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Introduction to International Environment
Four Stages of Globalization:
 Domestic stage: market potential is limited to the home country production and marketing
facilities located at home
 International stage: exports increase and company usually adopts a multi-domestic
approach
 Multinational stage: marketing and production facilities located in many countries and
more than 1/3 of its sales outside the home country
 Global (or stateless) stage: making sales and acquiring resources in whatever country
offers the best opportunities and lowest cost, while ownership, control, and top management
tend to be dispersed
International Environment Factors:
 International management is management of business operations conducted in more than
one country
1- Economic: example; Economic development, Infrastructure, Resource and product
markets, Per capita Income, Exchange rates, and Economic conditions
2- Legal-Political: example; Political risk, Government takeovers, Tariffs, quotas, taxes,
,Terrorism, political instability, Laws, regulations
3- Socio-cultural example; Socio values, beliefs, Language, Religion (objects, taboos,
holidays), Kinship patterns, Formal education, literary, Time orientation
Strategies for Entering International Markets:
1- Joint Venture: a commercial enterprise undertaken jointly by two or more parties that
otherwise retains their distinct identities
...
An acquisition occurs when a buying
company obtains more than 50% ownership in a target company
...
Through
Greenfield Venture, a business enters a new market without the help of another business
which is already present there
...

6- Exporting refers to selling goods and services produced in the home country to other
markets
International Management
 International management is the practice of managing business operations in more than
one country
...


Mr
...

2- Determine the degree of the firm’s internationalization
...

Motivations for Going International:
a
...
Reactive Motivations, including; Competitive pressures, Overproduction, Declining
domestic sales, Excess capacity, Saturated domestic markets, and Proximity to
customers and ports
Psychological Distance: Sometimes cultural variables, legal factors, and other societal norms make
a foreign market that is geographically close seem psychologically distant
...

o Closer psychological proximity makes it easier for firms to enter markets
...

 Managing in a Global Environment:
o Managers must be sensitive to cultural refinements
...

o Managing Cross-culturally
...


Mr
...
Vertical Integration is the combination in one company of two or more stages of
production normally operated by separate companies
...
Horizontal integration is the process of a company increasing production of goods
or services at the same part of the supply chain
...
The process can lead to monopoly if a company
captures the vast majority of the market for that product or service
...
Technological change
...
Global economic growth
...
Liberalised financial markets
...
Security of investment and support from dominant states
...
Liberal trade barriers = politics
...

o Integration into global supply chains
...

 Risks:
o Profits – Does FDI reverse capital poor problem?
o Investment – local “crowding out” effect which limits other local development
...

o Quality of employment
...


•

Managers develop strategies based on the organization’s strengths and weaknesses
relative to the competition and assessing opportunities
...


Strategy in an International Context
•

Strategy in an international context is a plan for the organization to position itself vis-a-vis its
competitors, and resolve how it wants to configure its value chain activities on a global
scale
...
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•

Its purpose is to help managers create an international vision, allocate resources, participate
in major international markets, be competitive, and perhaps reconfigure its value chain
activities given the new international opportunities
...


•

But it is often difficult to excel in all three areas simultaneously
...


Industry Structure:
 Its main elements are Suppliers of inputs, Buyers of outputs, Substitute products, Potential
new entrants, and Rivalry among competing firms
•

Industries in which competition takes place on a country-by-country basis are known as
multi-domestic industries
...


•

Industries such as aerospace, automobiles, telecommunications, metals, computers,
chemicals, and industrial equipment are examples of global industries, in which
competition is on a regional or worldwide scale
...
Most global industries are characterized by the existence of a handful
of major players that compete head on in multiple markets
...
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Integration-Responsiveness Framework
•

The Integration-Responsiveness Framework summarizes two basic strategic needs: to
integrate value chain activities globally, and to create products and processes that are
responsive to local market needs
...


Value chain

Managing the Value Chain through Configuration (concentrated or dispersed)
 Configuration
o Distributing value activities around the world
...
This sets links that integrate and animate value activities (not at all- each piece
is independent or extensive- each piece is interdependent)
...


Mr
...

 special outlook, skill, capability, or technology that runs through the firm's
operations, threading discrete activities into an integrated value chain
o Subsidiary networks
Benefits and limitations of multi-domestic strategy
 Benefits: speaks to the unique features of consumer preferences, market tendencies, and
institutional expectations found in national markets
...
customizing a
product or process to a particular market situation increases costs along the value chain
...

Objectives of Global Integration
•

Global integration seeks economic efficiency on a worldwide scale, promoting learning and
cross-fertilization within the global network, and reducing redundancy
...


•

Companies in such industries as aircraft manufacturing, credit cards, and pharmaceuticals
are more likely to emphasize global integration
...
Concentrating manufacturing in a few select locations to achieve
economies of mass production
...
Companies such as
Nike, Dell, ING, and Coca-Cola offer products that appeal to customers everywhere
...
Services are easiest to standardize when firms can
centralize their creation and delivery
...
Sourcing of inputs
from large-scale, centralized suppliers provides benefits from economies of scale and
consistent performance
...
Global coordination is necessary to monitor and respond to
competitive threats in foreign and domestic markets
...
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•

Availability of media that reaches customers in multiple markets
...


Local Responsiveness
•

Local responsiveness refers to meeting the specific needs of buyers in individual
countries
...
Local managers enjoy substantial freedom to adjust the firm’s
practices to suit distinctive local conditions
...


