that they have heard you and are too polite to disagree. Sometimes how something is said is more important than what is said.

Nonverbal communication Kinesic behavior (e.g., sticking out the tongue in China) Proxemics (e.g., the corner office, closeness when talking) Paralanguage (e.g., the sound of silence) Object language (e.g., monochronic vs. polychronic) Nonverbal communication is behavior that communicates without words—though it often may accompanied by words. Nonverbal communication has been shown to account for between 65% and 93% of interpreted communication. Kinesic behavior is communication through body movement—e.g., posture, gestures, facial expressions and eye contact. The meaning of such behavior varies across countries. For example, in China sticking out the tongue indicates surprise, whereas widening one’s eyes indicates anger. Occulesics are a form of kinesics that includes eye contact and the use of the eyes to convey messages. For example, the British will look away from you while speaking in order to keep your attention. When they have finished speaking, they will signal it is your turn to talk by looking at you. Proxemics concern the influence of proximity and space on communication (e.g., in terms of personal space and in terms of office layout). For example, space communicates power in the US and Germany. Executives in the US may have large, private corner offices. French executives, however, communicate their central position by working in the middle of subordinates. In high-contact cultures, people stand close and touch a great deal when communicating. People in low-contact cultures prefer less sensory involvement when communicating. Often people from cooler climates and individual cultures are low-contact communicators. People from warmer climates and collectivistic cultures tend to be high-contact communicators. Paralanguage refers to how something is said, rather than the content of what is said—e.g., rate of speech, tone and inflection of voice, other noises, laughing, yawning, and silence. For example, the Chinese tend to spend about 30 seconds thinking before they speak. Americans are only comfortable with 10 to 15 seconds of silence. Object language or material culture refers to how we communicate through material artifacts—e.g., architecture, office design and furniture, clothing, cars, cosmetics, and time. In monochronic cultures, time is experienced linearly and as sometime to be spent, saved, made up, or wasted. Time orders life, and people tend to concentrate on one thing at a time. In polychronic cultures, people tolerate many things happening simultaneously and emphasize involvement with people. In these cultures, people may be highly distractible, focus on several things at once, and change plans often.

Context The context in which the communication takes place affects the meaning and interpretation of the interaction. High context cultures do not express feelings and thoughts explicitly. Rather, one has to read between the lines and interpret meaning from one’s general understanding. Low context cultures usually compartmentalize personal and business relationships. As such, communication must be more explicit. To illustrate, Germans will expect considerable detailed information before making a business decision. Arabs will base decisions more on knowledge of the people involved.

Comparative Management in Focus: Communicating with Arabs
Arabs are quick to “sound off” Communication is built on friendship, honor, hospitality Arabs are high-contact communicators Time is key in communication process Arab culture is one of emotional extremes, and this characteristic is illustrated in the language—which contains means for overexpression, many adjectives, and words that allow for exaggeration. Arabs tend to do business with other people—not with the organization. As such, establishing relationships and protecting the honor of others is very important. For instance, one should not decline offers of hospitality, should expect conversations to be meandering (e.g., wander from social to business topics and back), and should be careful not to criticize in front of others. As high-contact communicators, Arabs tend to stand closer when talking and to touch more frequently. The distance often preferred by Americans can make them seem suspicious and cold to Arabs. Arabs are polychronic and believe that something will happen only is Allah wills it to happen. As such, it is inappropriate to place deadlines on activities, and many interruptions during conversations should be anticipated.

Managing Cross-cultural Communication
Develop cultural sensitivity Anticipate the meaning the receiver will get Careful encoding Use words, pictures, and gestures Avoid slang, idioms, regional sayings There are several things a manager can do to encourage effective cross-cultural communication. One can attempt to anticipate the likely meaning a receiver will attach to a message by internalizing honest cultural empathy with that person. The latter includes thinking about the context of the communication—e.g., societal, economic, and organizational. Keep in mind that communication is both verbal and nonverbal. Encoding a message in multiple ways can help ensure the receiver gets the right meaning—especially when language differences are an issue. For instance, it may be helpful to provide a written summary as a supplement to a verbal presentation.

