1. International Management and Globalization Chapter 6:
business.management
International Management and Globalization
Chapter 6:
These slides were developed using Microsoft Office 2003 but can be shown on newer versions of MS Office.
To print the notes section for class lectures, select “file/print,” and under “print what,” select “notes pages.”
If you prefer black-and-white printing, select either “pure black and white” or “color” under “color/grayscale.” If you select grayscale, the slide will be difficult to read.

2. EQ’s & EU’s
Why is it important to import and export products? Why do we trade with other countries? How are companies impacted by our global economy? How does global trade affect me?
Note Globe!

3. Globalization (International Business)
Is the flow of goods and services, capital, and knowledge across country borders
Advantages:
Enhances economic interdependence among countries and organizations
Allows both small and large firms from developed and less developed economies to compete
Globalization Is the flow of goods and services, capital, and knowledge across country borders.
Thomas Friedman, author of the best-selling The World is Flat, states that globalization is the third stage of international development. (The first two stages were the internationalization of countries and the movement of companies into international markets.)
Though globalization has its opponents, there are many advantages to globalization. Two advantages are that it enhances economic interdependence among countries and organizations, and it allows both small and large firms from developed and less developed economies to compete in the world marketplace. Both advantages and disadvantages will be discussed in more detail at the end of this chapter.
Globalization has made management a more complex process that requires that managers understand both the institutional environment and the culture of countries outside the firm’s home market.

4. What is international business?
International Business: all business activities needed to create, ship, and sell goods and services across national boarders. Also called: global business, international trade, and foreign trade.
Domestic Business: making, buying, and selling goods within a country

5. International Trade
Exchange of goods and services by different countries
We purchase chocolate from Belgium and Blue jeans from China

6. Why we trade
One country might not be able to produce a good it wants
Some countries have an advantage over other countries in producing particular goods and services
E.g. France cannot produce oil because it has no oil fields

7. Advantages
Absolute Advantage Ability to produce more of a good than another producer with the same quantity of inputs Different countries are endowed with different resources
Comparative Advantage Producers should produce goods they are most efficient at producing Purchase from others goods they are less efficient at producing

8. Country’s Institutional Environment: Economic Dimension
Economies are classified as either:
Developed economies
Larger economies with effective capital markets
Emerging economies
Rapidly growing with underdeveloped capital markets
Developing economies
Weak economies with little capital available for growth
The country’s economic dimension includes anything having to do with the country’s economy but particularly with its economic development. Understanding economic development is critical to success in global management because it determines how much opportunity there is for foreign firms.
There are three basic levels of economic development:
Developed economies are usually larger economies (U.S., Japan, Germany) or strong and stable economies (Sweden and Switzerland) that have strong capital markets. These economies allow businesses to easily borrow money or raise capital for expansion.
Emerging economies are rapidly growing economies (China, India, Brazil) that have underdeveloped capital markets. There is much opportunity for growth in these countries, but the capital structure must be developed more for vast expansion.
Developing economies are small and weak economies (Sub-Saharan Africa, most of Central America) that have little to no capital available for foreign firms to expand.

9. Learned set of assumptions, values, and behaviors
Country’s Culture
Culture
Learned set of assumptions, values, and behaviors
Accepted as successful
Passed on to newcomers
Begins when a group of people faces a set of challenges
Evolves and changes with time
Of all the environmental factors that impact doing business abroad, culture is the most important. Culture is defined as the learned set of assumptions, values, and behaviors within a society.
Managers must understand culture because it influences how people observe and interpret the business world around them.

10. Cultural Dimensions
In his famous cultural studies, Geert Hofstede found that national cultures could be divided into four basic dimensions: power distance, uncertainty avoidance, individualism/collectivism, and gender focus. These dimensions explain the importance placed on certain values in a country’s society. The following slides discusses each dimension in detail.