•

Companies in such industries as food and beverages, retailing, and book publishing are
likely to be responsive to local differences
...
Each country has national
endowments that the foreign firm should access
...
Businesses, such as clothing and food, require
significant adaptation to local customer needs
...
Small retailers in Japan understand local customs
and needs, so locally responsive MNEs use them
...
When competing against numerous local rivals, centrally-controlled
MNEs will have difficulty gaining market share with global products that are not adapted to
local needs
...
For those products where cultural differences are important, such as
clothing and furniture, local managers require considerable freedom from HQ to adapt the
product and marketing
...
When governments impose trade
barriers or complex business regulations, it can halt or reverse the competitive threat of
foreign firms
...
Home replication strategy
2
...
Global strategy
4
...
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Home Replication Strategy (Export Strategy or International Strategy)
•

The firm views international business as separate from, and secondary to, its domestic
business
...


•

Products are designed with domestic customers in mind, and international business is
sought as a way of extending the product lifecycle and replicating its home market success
...


Multi-Domestic Strategy (Multi-Local Strategy)
•

Headquarters delegates considerable autonomy to each country manager allowing him/her
to operate independently and pursue local responsiveness
...

As a result, the internationalizing company allows subsidiaries to vary product and
management practices by country
...
They function independently and have little incentive to share knowledge and
experiences with managers elsewhere
...


Advantages of Multi-Domestic Strategies
•

If the foreign subsidiary includes a factory, locally produced goods and products can be
better adapted to local markets
...


•

Firms with limited international experience often find multi-domestic strategy an easy option
as they can delegate many tasks to their country managers (or foreign distributors,
franchisees, or licensees, where they are used)
...


•

Managers have little incentive to share knowledge and experience with those in other
countries, leading to duplication of activities and reduced economies of scale
...


•

Competition may escalate among the subsidiaries for the firm’s resources because
subsidiary managers do not share a common corporate vision
...
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•

It leads to inefficient manufacturing, redundant operations, a proliferation of products
designed to meet local needs, and generally higher costs of international operations than
other strategies

Global Strategy
•

With global strategy, the headquarters seeks substantial control over its country operations
in an effort to minimize redundancy, and achieve maximum efficiency, learning, and
integration worldwide
...


•

Activities such as R&D and manufacturing are centralized at headquarters, and
management tends to view the world as one large marketplace
...


•

Can also improve the quality of products and processes -- primarily by simplifying
manufacturing and other processes
...


Limitations of Global Strategy
•

It is challenging for management, particularly in highly centralized organizations, to closely
coordinate the activities of a large number of widely-dispersed international operations
...


•

When carried to an extreme, global strategy results in a loss of responsiveness and
flexibility in local markets
...


Transnational Strategy: A Tug of War
•

A coordinated approach to internationalization in which the firm strives to be more
responsive to local needs while retaining sufficient central control of operations to ensure
efficiency and learning
...
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•

Transnational strategy combines the major advantages of multi-domestic and global
strategies, while minimizing their disadvantages
...


What Transnational Strategy Implies
•

Exploiting scale economies by sourcing from a reduced set of global suppliers;
concentrating the production of offerings in relatively few locations where competitive
advantage can be maximized
...


•

Optimizing local responsiveness and flexibility
...


•

Coordinating competitive moves --how the firm deals with its competitors, on a global,
integrated basis
...


•

In the long run, almost all firms find that they need to include some elements of localized
decision-making because each country has idiosyncratic characteristics
...


•

While Dell can apply a mostly global strategy to Japan, it must incorporate some multidomestic elements as well
...
While consumers in the U
...
prefer a sweeter Coca-Cola, the Chinese want less
sugar
...


•

In the larger, more experienced MNE, these linkages are extensive and include the firm's
subsidiaries, affiliates, suppliers, and other partners
...
This is
the choice between centralization and decentralization
...
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Organizational Structure Provides for Unambiguous Relationships
•

In international operations, organizational structure must resolve how the working and
reporting relationships between headquarters and subsidiaries (or the international
department) will take place
...


•

The simplest of structures is creating an export department
...
So, structural and reporting relationships require
careful thinking
...


•

A centralized structure fits best with the home replication or global strategy
...


•

A matrix structure combines centralized and decentralized aspects with the transnational
strategy
...
E
...
, decisions on developing new products or
entering new markets tend to be centralized to headquarters
...


•

No firm can centralize all its operations
...

Companies need to effectively balance the benefits of centralization and local autonomy
...


How to Instill Collaborative Working Relationships between Headquarters and Subsidiaries
•

Encouraging local managers to identify with broad, corporate objectives and make their best
efforts
...


•

Rotating employees within the corporate network to develop multiple perspectives
...
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•

Encouraging country managers to interact and share experiences with each other through
regional meetings
...


Alternative Organizational Arrangements For International Business
•

A long-established stream of literature suggests that ‘structure follows strategy
...


•

The firm’s experience in international business also affects the organizational design
...


Alternative Organizational Arrangements
•

The export department, with the international division as a variant
...


Export Department
•

For manufacturing firms, exporting is usually the first foreign market entry mode
...


•

As export sales reach a substantial proportion of the firm’s total sales, however, senior
managers will usually establish a separate export department whose manager may report
to senior management or the head of domestic sales and marketing
...
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The International Division
•

A separate division within the firm dedicated to managing its international operations
...