Managing Cross-cultural Communication
Selective transmission Build relationships face-to-face if possible Careful decoding of feedback Get feedback from multiple parties Improve listening and observation skills Follow-up actions The medium chosen for the message depends on a variety of factors. The key is to find out how communication is transmitted in the local organization—e.g., how much is downward or upward, how much is vertical, how the grapevine works. Of course, cultural variables need to be considered as well. Face-to-face relationships often are best for relationship-building. Personal interaction also allows for immediate verbal and visual feedback. When face-to-face communication is not possible, teleconferencing and telephone calls may be more desirable than . Just as multiple media and sources are important for encoding, they can help ensure a message is accurately decoded. It can be useful to ask colleagues to help interpret what is going on. To keep lines of communication open, managers must follow through with what has been discussed and agreed upon. Contract follow through can be particularly difficult given that cultures have different ideas about what constitutes a contract.

Micro -Level Non-verbal communication Body Language Emblems
Illustrators Affect Display Regulators/Adaptors Space (proxemics) Touch Voice Dermal Code 257

Organizational Effectiveness
Decision-Making Quality of decisions Organizational Effectiveness Differences across Cultures? 258

DM Process and Culture Problem Recognition Information Search
Alternative Generation Choice Implementation 259

International 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 interest -> International managers spend more than 50% of their time negotiating 260

(Fisher and Ury "Getting to Yes"):
Recommendations (Fisher and Ury "Getting to Yes"): 1. Separate the people from the problem 2. Focus on interest, not position 3. Insist on objective criteria 4. Invent options for mutual gain 261

The Negotiation Process
Negotiations generally proceed in five stages: preparation, relationship building, exchanging task-related information, persuasion, and concessions and agreement. In reality, these stages may overlap and negotiators may temporarily revert back to a previous stage.

Stage One: Preparation
Develop profiles of counterparts Find out likely demands, team composition, and counterpart authority Uzbekistan had to learn from scratch Choose a negotiation site British/French Chunnel negotiations Most problems in negotiation are caused by differences in culture, language, and environment. As such, it is important to spend time learning about your counterparts’ negotiating styles and expectations in addition to developing a tactical strategy. Part of this preparation entails understanding your own negotiating style and how it likely differs from others’. Skilled negotiators develop profiles of their counterparts so they have some idea of what to expect, how to prepare, and how to act. For example, a negotiator might want to consider how the counterpart was chosen as the negotiator, the kind of issues likely to be emphasized, the complexity of the communicative context, the kinds of persuasive tactics likely to be used, the motivations of the counterpart, the bases of trust, the counterpart’s risk-taking propensity, the attitude toward time, how decisions are likely to be made, and what constitutes a satisfactory agreement. After managers have found out what to expect from the other side—culturally and strategically—they can gear their own strategy to the other side. This includes deciding what roles different members will take, what concessions will be offered, and preparing an alternative action plan in case a solution is not reached. Sometimes, the entire negotiation process is something that must be learned from scratch. For instance, Newport Mining Corporation of Denver found themselves at a standstill when negotiating a joint venture with Uzbekistan. Uzbekistan officials had never negotiated a business contract and did not know how to proceed. After the initial preparation, decisions are made about where the negotiation will actually take place. Compromising on location can signal a cooperative strategy. For instance, when negotiating the tunnel under the English Channel, meetings were held alternatively in Paris and London. In each location, local norms were followed and the local language was used.

Stage Two: Relationship Building
Getting to know one’s contacts and building mutual trust Nontask sounding (nemawashi) Use an intermediary “I have come as a mediator…” The process of relationship building is usually regarded with more significance in other countries than it is in the US—where negotiators typically want to get down to business as quickly as possible. In many countries, personal commitment, rather than the legal system, form the basis of contract enforcement. Relationship building may entail social events, tours, ceremonies, and nontask sounding—general polite conversation and informal communication before the meeting. It usually is recommended that managers new to a given scenario use an intermediary—someone who already has the trust of the foreign managers and, thus, acts as a “relationship bridge.” In Getting to Yes, Fisher and Ury provide a good example of the importance of relationship-building and preparation. When UN Secretary General Kurt Waldheim arrived in Tehran to negotiate the hostage situation in 1980, he stated, “I have come as a mediator to work out a compromise.” His statement essentially translates in Persian as, “I have come as a meddler to make you surrender your principles.”

