C HAPTER -02 I NTERNATIONAL M ANAGEMENT AND C ULTURAL D IVERSITY Dr. Gehan Shanmuganathan, (DBA) 1

C HAPTER OBJECTIVES Describe the importance of multinational corporations and outsourcing in international business Importance of sensitivity to cultural differences Identify major challenges facing global managerial worker Various methods of entry into world markets Success factors in the global market place and positives and negatives of globalization Scope of diversity, competitive advantage, and potential problems of culturally diverse workforce 2

I NTERNATIONAL MANAGEMENT 3

Global integration influences the manager’s job Approximately 10% to 20% of all jobs in the United States are dependent upon trade with other countries National identity of the product is vague in today’s context due to outsourcing certain parts in the value chain Critical aspects to manage in international business are, Cultural diversity Time factor in business operations (local and international) Outsourcing 4

C ULTURAL DIVERSITY IN THE US 5

T HE MULTINATIONAL C ORPORATIONS 6

M ULTINATIONAL C ORPORATIONS (MNC) A firm with operating units in two or more countries in addition to its own Headquarters in one country and subsidiaries in other countries Some times hire people from its own country of origin (expatriates) for key positions in facilities in other countries Other times, MNC will hire citizens of the country in which the division is located (host- country nationals) Some MNCs are PepsiCo, IBM, Microsoft 7

T RANSNATIONAL CORPORATIONS A special type of MNC that operates worldwide without having a single national headquarters Units of the company located in different parts of the world Eg- Tokyo based Trend Micro is a specialist in combating computer viruses Key challenges in international business are, Government agreements about trade Outsourcing 8

T RADE AGREEMENT The North American Free Trade Agreement (NAFTA) Relationships among United States, Canada, and Mexico Central American Free Trade Agreement (CAFTA) United States, Dominican Republic, and Central America The European Union (EU) 27-nation alliance in Europe The World Trade Organization (WTO) The only international agency overseeing the rules of international trade and settle disputes among countries 9

G LOBAL OUTSOURCING AS PART OF I NTERNATIONAL B USINESS 10

G LOBAL OUTSOURCING AS PART OF I NTERNATIONAL B USINESS 11 The practice of hiring an individual or another company outside the organization to perform work Global outsourcing OutsourcingOffshoring

G LOBAL OUTSOURCING AS PART OF I NTERNATIONAL B USINESS 12

G LOBAL OUTSOURCING 13 Lower-Priced goods Create new jobs Around the clock service Permanent loss of jobs Slow job creation Low wages to local employees threatening offshoring Cases for …..Cases against……

P ROBLEMS WITH OUTSOURCING Language barrier Customer handling issues Currency value When relatively weak- begins on-shoring and re- shoring 14

S ENSITIVITY TO CULTURAL DIFFERENCE 15

C ULTURAL SENSITIVITY Awareness and use of local and national customs and their importance in effective interpersonal relationships 16

M ULTICULTURAL WORKER An individual who is aware of and values other cultures 17 Ethnocentrism discuss……

C ULTURAL M ISTAKES TO A VOID Country Great Britain Spain Scandinavia All Asian countries Japan India Cultural Mistake Asking personal questions. The British protect their privacy. Expecting punctuality. Your appointments will usually arrive minutes late. Being overly rank conscious in these countries. Little attention is paid to a person’s place in the hierarchy. Pressuring an Asian employee to brag about his or her accomplishments. They prefer to let the record speak for itself. Shaking hands or hugging in public. Japanese consider the practices to be offensive. Telling Indians you prefer not to eat with your hands. If they are not using cutlery when eating, they expect you to do likewise. Mexico Brazil Latin America Flying into a Mexican city in the morning, expecting to close a deal by lunch. They build business relationships slowly. Attempting to impress them by speaking a few words of Spanish. Portuguese is the official language. Wearing elegant jewelry during a business meeting. They feel people should appear conservative during business meetings. 2.2

C HALLENGES FACED THE GLOBAL MANAGERIAL WORKER 19

C HALLENGES F ACING THE G LOBAL M ANAGERIAL W ORKER Economic crises in other countries Balance of trade problems Collecting money Liability of being a foreigner Differences in negotiating style Human rights violations Culture shock 2.3 Global leadership skills

D EVELOPING GLOBAL LEADERSHIP SKILLS The ability to effectively lead people of other cultures This is a combination of cultural sensitivity and general leadership skills A welcoming attitude towards other cultures is the most important in becoming an effective global leader Their main roles are, Inspiring Envisioning Culturally sensitive 21