•

The decision to create a separate international unit is usually accompanied by a significant
shift in resource allocation and increased focus on the international marketplace
...
Licensing and small-scale foreign
investment activities may also be performed
...


•

It is staffed with international experts who focus on developing new business opportunities
abroad and offering assistance and training for foreign

Disadvantages
•

A domestic vs
...


•

There is likely to be little sharing of knowledge among the foreign units or between the
foreign units and headquarters
...
Products
continue to be developed for the domestic marketplace, with international needs considered
only after domestic needs have been addressed
...
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More Complex Organizational Designs
•

Firms at more advanced stages of internationalization tend to set up more complex
organizational designs
...


•

There is greater emphasis on innovative potential through learning effects, pooling of
resources, and know-how
...


Geographic Area Division
•

An organizational design in which control and decision-making is decentralized to the level
of individual geographic regions whose managers are responsible for operations within their
region
...


•

The structure is decentralized because management of international operations is largely
delegated to the regional headquarters responsible for each geographic area
...


•

Management creates a structure based on major categories of products within the firm’s
range of offerings
...


Mr
...


•

Products are easier to tailor for individual markets to meet specific buyer needs
...


•

Suppliers and customers may be confused if several divisions call on them
...


•

E
...
, oil and mining firms, which have value-adding processes of exploration, drilling,
transportation and storing, tend to use this type of structure
...
Thus, it makes sense to delineate separate divisions for the
performance of production and marketing functions worldwide
...


Mr
...


•

When the firm deals with numerous product lines, coordination can get unwieldy
...


•

It is an attempt to capture the benefits of the geographic area, product, and functional
organization structures simultaneously, while minimizing their shortcomings
...


•

The area structure facilitates local responsiveness but can inhibit worldwide economies of
scale and sharing of knowledge and core competences among geographic areas
...


•

By using the global matrix structure, responsibility for operating decisions about a given
product are shared by the product division and the particular geographic areas
...


Global Matrix Structure Blends Several Orientations
•

This structure requires managers to think and operate along typically two of the three major
dimensions: geography, product, and function (cross-functional)
...


•

The global matrix structure recognizes the importance of flexible and responsive countrylevel operations
...
How successfully firms are able to implement and maintain the approach
for long-term global success remains to be seen
...
It is difficult
for employees to receive directions from two different managers who are located thousands
of miles apart and have different cultural backgrounds and business experiences
...
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•

When conflict arises between two managers, senior management must offer a resolution
...


•

The heightened pace of environmental change, increased complexity and demands, and the
need for cultural adaptability have been overwhelming for many firms that have attempted
the matrix structure
...


Building the Global Firm
Truly global companies manage to achieve:
•

Visionary leadership

•

Global strategy

•

Appropriate organizational structure

•

Strong organizational culture

•

Dynamic organizational processes

Visionary Leadership
Senior human capital in an organization that provides the strategic guidance necessary to
manage efficiency, flexibility, and learning in an internationalizing firm
...
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1
...
Willingness to commit resources: financial, human, and other resources
3
...

4
...
’
Organizational Culture
•

The pattern of shared values, norms of behavior, systems, policies, and procedures that
employees learn and adopt
...


•

Organizational culture is the ‘personality’ of the firm
...


Best Practice in Organizational Culture
•

Proactively build a global organizational culture
...


•

Value global competence and cross-cultural skills among their employees
...


•

Promote interdependency between the headquarters and subsidiaries
...


Organizational Processes
•

Many processes cross functional areas within the firm (e
...
, new product development
process involves input from R&D, engineering, marketing, finance, and operations)
...


Common Organizational Processes to Achieve Global Coordination
•

Global teams: An internationally distributed group of people… with a specific mandate to
make or implement decisions that are international in scope
...
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•

Global information systems: Global IT infrastructure, together with tools such as intranets
and electronic data interchange, that provide the means for virtual interconnectedness within
the global company
...


Corporate governance
 Corporate governance is the system of rules, practices and processes by which a
company is directed and controlled
...

How to measure Corporate Governance:
 On the basis of how effective the systems are in limiting managers to divert firm resources
to their own private uses
 On the basis of how willing entrepreneurs are to make initial public offerings of stock
 On the basis of the speed with which management is replaced for sustained poor
performance
Four core values of the OECD corporate governance framework:





Fairness
Responsibility
Transparency
Accountability

Governance is Different from Management
 The governing body must govern; that is, it must provide leadership and strategy and must
focus on the 'big picture'
...
As such, it is distinct from management (organising the work) and
operations (doing the work)
...

 This is easier said than done
...

Forms of Business Ownership:
 A sole proprietorship
o With this type of business organization, you are the sole owner, and fully responsible
for all debts and obligations related to your business
...

Because you are personally liable, a creditor can make a claim against your personal
assets as well as your business assets in order to satisfy any debts
...
In a partnership, your financial resources are combined with those of your

Mr
...
You and your partner(s) would then
share in the profits of the business according to any legal agreement you have drawn
up
...
Incorporation can be done at the
federal or provincial/territorial level
...
As a
shareholder of a corporation, you will not be personally liable for the debts,
obligations or acts of the corporation
...

Separation of Ownership and Control
 With the structure of the modern corporation, the ownership of the company and the control
distribute among the shareholders
...
Before
choosing to incorporate, it helps to understand both sides of the issue
...
Generally, the onus is on the principal to create
incentives for the agent to ensure they act as the principal wants
...