Stage Three: Exchanging Task-related Information
Cultural differences remain an issue Mexicans can be suspicious and indirect The French enjoy debate and conflict The Chinese ask many questions, but provide ambiguous information in return Show understanding of the other viewpoint In this stage, each side typically makes a presentation and states its position. Then, there is a question-and-answer period, and alternatives are discussed. To Americans, this phase is straightforward, objective, efficient, and understandable. Negotiators from other countries, however, may continue to be indirect during this stage. Adler suggests the most effective negotiators practice role reversal to show understanding of their counterpart’s viewpoint. Doing so may open up a wider range of alternative solutions.

Stage Four: Persuasion
Dirty tricks are in the eye of the beholder False information Ambiguous authority Uncomfortable rooms Rudeness, threats Calculated delays In this phase both parties try to persuade the other to accept more of one position and give up some of the other. Managers may find bargaining and making concessions to be fraught with difficulties because of different uses and interpretations of verbal and nonverbal behaviors. Dirty tricks include efforts to deliberately mislead opponents—e.g., by giving wrong or distorted factual information and using ambiguous authority. Other techniques are intended to place opponents in physically or psychologically stressful situations so that they will give in. It is important to keep in mind, though, that what is a “dirty trick” to Americans may be accepted conduct in other cultures. It also is important to recognize the relevance of nonverbal behaviors. Nonverbal cues often are ingrained in our behavior, and we do not change them for the purposes of negotiation. The latter is important because different cultures have different nonverbal behaviors. For example, Brazilians interrupt more often and use more touching than Japanese or Americans. The Japanese use more silent periods. Though persuasion is treated here as a distinct stage, it often underlies all stages of negotiation.

Stage Five: Concessions and Agreement
Russians and the Chinese start with extreme positions Swedes start with what they will accept Starting with extremes may be most effective Well-prepared negotiators are aware of various concession strategies across cultures and have decided ahead of time what their own strategy will be.

Comparison of Negotiation Styles
Japanese North American Latin American Hide emotions Deal impersonally Emotionally passionate Subtle power plays Litigation, not conciliation Great power plays Step-by-step approach Methodical organization Impulsive, spontaneous Group good is aim Profit is aim Group/individ-ual good is aim This slide highlights some of the information in Exhibit 5-3 and illustrates some differences in negotiation styles between the Japanese, North Americans, and Latin Americans.

Successful Negotiators: Americans
Know when to compromise, but stand firm at beginning Refuse to make concessions beforehand Keep cards close to chest, but make other party reveal his/her position Keep maximum options open, operate in good faith The text provides additional characteristics of American, Indian, Arab, Swedish, and Italian negotiators.

Successful Negotiators: Indians
Look for and say the truth, not afraid to speak up Exercise self-control Respect other party, look for solutions acceptable to all parties Will change their minds, even at risk of seeming inconsistent and unpredictable Indians often follow Gandhi’s approach to negotiation (satyagraha), which combines strength with a love of truth.

Successful Negotiators: Arabs
Protect honor, self-respect, dignity and, thus, are trusted and respected Avoid direct confrontation Come up with creative, honorable solutions Are impartial and can resist pressure Many Arabs, following Islamic tradition, use mediators to settle disputes.

Successful Negotiators: Swedes
Quiet, thoughtful, polite, straightforward Overcautious, but flexible Slow to react to new proposals, but eager to be productive and efficient Able to hide emotions, afraid of confrontation

Successful Negotiators: Italians
Have a sense of drama, do not hide emotions Good at reading facial expressions and gestures Want to make a good impression and use flattery, but are distrusting Handle confrontation with subtlety and tact

Managing Negotiation Avoid person-related conflict Examples
Low-context Americans appear impatient, cold, and blunt to Mexicans. Americans must approach negotiations with Mexicans with patience and tolerance; refrain from attacking ideas Person-related conflict in negotiation is likely to invite negative and relationship-oriented (i.e., as opposed to information-oriented) responses. As such, the nature and appearance of the relationship between negotiators needs to be carefully addressed. Research by Husted suggests many of the problems stem from whether a culture is individual vs. collective and whether it is high vs. low context. Husted’s research provides examples between Americans and Mexicans.

Cross-cultural Negotiation Variables
Successful management of negotiation requires the negotiator to go beyond the general issues and variables involved. Rather, he or she must gain specific knowledge of the parties, prepare accordingly to adjust to and control the situation, and be innovative. Research suggests skillful negotiators tend to consider a wider range of options, pay greater attention to areas of common ground, make more comments regarding long-term issues, make fewer irritating comments (e.g., “We’re making a generous offer”), make counterproposals less frequently, and use fewer reasons to back up arguments. They also practice active listening—asking questions, clarifying understanding, and summarizing.

