7-International environment1 International Management Ridel A. 7 Gomez-Mejia and David Balkin

7-International environment2 Introduction The distinction between domestic and foreign firms is increasingly becoming obsolete. Firms are taking advantage of market and production opportunities beyond their borders. Firms that don’t develop a global vision are more likely to find themselves at a competitive disadvantage.

7-International environment3 The Changing Pattern of International Business Changing world output and world trade picture –Global shift Lowered trade barriers –General Agreement on Tariffs and Trade (GATT) –World Trade Organization (WTO) Integrated Economic Markets

7-International environment4 The Changing Pattern of International Business (continued) Global consumer preferences Globalized production Technological innovations Management across cultures

7-International environment5 Major Factors Affecting International Business General business environment –First-mover advantage Legal system –Common law –Civil law –Muslim law Economic environment Cultural environment

7-International environment6 Dimensions of Culture Power Distance Individualism Uncertainty Avoidance Masculinity / Femininity Time Orientation Pro. Geert Hofstede

7-International environment7 Modes of Entry ExportingTurnkey Project Licensing Franchising Strategic Alliance Joint Venture Wholly Owned Subsidiary

7-International environment8 Advantages and Disadvantages of Various Modes of Entry Choices Mode of EntryAdvantagesDisadvantages Exporting Economies of scale Lower foreign expenses No low cost sales High transportation costs Potential tariffs Turnkey Project Access to closed marketsCompetition from local client Loss of competitive advantage Licensing Quick expansion Lower expenses and risks Lower political risk Loss of competitive advantage Limited ability to use profits in one country to increase competition in another country Franchising Quick expansion Lower development costs and risks Lower political risk Loss of competitive advantage Potential quality control problems Limited ability to use profits in one country to increase competition in another country

7-International environment9 Advantages and Disadvantages of Various Modes of Entry Choices (continued) Mode of EntryAdvantagesDisadvantages Joint Venture Knowledge of local markets Lower development costs and risk Access to closed markets Potential for conflict of interest Loss of competitive advantage Wholly Owned Subsidiary Maximum control over proprietary knowledge / technology Greater strategic flexibility Efficiencies of global production system Large capital outlay Lack of local knowledge Increased risk Strategic Alliance Access to closed markets Pooled resources increase partner’s capabilities Complementary skills & assets Loss of competitive advantage Potential overestimation of partner’s capabilities

7-International environment10 Basic approaches to managing an international subsidiary: Ethnocentric Approach Polycentric Approach Third-Country Nationals

7-International environment11 Three approaches to cross-cultural training: Impression Approach Affective Approach Information-Giving Approach

7-International environment12 Why International Assignments End in Failure Career blockage Culture shock Lack of pre-departure cross-cultural training Overemphasis on technical qualifications Getting rid of a troublesome employee Family problems

7-International environment13 Ethics and Social Responsibility Globalization greatly increases the ethical dilemmas that managers face. Different cultures have different notions of right and wrong. Many firms and industry groups have developed their own codes of conduct for foreign operations.