 Occurs when one person or entity (the "agent") is able to make decisions on behalf of, or
that impact, another person or entity: the "principal"
...

Corporate Governance Goals:
 Intended to provide more oversight and constraints on corporate managers
...

 Created to balance power and flow of information between owners/investors, boards, and
top management
...

Acquisitions and divestments
...
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Corporate Governance and Capital Markets
 Good governance is an indeterminate term used in the international development literature
to describe how public institutions conduct public affairs and manage public resources
...

 Poor governance (on the other hand) is characterized by arbitrary policy making,
unaccountable bureaucracies, unenforced or unjust legal systems, the abuse of executive
power, a civil society unengaged in public life, and widespread corruption
...

 Strong corporate governance maintains investors' confidence, as a result of which, company
can raise capital efficiently and effectively
...

 There is a positive impact on the share price
...
"
o Agency theory argues that the goal of the agent is different from that of the principals,
and they are conflicting
o The assumption is that the principals suffer an agency loss, which is a lesser return
on investment because they do not directly manage the company
...

o Consequently, agency theories suggest financial rewards that can help incentivize
executives to maximize the profit of owners
 Stewardship theory
o Stewardship theories argue that the managers or executives of a company are
stewards of the owners, and both groups share common goals
o Therefore, the board should not be too controlling, as agency theories would suggest
...


Mr
...

 Reduction of risks
...

 An effective board has:
o a mix of stable (long-term) and new members
o mutual respect
o diversity
o strategic and operational thinkers
o a balance between independent and interested directors
o an appropriate size in relation to the organisation
o a fair and firm chair
o a balance of skills and experience
 Because a board is made up of a diverse range of characters, the need to develop a strong
culture is vital
...
Unlike most teams, dissent and robust individual opinion is an important trait on
boards as it helps members consider all possible options in order to arrive at the best
possible decision
...
It will provide valuable insight into how the organisation
operates, who the employees are, and what the goods or services are
...

The most common board committees are the following:
 Audit committee
o Internationally, the audit committee is a committee of the board of directors
responsible for oversight of the financial reporting process, selection of the
independent auditor, and receipt of audit results both internal and external
...


Mr
...

Types of Directors:
 Executive Directors
o An executive director is the senior operating officer or manager of an organization or
corporation
...

 Non-Executive Directors
o A non-executive director is a member of a company's board of directors who is not
part of the executive team
...

 Independent Directors
o An Independent director (also sometimes known as an outside director) is a director
(member) of a board of directors who does not have a material or pecuniary
relationship with company or related persons, except sitting fees
...

o The primary disadvantage of the Single-Tier board is that it has to simultaneously
make and monitor the same decision
...

 A strong, high-performing board can be a valuable asset in guiding management through
the IPO process and preparing for life as a public company
...


Mr
...
Although
shareholders don't run a company, there are ways for them to influence the
board of directors and management
...

 In the UK, the term refers to the acquisition of a public company whose shares are listed on
a stock exchange, in contrast to the acquisition of a private company
...
It also means the withdrawal of the state from
an industry or sector partially or fully
...

o Privatization means replacing government monopolies with the competitive pressures
of the marketplace to encourage efficiency, quality and innovation in the delivery of
goods and services
...

o Liberalization refers to the relaxation of the previous government restriction usually in
area of social and economic policies
...

 Technology
 Globalisation
o Opening and planning to expand business throughout the world
...

o Buying and selling goods and services from/to any countries in the world
...

Drivers of Change: Increased competition, Transition , , Decline in public funding , Capital
exporters , Scandals, corruption and collapse
The Response: Public reform (company law, regulation) ot Demand for global standards

Mr
...
A market-based corporate governance system defines the
responsibilities of the different participants in the company, including shareholders,
the board of directors, management, employees, suppliers and customers
...
Corporate governance essentially involves
balancing the interests of a company's many stakeholders, such as shareholders,
management, customers, suppliers
 State-guided
o A system relying on the state to exert control over how the corporation is to be
managed
...
Even larger
policy decisions are ‘captured’ by special interest groups in such situations
...
They are the
consequence of inadequacy in the design and creation of institutions of economic
governance for overseeing the rules of the game for market players
Talent Management
What is Talent?
“Talent is a mix of employees’ skills, knowledge, cognitive ability, potential as well as employee
values and work preferences”
Who are the Talented People?
 They demonstrate exceptional ability and achievement over a range of activities
 Have transferable high competence
...

The Global forces and trends changing demands on employers and employees:
 Dramatic shifts in skill requirements for future growth
...

 Ongoing cost pressures and continual belt-tightening in most markets, increasing
employers’ focus on maximizing workforce productivity
...

Talent Management
 Talent management is an organization's commitment to recruit, retain, and develop the most
talented and superior employees available in the job market
...
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useful term when it describes an organization's commitment to hire, manage, develop, and
retain talented employees
...

 Not only do businesses need to adjust to shifting demographics and work force preferences,
but they must also build new capabilities and revitalize their organizations — all while
investing in new technologies, globalizing their operations and contending with new
competitors
...

 So that, there is a need to completely implement the global talent management of the
multinational companies to beef up their competitive edge and sustainability in the market
...

 In addition, there should be a formulation of a highly effective talent assessment tools that
will match the companies ‘ aspirations
...