Comparative Management in Focus: Negotiating with the Chinese
The process of negotiation used by the Chinese is often mystifying to Westerners. For example, the Chinese tend to put more emphasis on respect, friendship, saving face, and group goals. As pointed out in the quote by Henry Kissinger in the text, the Chinese appear impersonal and aloof to Americans; whereas Americans appear erratic and somewhat frivolous to the Chinese. This figure shows the environmental factors involved in Western-Chinese business negotiation.

Two problems Chinese desire for detail Apparent insincerity Saving Face Lien Mien-tzu Two major areas of conflict with the Chinese are their desire for a large amount of detail about product characteristics and their apparent insincerity about reaching an agreement. Regarding the latter, the Chinese often have little authority to close a deal. They must report to the government trade corporations, which often have a representative on the negotiation team. As such, Chinese negotiators are constrained within the framework of state planning and political ideals. When confronted with aggressive and emotional attempts at persuasion, the Chinese often respond with negative strategies, such as discontinuing or withdrawing from negotiation. The concept of “face” is at the heart of such responses. There are two components of face. Lien refers to a person’s moral character, and it is considered the most important thing defining a person. Mien-tzu refers to one’s reputation or prestige, earned through bureaucratic or political power. In negotiations, it is important not to act as though you have “won” because that implies the other party has “lost” and they will lose face.

Importance of harmony Guanxi Guanxihu networks Two stages of Chinese negotiation Technical Commercial Strong social obligations and the need for harmony (i.e., in terms of personal relationships, trust, and ritual) underlie Chinese negotiations. Guanxi refers to the intricate, pervasive network of personal relations that every Chinese personally cultivates. Guanxi establishes obligations to exchange favors in future business activities. Firms that have special guanxi connections and give preferential treatment to one another are known as members of guanxihu networks. The Chinese also expect corporate goals and profit to be subordinate to friendship, national development, and mutual benefit. Americans often experience two stages of negotiation with the Chinese. During the technical stage, every detail of the proposed product specifications and technology is hammered out. The commercial stage deals with aspects of production, marketing, and pricing.

Some recommendations: Practice patience Accept prolonged stalemate Refrain from exaggerated expectations Expect shaming Resist blaming for difficulties Understand Chinese cultural traits

Managing Conflict Resolution
Instrumental oriented Expressive oriented Instrumental oriented conflict resolution often is used by Americans and in other low-context cultures. It entails addressing conflict directly and explicitly, and conceptually separating the conflict from the person doing the negotiation. This type of conflict resolution is often based on factual information and logical analysis. High-context cultures tend to use expressive oriented conflict resolution. In this case, conflict is treated indirectly and implicitly. Negotiators want to avoid confrontation because it is viewed as insulting and can cause loss of face. As an alternative, they rely on evasion and avoidance.

Low-context, High-context Sources of Conflict
Why Analytic, linear logic Synthetic, spiral logic When Individualistic oriented violations Group oriented violations What Revealment, confrontational Concealment, non-confrontational How Explicit, open, direct Implicit, ambiguous, indirect Exhibit 5-8 provides more examples of how conflict may arise and be dealt with among low-context and high-context negotiators.

The Influence of Culture on Decision Making
Individualism vs. collectivism Objective vs. subjective approach Risk tolerance Comfort with unfamiliar solutions Negotiation represents a series of small and large decisions—from determining an initial position and fallback plans, to deciding how to react and proceed during the negotiation process, to determining on what to agree or disagree. Decision making also permeates a manager’s day-to-day routine. The extent to which decision making is influenced by cultures varies among countries. For instance, Koreans, who are more collectivistic, tend to have more homogenous models regarding decision making. Individualistic Americans, however, tend to exhibit more varied decision patterns. The objective approach to decision making is based on rationality; whereas the subjective approach is based on emotion. The objective approach is common in the US, and the subjective approach is common in Latin America. People from Belgium, Germany, and Austria have lower tolerance for risk than people from Japan or the Netherlands. Americans have the highest tolerance for risk. Managers with an external locus of control feel they can control events that will direct the future in a desired way (example: US). Those with an internal locus of control believe such decisions are of no value because they have little control over the future (example: Indonesia, Malaysia). Some managers value decisions based on past experience and tend to emphasize quality (example: Europe). Others are more future oriented and look toward new ideas to get them there (example: US).