11. Cultural Dimensions: Power Distance
Extent to which people accept power and authority differences among people
High power distance = people accept power differences Low power distance = people like to regard themselves as more or less equal
Power distance refers to the extent to which people accept power and authority differences among people. It is not a measure of how much distance there actually is among social strata, but rather a measure of the acceptance of the differences in power.
In high power distance countries, people accept that there may be vast power and authority differences in society. For example, in countries like Mexico, Philippines, and Venezuela, people realize that some people in society are viewed as more important and, thus, have more power.
In low power distance countries, people have low acceptance of power differences. For example, in countries like Austria, Israel, and Denmark, people like to regard themselves as more ore less equal – and certainly no less important.
Cultural
Dimensions

12. Cultural Dimensions: Uncertainty Avoidance
Extent to which people can accept uncertainty or ambiguity
Uncertainty avoidance refers to the extent to which people can accept uncertainty or ambiguity.
In high uncertainty avoidance countries, people prefer clear norms that govern behavior; in other words, they like to avoid uncertainty. For example, in countries like Indonesia and Japan, people tend to follow rules and take less risk.
In low uncertainty avoidance countries, people are comfortable with uncertainty and ambiguity. For example, in countries like the U.S., Sweden, and the Netherlands, people need fewer rules and take more risks.
Cultural
Dimensions
Uncertainty
Avoidance
High uncertainty avoidance = prefer clear norms that govern behavior (i.e., avoid uncertainty) Low uncertainty avoidance = have fewer rules and are comfortable in ambiguous situations (i.e., can accept uncertainty)

13. Cultural Dimensions: Individualism/Collectivism
Extent to which people’s identities are self- oriented; people take care of themselves and immediate family
High emotional independence
Emphasize and reward individual achievement
Collectivism:
Extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.)
Emotional dependence on institutions
Emphasize group membership
On the individualism/collectivism dimension:
Individualism refers to the extent to which people’s identities are self-oriented; people take care of themselves and immediate family. People in countries like the U.S. and the U.K. have high emotional independence and emphasize individual reward and achievement. They also tend to be competitive societies.
Collectivism refer to the extent to which a people’s identities are a function of the group(s) to which they belong (family firm, community, etc.) People in countries like China, Venezuela, and Pakistan have high emotional dependence on these groups and emphasize value in group membership.
Cultural
Dimensions
Individualism/
Collectivism

14. Cultural Dimensions: Gender Focus
Extent to which people in a country value masculine or feminine traits
Gender
Focus
Gender focus refers to the extent to which people in a country value masculine or feminine traits.
Masculine cultures value activities that lead to success, money, and material possessions. Thus, people in countries like the U.S. or Japan work many hours and are said to “live for work.”
Feminine cultures value activities that show caring of others and enhancing the quality of life. People in countries like India believe in spirituality and quality of life.
Cultural
Dimensions
Masculine = activities leading to success, money, possessions Feminine = activities showing caring of others and enhancing quality of life

15. Cultural Values and Scores
Country
Power Distance
(a)
Uncertainty Avoidance
(b)
Individualism/
Collectivism
(c)
Gender
Focus
(d)
Brazil
5.33
3.60
3.83
3.31
Canada
4.82
4.58
4.38
3.70
China
5.04
4.94
4.77
3.05
England
5.15
4.65
4.27
3.67
France
5.28
4.43
3.93
3.64
India
5.47
4.15
2.90
[Note: This slide and the next illustrate Exhibit 3.2.]
Higher scores indicate higher power distance
Higher scores suggest more uncertainty avoidance
Higher scores indicate greater collectivism
Higher scores suggest greater gender equality; lower scores indicate
male domination
Adapted from Exhibit 3.2

16. Cultural Values and Scores (cont.)
Country
Power Distance
(a)
Uncertainty Avoidance
(b)
Individualism/
Collectivism
(c)
Gender
Focus
(d)
Japan
5.11
4.07
5.19
3.19
Mexico
5.22
4.18
4.06
3.64
Netherlands
4.11
4.70
4.46
3.50
Poland
5.10
3.62
4.53
4.02
Russia
5.52
2.88
4.50
United States
4.88
4.15
4.20
3.34
Higher scores indicate higher power distance
Higher scores suggest more uncertainty avoidance
Higher scores indicate greater collectivism
Higher scores suggest greater gender equality; lower scores indicate
male domination
Adapted from Exhibit 3.2