 This will pave a way for the multinational companies to gain a leading and winning edge in
preserving stronger and best global talents now and beyond
...

 Employer branding and industry image are two important components of attraction
strategies and describes ways companies can maximise their brand awareness in the
employment market to both current and future employees
...
It describes in general terms what types of people
are expected to work in the organization and what type of a culture is desired to achieve
success
 TM strategy is a vertical link or strategic alignment is the connection between business
needs and individual performance
...

o Identify key positions in the organisation
...
3- Retain key position backups 4- Make appropriate investments

Mr
...

 In practice, Talent Supply Chain Management integrates Managed Service Provider (MSP)
expertise with workforce analytics also referred to as supply chain intelligence (including
talent supply/demand dynamics, insight on talent motivations, and applied principles of
supply chain management), to deliver access to quality talent at competitive rates and with
minimized risk
...

 Improve talent productivity at lower costs
 Fine-tune the precision of forecasts and shorten planning cycles
 Leverage suppliers for greater service and better pricing
An Effective Talent Management System:
 “Implementation program of the talent strategy which has a set of processes and
procedures”
 Assessment tools
o Competency Assessment
...

o Potential Forecast
...

o Career Planning
...

o Employee
...
The primary assessor
o Boss’s boss
...
Source of potential new assignments in the same or other
function
 Diagnostic tool
...
SuperkeepersTM are employees whose performance
greatly exceeds expectations, who inspire others to greatly exceed expectations, and
who embody institutional competencies
...
The “insurance policies” that ensure organization
continuity
...

o Surpluses
...
While
ostensibly a positive result of the talent management process, it can be a potential
source of turnover and morale problems if the replacements are blocked by a nonpromotable incumbent and/or there is no realistic way most of the promotable
replacements can advance
...
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o Voids
...
Determine whether it will transfer
someone from the surplus pool, develop alternative candidates, or recruit externally
...
Non-promotable incumbents standing in the path of one or more highpotential or promotable employees
...
Those not meeting job expectations (measured achievement or
competency proficiency)
...
The time frame should be no longer than six months
...

Competencies and Definitions
 Action Orientation Targets and achieve results,overcomes obstacles, accepts
responsibility, creates a results-oriented environment
...
Acts to build trust, inspire enthusiasm, encourage others, and help resolve
conflicts and develop consensus in supporting higperformance teams
Why Competencies?
 The challenge is to identify which competencies the organization expects to see in their
people
 The starting point of the model is the creed (values, principles, expectations) and the
business strategies
 Through a competency model the organization sends a consistent message to the
workforce about “what it takes” to be successful in the job
 Helps employees understand what helps drive successful performance
 The Competency Model approach focuses on the “How” of the job
...
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 The competency model serves as the foundation upon which all workforce processes are
built
...

The Competency Model
•

The Competency Model identifies usually three groups of competencies:
– Core competencies for the entire organization to shape the organizational capabilities
and culture required to achieve the strategic goals(5 or 6)
– Leadership competencies for the management teams of various levels for selection,
career planning and development
– Functional (technical)competencies (specific for each job family)

Developing a Competency Model
 Use commonly available “ready to use” models with small adjustments for your organization
 Develop own competency model with help of consultants
 Behavioral Benchmarking compare superior performers with other best people in the
organization and in other benchmark companies
 Stages
 Overview of current tasks and responsibilities
 Come to agreement about what successful “outcome driven” performance looks like
 Review of competency library and selection of “must haves” for the position
 Rank top competencies as demonstrated by exemplary (superior) performers
 Identify of those competencies that align with the vision, mission and strategic plan of
the organization
 Verify the competencies with a larger sample of the organization
Before choosing competencies in an organization following requirements must have been
completed:
•

Establishment of vision, mission, values

•

Strategic business goals

•

Identification of the tasks, responsibilities and outcomes expected from each position

•

Identification of the superior (exemplary) performers

Mr
...


•

Retention is also essential to gaurantee future alignment of the talent with the right key
positions

Talent Management Model

Structure of a Talent Management Program
•

Building Block 1: Identification and assessment of competencies

•

Building Block 2: Performance appraisals

•

Building Block 3: Succession and career planning

•

Development of talent (coaching, mentoring, training)

•

Linking compensation with the program (reward and motivate)

•

Targeting culture as an important driver of TM programs

Mr
...


•

Stand alone functions are destined to end with failure

International Leadership and Motivation
Philosophical Background: Theories X, Y, and Z
 Theory X Manager
o A manager who believes that people are basically lazy and that coercion and threats
of punishment often are necessary to get them to work
...

 Theory Z Manager
o A manager who believes that workers seek opportunities to participate in
management and are motivated by teamwork and responsibility sharing
...

o One-way downward flow of information and influence from authoritarian leader to
subordinates
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 Paternalistic Leadership
o The use of work-centered behavior coupled with a protective employee centered
concern
...

 Participative Leadership
o The use of both work- or task-centered and people centered approaches to leading
subordinates
...

Perspectives on Leadership
 Trait perspective
o Leadership Traits are  Drive  Leadership motivation  Integrity  Self-confidence
 Intelligence  Knowledge of the business  Emotional intelligence
 Transformational perspective
o Lead through change
o Must have Charisma to guide people through change
 Behavioural perspective
o Leaders will have specific types of behaviour, which would be identifying their
effectiveness
 Contingency perspective
o Path-Goal Theory: The Path-Goal model is a theory based on specifying a
leader's style or behaviour that best fits the employee and work environment in order
to achieve a goal
...