Approaches to Decision Making
Utilitarianism vs. moral idealism Autocratic vs. participative leadership Speed of decision making Value systems also influence the overall approach of decision makers from various cultures. Utilitarianism tends to guide the behavior of Western managers, who favor a short-term, cost-benefit approach to decision making. Alternatively, Chinese managers approach problems from the standpoint of moral idealism and favor long-term, societal approaches to decision making. In hierarchical societies, such as Germany, Turkey, and India, authorization has to come from the upper echelons of management. Employees expect the boss to do the decision making. Alternatively, decision making in Sweden is more decentralized and participative. Japan tends to be very participatory and is known for bottom up decision-making. Americans probably fall somewhere in the middle regarding the level of participatory decision making—though they talk a great deal about its usefulness. As decision making becomes more participatory, it often becomes slower. Nonetheless, different cultures may have different approaches regarding the speed of decision making. North Americans and Europeans pride themselves of being decisive. In the Middle East, managers associate the importance of a matter with the time necessary to reach a decision.

Summary of Cultural Variables in Decision Making
Exhibit 5-9 summarizes how the variables just discussed can affect the steps in the decision making process.

Comparative Management in Focus: Decision-making in Japan
Wa Amae Shinyo Ringi Amae is the Japanese concept of “indulgent love,” and was is one aspect of amae. Wa means “peace and harmony,” and it is the building block of Japanese management—as indicated by the emphasis on cooperation, participative management, consensus problem solving, and long-term decision making. Amae results in shinyo, which refers to the mutual confidence, faith, and honor required for successful business relationships. These elements generally result in a devotion to work, a collective responsibility for decisions and actions, and a high degree of employee productivity. This culture and shared responsibility underlie the ringi system of decision making.

Comparative Management in Focus: Decision-making in Japan
The ringi system is a form of bottom-up decision making, usually comprised of four steps: proposal, circulation, approval, record. Usually the person who originates the proposal (ringi-sho) has already gained informal consensus and support within his section and from his department head. General consensus is then sought from those throughout the company who would be involved in implementation. If necessary, the proposal goes back to the originator for revision and/or more information. Once the proposal gains informal consensus at this level, it is passed up through the hierarchy for official management approval. Finally, the president approves the proposal. The ringi process is often cumbersome until the implementation process. The latter is facilitated, however, because of the consensus and awareness garnered during the circulation and approval phases.

Course Summary Global Economic System – MACRO When and what
Institutions Companies make decisions with respect to specific countries - MICRO ==> Europe? Asia? Latin America? Australia? Specific countries? Internationalization Strategy: Generalizations?? Cost … Management - cultural differences ... religion, education; Hofstede Benefits …. Market growth (pop size; income) and Value creation activities (labor cost, exp.) Risk .... South America? Asia? Europe? 287

288

Managing the International Organization
1.External Environment ... Porter Diamond; Status Quo; Culture (Hofstede) 2.Strategy ... Value creation activities; Location economies; Market entry 3.Internal Environment ... Behavior: Individual (Motivation) and Group (Leadership; Multicultural Teams) Processes: Communication -- Macro (communication flow); Micro (communication process); Nonverbal communication; Decision Making; Negotiation; HR Processes (The Expatriate Assignment). Organizational Culture – six dimensions; Structure – Macro and Micro – power distance; 289

Strategy – Defined 294

India Where India has the edge (in comparison to China):
LANGUAGE - English gives India a big edge in IT Services and Back-Office work. CAPITAL MARKETS - Private firms have readier access to funding. China favors state sector LEGAL SYSTEMS - Contract law and copyright protection are more developed than in China. DEMOGRAPHICS - Some 53% of India's population in under age 25, vs. 45% in China. 295 295

External Environment Relevant variables: GDP GDP/capita GDP growth and factor endowments; demand conditions The 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. 296 296

ISA Analysis – Fall 2008 The Global Update report provides a useful overview of current political and economic issues. Zimbabwe - summarize the current political and economic challenges in Zimbabwe. Robert Mugabe, President, only ruler since 1980 Pseudo-Democracy, contested election in Spring 2008 – No clear winner Mugabe self-proclaimed winner -> violence White population 1% but owns 70% of land -> Mugabe took away land African Union leaders do NOT put enough pressure on Mugabe Agricultural production and inflation are severe economic issues Solutions: stay in office, share power with opponentTsvangirai, foreign military will intervene Vietnam - Summarize the challenges and the predictions for Vietnam’s economy. GDP growth 8.5% to 6.5% AND 20% inflation Domestic market; foreign markets (exports) Long term good – low cost manufacturing, hi-tech programs, relatively stable government 297 297