17. How culture impacts…assignment
Lizzie’s Morning Story
Read Individually
Based on the culture value and scores table above, get in partner pairs and pick one of the 12 countries
Locate 2 popular products in that country currently
Based on your research, connect why this product is successful to their scores on the values table.
Be prepared to present in class

18. International Business
Chapter 6 Quiz
International Business
Brazilian Flag with Coffee Beans…WHY?
Notes Flag!

19. US/Cuba Embargo Article
Brief discussion

20. Global and International Product Decisions
Global Product: a standardized item offered in the same form in all countries in which it is sold (e.g. cameras, film, home appliances) International Product: product that is customized or adapted to the culture, tastes, and social trends of a country

21. International Market Entry Strategies
Exporting
Less Risk
Licensing
After firms have a firm understanding of the country’s institutional environments and culture, they must decide how to enter the foreign market. There are five major market entry strategies (in order from the least risk to the most risk): exporting, licensing, strategic alliances, cross-border acquisitions, and wholly-owned subsidiaries. The following slides discuss each strategy in detail.
Strategic Alliances
Cross-Border Acquisitions
Wholly-Owned Subsidiaries
More Risk

22. Exporting
Manufacturing products in a firm’s home country and shipping them to a foreign market.
Advantages:
Low cost
Low risk to licensor
Disadvantages:
Potential trade barriers
Establishment of marketing and distributing systems in foreign market
Transportation costs
Smaller returns
The least risky of the five methods, exporting consists of manufacturing products in a firm’s home country and shipping them to a foreign market. An example is a French company that exports its Bordeaux wines around the world. There are several advantages and disadvantages to exporting, as explained in the slide.

23. Licensing Advantages: Arrangements that allow a
Less capital investment
Least amount of risk
Disadvantages:
Licensor has little control over product and use of brand
Smaller returns
Arrangements that allow a
local firm in the new market
to manufacture and
distribute a firm’s product.
Licensing involves arrangements that allow a local firm in the new market to manufacture and distribute a firm’s product. An example is the licensing of Philip Morris brand cigarettes being licensed to Chinese firms that manufacture and market the cigarettes in China under the Marlboro brand name. Advantages and disadvantages to this market entry strategy are listed in the slide.

24. Strategic Alliances
Advantages:
Share costs and risks between partners
Access to resources not previously available
Learn capabilities from partner
Disadvantages:
Management disagreement
Share profits
New types of alliances:
Outsourcing
Offshoring
Cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal.
Strategic alliances are cooperative arrangements between two firms in which they agree to share resources to accomplish a mutually desirable goal. An example is a U.S. automaker and a Chinese automaker creating a joint venture to manufacture and market vehicles for the Chinese market. Two more modern types of strategic alliances have received much publicity lately: outsourcing and offshoring.
Outsourcing occurs when a company hires another company to perform certain functions, usually at a lower cost. These functions often include IT, customer service, or accounting and payroll. The purpose of outsourcing is to get help from a company that not only specializes in the function but that can perform at a lower cost than can be handled in-house.
Offshoring is outsourcing that occurs in another country (rather than domestically). An example is a U.S.-based manufacturer that hires a company in India to conduct its customer service.

25. Cross-Border Acquisitions
Advantages:
Fast way to enter foreign market
Can start operations immediately
Disadvantages:
Can cause controversy in local public
Integrating two previously independent companies can be challenging
Acquisitions of local firms made by foreign firms to enter a new international market.
Cross-border acquisitions occur when a firm buys out a firm or a part of the firm’s business in another country. This can be an effective way to enter a foreign market, as the start-up is fast. An example is Wal-Mart acquiring certain local firms in the U.K. and Germany to quickly expand its business. This strategy has advantages and disadvantages, as listed above.