H OFSTEDE C ULTURAL D IMENSIONS 22 Uncertainty Avoidance

A PPLICATION OF H OFSTEDE C ULTURAL D IMENSIONS 23

C URRENCY FLUCTUATIONS If the currency gains in value, difficult for exports but easy for imports If the currency weakens in value, difficult for imports, but easy for exports These affect marketing and production in MNCs 24

B ALANCE OF T RADE P ROBLEMS The difference between exports and imports in both goods and services Deficit and surplus effects 25

H UMAN RIGHTS VIOLATIONS, CORRUPTIONS, AND VIOLENCE Should the manager use, Child labor Free labor from political prisoners Undocumented employees Unfair treatments for indigenous people 26

C ULTURE SHOCK A group of physical and psychological symptoms that may develop when a person is abruptly placed in a foreign culture Understanding of, Values, beliefs, attitudes, ideas, religious beliefs, myths, colors, education, symbols, and so on Time zones 27

D IFFERENCES IN NEGOTIATING STYLE Negotiation is a process where each party involved in bargaining, tries to gain an advantage for themselves by the end of the process. Negotiation is intended to aim at compromise. American managers will have to be; Patient Use team approach Avoid being too informal 28

P IRACY OF INTELLECTUAL PROPERTY RIGHTS AND OTHER MERCHANDISE Intellectual property rights – software Copy rights – publications 29

M ETHODS OF ENTRY INTO WORLD MARKETS 30

ExportingLicensing Local warehousing & selling Local assembly & packaging Strategic Alliance(joint venture) Direct foreign investment Global startup Global merger Methods of Entry into World Markets

I NTERNATIONAL B USINESS E NTRY S TRATEGIES Licensing - A contractual agreement in which one firm permits another to produce and market its products and use its brand name in return for royalty or other compensation Exporting - organization manufactures in the home country to export to other countries Joint venture- a partnership between two entities for a business operation in a country (guest country) Totally owned facility- with total ownership of the business Strategic Alliance- partnership formed to create competitive advantage on a worldwide business 32

I NTERNATIONAL B USINESS E NTRY S TRATEGIES Trading company- These companies provide a link between the international buyer and the seller Counter Trade- International barter transactions Multinational Firms- A firm that operates on a worldwide scale without ties to any specific nation or region Global startup- a small firm that comes into existence by serving an international market 33

S UCCESS FACTORS IN THE GLOBAL MARKETPLACE 34

H OW TO S UCCEED IN THE G LOBAL M ARKETPLACE Think globally, act locally Diversify into similar product markets Be familiar with local business concepts, laws, and customs Recruit talented nationals Research and assess potential markets Hire or develop multicultural workers Adopt Environmentally Friendly Policies Understand your Competitors Potential partners Members of the management team 2.5

T HE SCOPE, COMPETITIVE ADVANTAGE, AND POTENTIAL PROBLEMS OF MANAGING DIVERSITY 36

T HE C OMPETITIVE A DVANTAGES OF D IVERSITY Leads to better rapport with culturally diverse customers Improves productivity and profits Improves customer service Reduces possible cultural bloopers 2.6 Facilitates recruiting and retaining talented individuals

C OMPETITIVE ADVANTAGE OF DIVERSITY 38

C OMPETITIVE ADVANTAGE OF DIVERSITY The advantage an organization has as an advantage of managing diversity over rivals Product – Apple Price- Wal-Mart Advertising – insurance companies Distribution or delivery – fast food People or service- Banks Process - travel and leisure 39

B ENEFITS OF CULTURAL DIVERSITY Marketing advantage in terms of sales and profits Reduces costs (lost customer and efficiency) Recruiting talented employees Provide useful ideas for advertising and publicity Reduces cultural bloopers (blunders) Create corporate creativity 40

P ROBLEMS ASSOCIATE WITH DIVERSITY 41

P ROBLEMS ASSOCIATE WITH DIVERSITY Heterogeneous groups could create potential conflicts among groups 42

O RGANIZATIONAL P RACTICES FOR I MPROVING THE M ANAGEMENT OF D IVERSITY 2.7 Establish corporate policies favoring diversity Encourage employees to form network groups Conduct “valuing diversity” training programs English Language as a Force For Unity

Q UESTIONS ……. 44

W EEKLY ASSIGNMENT - 02 What steps can you take, starting this week, to ready yourself to become a multicultural worker ? 45