Instead, a leader's effectiveness is based on the situation
...

Attitudes of European Managers Toward Leadership Practices
 European managers tend to use a participative approach
...

o Capacity for Leadership and Initiative
o Sharing Information and Objectives
o Participation
o Internal Control
 Higher-level managers tend to express more democratic values than lower-level managers
in some countries – in other countries, the opposite was true
 Company size tends to influence the degree of participative-autocratic attitudes

Mr
...
S
...
S
...
S
...
S
...
S
...
S
...
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 The “New Generation” group scored significantly higher on individualism than did the current
and older generation groups
 They also scored significantly lower than the other two groups on collectivism and
Confucianism
 These values appear to reflect the period of relative openness and freedom, often called the
“Social Reform Era,” in which these new managers grew up
 They have had greater exposure to Western societal influences may result in leadership
styles similar to those of Western managers
Leadership in the Middle East
 There may be much greater similarity between Middle Eastern leadership styles and those
of Western countries
 Western management practices are evident in the Arabian Gulf region due to close business
ties between the West and this oil-rich area as well as the increasing educational
attainment, often in Western universities, of Middle Eastern managers
 Organizational culture, level of technology, level of education, and
management
responsibility were good predictors of decision-making styles in the United Arab Emirates
 There is a tendency toward participative leadership styles among young Arab middle
managers, as well as among highly educated managers of all ages
Leadership Approaches in Developing Countries
 Managerial attitudes in India are similar to Anglo-Americans toward capacity for leadership
and initiative, participation, and internal control, but different in sharing information and
objectives
 Leadership styles in Peru may be much closer to those in the United States than previously
assumed
 Developing countries may be moving toward a more participative leadership style
International HRM
International HRM
 Selection Criteria for International Assignments
o Adaptability, Independence, Self-reliance, Physical & emotional health, Age,
Experience, Education, Knowledge of local language, Motivation, Support of spouse
& children, and Leadership
Adaptability to Cultural Change
 Organizations examine a number of characteristics to determine whether an individual is
sufficiently adaptable
...
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 Recent immigration background or heritage
 Ability to integrate with different people, cultures, and types of business organizations
 Ability to sense and accurately evaluate developments in the host country
 Ability to solve problems within different frameworks and perspectives
 Sensitivity to differences of culture, politics, religion, and ethics
 Flexibility in managing operations on a continuous basis despite lack of assistance
and gaps in information
 Those who were best able to deal with their new situation had developed coping strategies
characterized by sociocultural and psychological adjustments including:
 Feeling comfortable that their work challenges can be met
 Being able to adjust to their new living conditions
 Learning how to interact well with host-country nationals outside of work
 Feeling reasonably happy and being able to enjoy day-to-day activities
International Human Resource Selection Procedures
 Anticipatory Adjustment
 Training
 Previous experience
 In-country Adjustment
 Individual’s ability to adjust effectively
 Ability to maintain a positive outlook, interact well with host nationals, and to perceive
and evaluate the host country’s cultural values and norms correctly
 Clarity of expatriate’s role in the host management team
 Expatriate’s adjustment to the organizational culture
 Nonwork matters
Increasing Importance of Global Human Resources Understanding





International mergers and acquisition
Global competition
Foreign human resources
Market access opportunities

Mr
...
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Selection Methods:





Interviews (executives and psychologists)
Assessment Centers (exercises)
Tests (language and special tests)
Role of Family

Common Elements of Compensation Packages
 Compensating expatriates can be difficult because there are many variables to consider
 Most compensation packages are designed around four common elements: Allowances,
Taxes, Base Salary, Benefits
 Base salary
 Amount of money that an expatriate normally receives in the home country
 Benefits
 Should host-country legislation regarding termination of employment affect employee
benefits entitlements?
 Is the home or host country responsible for the expatriates’ social security benefits?
 Should benefits be subject to the requirements of the home or host country?
 Which country should pay for the benefits?
 Should other benefits be used to offset any shortfall in coverage?
 Should home-country benefits programs be available to local nationals?
 Allowances
 Cost-of-Living Allowance
 Payment for differences between the home country and the overseas
assignment
...
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 Taxes
 Tax equalization
 An expatriate may have two tax bills for the same pay
 Host country
 U
...
Internal Revenue Service
 MNCs usually pay the extra tax burden
Tailoring the Compensation Packages
 Balance-sheet approach
 Ensure the expatriate does not lose money from the assignment
 Complementary approach
 Negotiate to work out an acceptable ad hoc arrangement
 Localization
 Pay the expatriate a salary comparable to local nationals
 Lump sum method
 give expatriate a lump sum of money
 Cafeteria approach
 Compensation package that gives the individual a series of options
 Regional system
 Set a compensation system for all expatriates who are assigned to a particular region
Individual and Host-Country Viewpoints
 Individual desires
 Why do individuals accept foreign assignments?
 Greater demand for their talents abroad than at home
 Host-country desires
 Whom would it like to see put in managerial positions?
 Accommodating the wishes of HCOs can be difficult:
 They are highly ethnocentric in orientation
 They want local managers to head subsidiaries