26. Wholly-Owned Subsidiaries
Advantages:
Maximum control over operations
Buffer assets from competitors in the market
Disadvantages:
Complex, risky and expensive to launch
Must establish relationships with suppliers, buyers, etc.
Must learn about culture and institutional environment on your own
Direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm; also called Greenfield Venture.
Wholly-owned subsidiaries are direct investments to establish a business in a foreign market in which the business is 100% owned and controlled by the focal firm. These are also called Greenfield Ventures. This form of expansion has the largest potential payoff but also carries the highest start-up cost and highest amount of risk. Advantages and disadvantages are discussed in the slide.

27. Low- and High-Context Cultures
Cultural context: degree to which a situation influences behavior or perception of “appropriateness” Neither high- nor low-context cultures are right or wrong, just different
HIGH-CONTEXT
People pay close
attention to the
situation and its
various elements in
assessing appropriate
behavior
LOW-CONTEXT
Situation may or may
not make a difference
in what is considered
appropriate behavior
One of the most important concepts for understanding how to communicate in other cultures is cultural context, or the degree to which a situation influences the behavior or perception of what’s considered to be appropriate.
In high-context cultures, people pay close attention to the situation and its various elements in assessing appropriate behavior. In other words, you must read between the lines to understand what’s being communicated; communication is not literal. In Japan, there are five different words for the pronoun “you.” The context of communication determines which “you” is appropriate for the situation.
In low-context cultures, the situation may or may not make a difference in what is considered appropriate behavior. In these cultures, words are generally meant literally.

28. Low- and High-Context Cultures Examples
American
Canadian
German
Swiss
Scandinavian
English
LOW-CONTEXT
Vietnamese
Chinese
Japanese
Korean
Arab
Greek
This slide shows examples of which cultures are high-context and which are low-context.
Adapted from Exhibit 3.3

29. Managing Multi-Cultural Teams
Challenges to managing multi- cultural teams:
Dependence on electronic communication (virtual teams)
Basic communication issues
Building trust among team members with different values (swift trust: rapid development of trust in teams about task activities)
The nature of globalization requires that managers today learn to manage multi-cultural teams, which requires a high degree of skill. There are several challenges to managing such teams, as summarized in the slide.

30. Developing a Global Mindset
Global mindset: cognitive attributes that allow an individual to influence individuals, groups, and organizations from diverse socio-cultural and institutional environments Not being ethnocentric!!!
As organizations continue to globalize, it is necessary for managers to develop a global mindset, the cognitive attributes that allow an individual to influence individuals, groups, and organizations from diverse socio-cultural and institutional environments.
Having a global mindset means that managers must have the attitudes, skills, and knowledge to manage people and processes across many different countries.
[Note: At the end of the textbook chapter, there is a diagnosis (“How Open Are You to International Work?”) that helps students assess their global mindset.]

31. Managing Globalization
Arguments FOR globalization:
Creates a more peaceful society
Promotes interest in local traditions and history
Facilitates development of cultural sensitivity and understanding
Cultural change = gain and creativity
Though globalization is inevitable, it is a controversial topic among many groups of people. Businesses are generally pro-globalization, and the arguments for globalization are listed in the slide.

32. Managing Globalization
Arguments AGAINST globalization:
Promotes homogeneity of cultures
Encourages one bland, uniformed identity for all cultures
Cultural change = loss and destruction X
However, many groups are against globalization, and it’s important for students to know why.

33. How the Government Discourages International Business
Tariffs: a tax placed on products that are traded internationally
Quotas: limit on the quantity, or monetary amount of a product that can be imported from a given country
Embargos: total ban on the import of a good from a particular country (e.g. US embargo on Cuba)
Licensing Requirements: controlling imports by requiring that certain countries have a government import license

34. How the Government Encourages International Business
Free trade zone: designated area, usually around a where products can be imported duty-free, and then stored, assembled, and then used during manufacturing. Only when the product leaves the zone does the importer pay duty.
Most favored nation: allows a country to export into the granting country under the lowest country duty rates.
Free trade agreements: member countries agree to eliminate duties and trade barriers on products traded among members.
Common markets: members eliminate duties and other trade barriers, allow companies to invest freely in each member’s country, and allow countries to move freely across borders.

35. International Export Project
Print & check
Ch. 6 notes
International Export Project