ISA Analysis – Fall 2008 The Global Update report provides a useful overview of current political and economic issues. c) African countries tend to not be part of the “new” global economy. What do you think are a couple of primary reasons for that? Nigeria, South Africa, Kenya, and Zimbabwe – compare. Lack of democratic political system and free-market economic system. Lack of infrastructure Corruption AIDS and other health issues Lack of education Culture?Religion? d) Asian countries such as Thailand, Vietnam, and the Philippines What do you think do these countries have to offer to foreign investors that China is lacking? Compare. All have (except Vietnam) have more economic freedom than China All have high corruption BUT also high GDP growth Cultural differences – see religion Attitude towards U.S. companies 298 298

ISA Analysis – Fall 2008 Table 1: Compare African Countries
Table 2: Compare Asian Countries 299 299

ISA Analysis – Fall 2008 2. Venezuela, Colombia, and Bolivia. Summarize current activities related to America’s conflict with these countries. What do these countries have to offer that may be of interest to U.S. businesses? What is the CPI ranking for each country? Colombia – Drugs, FARC, Bolivia – Drugs – coca, natural gas, nationalization Venezuela -Hugo Chavez Farmers, Colombia, Constitution, Bolivia U.S. – oil 15% Nationalization electricity and telephone UN Speech 2006 CPI – Venezuela, 68 - Colombia, Bolivia 300 300

ISA Analysis – Fall 2008 3. a) Which countries belong to the EU? Only some of the 27 EU members are also members of the EMU (European Monetary Union). Which countries belong to the EMU? European Union (EU): Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom. European Monetary Union (EMU) Ireland, Belgium, France, Spain, Portugal, Finland, The Netherlands, Germany, Luxembourg, Austria, and Italy. b) Italy has the worst CPI ranking of the Western EU countries. What is the current issue related to that reported in the ISA Global Update? Berlusconi, immunity from law for government officials; c) Russia is not a member of the EU but is of critical importance to the economies of the European countries. Why? Oil and natural gas; Gazprom 301 301

ISA Analysis – Fall 2008 4. OPEC - Organization of Petroleum Exporting Countries. Algeria, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates (UAE), Indonesia, Ecuador, Angola, and Venezuela ( The OPEC Countries coordinate their oil production policies in order to help stabilize the oil market and help oil producers achieve a reasonable rate of return on their investments. It is also designed to ensure that oil consumers continue to receive stable supplies of oil ( The World Economic Forum (WEF) has a 3-fold vision aiming to be the foremost organization which builds and energizes leading global communities; the creative force shaping global, regional, and industry strategies; the catalyst of choice for its communities when undertaking global initiatives to improve the state of the world. WEF is a Geneva-based non-profit foundation best known for its annual meetings bringing together top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world ( Forum Members are companies that are driving the world economy forward. The typical Member Company is a global enterprise with more than 5 billion dollars in turnover, although the latter varies by industry and region. The Forum has 1,000 member companies Group of Seven (G7) consists of Canada, France, Germany, Italy, Japan, United Kingdom, and the United States of America (Russia). G7 is an international forum for governments. 302 302

ISA Analysis – Spring 2008 U.S. Economic Slowdown Indicators
Housing Market Lowering of interest rates GDP growth Unemployment Developed Countries Same effect Less Developed Countries Export dependence – Central and Eastern Europe; Mexico NOT – India and China – strong domestic demand 303 303

ISA Analysis Venezuela – Recent events – Hugo Chavez Farmers Colombia
Constitution Government restructuring Bolivia U.S. – oil 15% Nationalization electricity and telephone Television station UN Speech 2006 304 304

ISA Report Catholicism in Latin America – Table Turkey – EU Opposition
Kurds – Human Rights Economic and political requirements Religion – Islam Culture and location Cyprus 305 305

ISA Report Kenya – Table Tata Motors Japan
$7.6 bill revenue and 22,000 employees Commercial vehicles 18% international – Africa, Middle East, Europe, Australia, S and SE Asia Japan Declining domestic car market Oil prices Eco growth 306 306

International Management MGT 480/680

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