Mr
...
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o Regiocentric MNC
 Relies on local managers from a particular geographic region to handle
operations in and around that area
o Geocentric MNC
 Seeks to integrate diverse regions of the world through a global approach to
decision making
 Corporate Reasons for Training
o Ethnocentrism


The belief that one’s own way of doing things is superior to that of others

 Personal reasons
o To train overseas managers to improve their ability to interact effectively with local
people in general and with their personnel in particular
o Increasing numbers of training programs address social topics – these programs also
focus on dispelling myths and stereotypes by replacing them with facts about the
culture
Cross-Cultural Training Programs
 Major types of cross-cultural training programs
o Environmental Briefings
 Provide information about things such as geography, climate, housing, and
schools
o Cultural Orientation
 Familiarize the individual with cultural institutions and value systems of the
host country
o Cultural Assimilators
 Programmed learning techniques designed to expose members of one culture
to some of the basic concepts, attitudes, role perceptions, customs, and
values of another culture
o Language Training
 Provide information about things such as geography, climate, housing, and
schools
o Sensitivity Training
 Develop attitudinal flexibility
o Field Experience
 Send participant to the country of assignment to undergo some of the
emotional stress of living and working with people from a different culture
 Steps in cross-cultural training programs
o Local instructors and a translator observe the pilot training program or examine
written training materials

Mr
...
This can result in unexpected difficulty in readjusting to
the culture and values of the home country, now that the previously familiar has become
unfamiliar
...

– Set standards of “good” and “bad” as opposed to “right” and “wrong
...

 Law, values, and ethical behavior:
– Legal behavior is not necessarily ethical behavior
...


Mr
...

 Individualism view of ethics — primary commitment is to one’s long-term self-interests
...

 Justice view of ethics — fair and impartial treatment of people according to legal rules and
standards
...


– Cultural universalism
•

Behavior that is unacceptable in one’s home environment should not be
acceptable anywhere else
...
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How international businesses can respect core or universal values:
Respect for human dignity
•

Create culture that values employees, customers, and suppliers
...


•

Produce safe products and services
...


•

Avoid anything that threatening safety, health, education, and living standards
...


•

Work with local government and institutions to protect environment
...


•

Ethical dilemmas include:
•
•

Sexual harassment

•

Conflicts of interest

•

Customer confidence

•
•

Discrimination

Organizational resources

Ethical behavior can be rationalized by convincing yourself that:
•
•

Behavior is really in everyone’s best interests
...


•
•

Behavior is not really illegal
...


Factors influencing ethical behavior include:
•

The person
•

Family influences, religious values, personal standards, and personal needs
...
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•

The organization
•

•

Supervisory behavior, peer group norms and behavior, and policy statements
and written rules
...


How can high ethical standards be maintained?
 Checklist for dealing with ethical dilemmas
o Step 1
...
Identify your options
o Step 4
...
Decide which option to follow
o Step 6
...
Take action
...

o Helps people incorporate high ethical standards into daily life
...


Mr
...

o All managers can influence the ethical behavior of people who work for and with
them
...

o Managers should be realistic in setting performance goals for others
...

 Areas often covered by codes of ethics:
o Bribes and kickbacks
o Political contributions
o Honesty of books or records
o Customer/supplier relationships
o Confidentiality of corporate information

Mr
...

– Obligates organizations to act in ways that serve both its own interests and the
interests of society at large
...

– Typical organizational stakeholders are Employees, Customers, Suppliers, Owners,
Competitors, Regulators, Interest groups
 Beliefs that guide socially responsible business practices:
– People do their best with a balance of work and family life
...

– Organizations gain by respecting the natural environment
...

– Organizations must protect their reputations
...

– Socioeconomic view—
 Management must be concerned for the broader social welfare, not just profits
...
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– Improved public image
– Avoids more government regulation
– Businesses have resources and ethical obligation
 Criteria for evaluating corporate social performance:

 Strategies for pursuing social responsibility:
– Obstructionist — meets economic responsibilities
...

– Accommodative — meets economic, legal, and ethical responsibilities
...


Mr
...

 Corporate governance involves:
– Hiring, firing, and compensating the CEO
...

– Verifying financial records
...
Careful planning of production helps companies cut costs to become
low-cost leaders in their industry
...

 Essential to achieving objectives and Reflects overall firm strategy (Low-cost
leadership, Differentiation, or Focus
Capacity Planning
Capacity planning involves assessing a company’s ability to produce enough output to satisfy
market demand
...

•

If capacity now in use is greater than the expected market demand, production and work
shifts may need to be reduced
...
A firm may need to
give long advance notice of layoffs or plant closings
...
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•

If demand is growing, managers must determine if present facilities can expand output or
whether additional facilities are needed
...


Facilities Location Planning
Facilities location planning involves selecting a location for production facilities
...

•

Managers must explore the cost and availability of labor and management, raw materials,
component parts, and energy, and the state of political stability, regulations, and economic
growth
...


•

Service companies must consider customers’ needs when locating facilities and are often
forced to locate near to customers
...


Location Economies
Location economies are the economic benefits derived from locating production activities in optimal
locations
...


•

A firm can either locate activities there itself or obtain products and services from companies
in the location
...


Centralized vs
...

Decentralized production, on the other hand, spreads facilities over several locations and can even
mean a separate facility for every business environment
...
A company focusing on low costs does not differentiate its product
and need not locate near markets
...


•

Decentralized production is well-suited to firms following differentiation and focus strategies
...


Mr
...

•

Low-cost strategies require large-scale production to achieve economies of scale
...
A low-cost leader may opt
for less technology and more labor-intensive production methods if local labor is
inexpensive
...
These firms may employ skilled craftspeople to make highly specialized goods,
or use flexible technologies that allow for rapid product changes as market conditions
warrant
...

•

Low-cost leadership strategies typically dictate automated, standardized production in large
batches
...
Costs are further reduced as employees repeat processes and
become more proficient
...
These
facilities tend to be small scale because they produce for a national or regional market
...
Manufacturing and R&D
costs may also be higher for products with special product designs, styles, and features
...

•

Facility layout depends on the type of production process which, in turn, depends on a
company’s business-level strategy
...
If a host country has wide-open spaces
and land is relatively inexpensive, a facility may be larger than a comparable facility in a
smaller country where land is more expensive
...
This means answering a variety of questions, some of which are: Where will we
source raw materials needed in production? Will the company acquire facilities or build
new? Will we make the components needed in production or buy them from outside
sources? And what is the cost of making versus buying? Whether to make or buy a
component is called the “make-or-buy decision,” which we now explore in detail
...
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Decision to Make
Vertical integration occurs when a company extends its control over additional stages of
production—either inputs or outputs
...
Companies decide to make such products for two reasons
...
By producing inhouse, a company internalizes the profit margin it would have paid to a supplier
...


•

Making a product can give managers greater control over raw materials, product design,
and the production process—all are important to product quality
...


Decision to Buy
Outsourcing is buying from another company a good or service that is not central to a company’s
competitive advantage
...
A company may outsource for several reasons
...
Social unrest or conflict in a
host country can threaten physical facilities, equipment, and employee safety
...


•

Second, outsourcing retains flexibility
...
And if a company’s capital is not invested in plants and equipment, it
retains financial flexibility to use excess capital to pursue new opportunities
...
Sometimes a supplier even
becomes a sort of “hostage” to one customer when that buyer absorbs much of its output
...


Materials and Assets
•

Quality and quantity drive many decisions about raw material acquisition
...
In such cases, raw material quality has an enormous influence on
final product quality
...
Companies can acquire existing factories or build new
facilities from the ground up, called a greenfield investment
...
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Quality Improvement
Companies strive toward quality improvement to contain costs and increase value for customers
...
A company that
combines a low-cost position with a high-quality product can gain a formidable competitive
advantage
...
The interaction between an employee who delivers a service and a buyer is
a crucial role to the perception of quality
...
It places responsibility on each individual for the quality of
output
...


•

The International Standards Organization (ISO) 9000 is an international certification that a
firm receives when it meets the highest quality standards in its industry
...


Other Production Issues
•

Shipping costs have a dramatic effect on the cost of getting materials and components to
production facilities
...


•

The high cost of storing large amounts of inventory entices companies to keep inventories
low
...
It slashes inventory costs and spots defects early during
production, rather than later in inventory
...
The overriding factor is that companies seek the highest risk-adjusted
returns on investments
...
Reinvesting in expanding markets is
appealing because potential customers may not yet be loyal to any one brand
...
They may also divest when disruptions appear in a host country’s political, social,
or economic spheres
...
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Financing Business Operations
Firms need financial resources to pay expenses and finance investment projects
...


•

Expand production capacity or enter new geographic markets
...


Borrowing
Companies try to get the lowest possible interest rate on borrowed funds
...


•

Borrowing in a host country can be advantageous, especially when the value of the local
currency has fallen against that of the home country
...


Back-to-Back Loan
A back-to-back loan is a loan in which a parent company deposits money with a host-country bank,
which then lends to the parent’s subsidiary in the host country
...

American Depository Receipts
Global equity markets help firms locate international investors
...

•

To maximize its international exposure, a non-U
...
company can list shares in the United
States by issuing American Depository Receipts
...
S
...


•

The advantages of ADRs are that buyers pay no currency-conversion fees, there are no
minimum purchase requirements, and they carry no limit on the amount of money that a
U
...
-based mutual fund can invest in firms not registered on U
...
exchanges
...

•

First, emerging stock markets are often volatile and characterized by hot money that can be
quickly withdrawn at the first signs of a crisis
...
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equity
...

•

Second, sometimes poor regulation in emerging markets means that large local companies
may wield a great deal of influence over a domestic stock market
...


Internal Funding
Companies can also finance ongoing activities and investments with internal funds
...
Subsidiaries can obtain capital by issuing equity solely to the
parent, which benefits from an appreciating share price
...


•

Revenue earned from the sale of goods and services is the lifeblood of international
companies and their subsidiaries
...


Small Business Financing
Here are some tips from entrepreneurs who have succeeded in finding international sources of
capital for their companies:
•

Contact business schools with strong international programs to build contacts among
academe and business alumni
...


•

Leverage your contacts and consider asking a respected executive with global experience to
mentor you
...


•

Consider hiring an intermediary, such as a bank or venture capital firm, to help locate
funding
...


Capital Structure
A company’s capital structure is the mix of equity, debt, and internally generated funds that it uses
to finance its activities
...

•

Companies prefer not to carry too much debt in relation to equity that it increases its risk of
insolvency
...


Mr
...
These include limits on
international capital flows, a higher cost of local financing, restricted access to global capital
markets, and currency exchange controls
...
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