Chapter 8 Global Management Management Principles Chapter 8 Global Management Craig W. Fontaine, Ph.D.

International management challenges of globalization Europe European Union (EU) Political and economic alliance European countries that agreed to support mutual economic growth Expanding to at 22 member countries with 375 million consumers Management Fundamentals - Chapter 5

International management challenges of globalization The Americas North American Free Trade Agreement (NAFTA) Agreement for free flow of goods and services between the Canada, Mexico, and United States Free Trade of the Americas (FTAA) — Alaska to Chile — is a possibility Management Fundamentals - Chapter 5

International management challenges of globalization Asia and the Pacific Rim Economic power of China and Japan Growth in other Pacific Rim countries Asian countries represent a third of the global marketplace Management Fundamentals - Chapter 5

International management challenges of globalization

International management challenges of globalization Africa Increased attention to stable countries Beckons international business South African Development Community (SADC) links 14 countries in trade and economic development Management Fundamentals - Chapter 5

Key concepts of globalization: Globalization Basics Key concepts of globalization: Global economy Globalization International management Global manager

Globalization Basics Global economy Globalization Resource supplies, product markets, and business competition are worldwide, rather than local Globalization The process of growing interdependence of these components in the global economy

Globalization Basics International management Global manager Management in organizations with business interests in more than one country Global manager Informed about international developments Transnational in outlook Competent in working with multicultural people Aware of regional developments in a changing world

Globalization Basics International businesses Conduct for-profit transactions of goods and services across national boundaries Reasons why businesses go international: Profits Customers Suppliers Capital Labor

Globalization Basics Market entry strategies involve the sale of goods or services to foreign markets but do not require expensive investments. Types of market entry strategies: Global sourcing Exporting Importing Licensing agreement Franchising

Common forms of international business—from market entry to direct investment strategies.

Going Global Levels of Involvement in International Business

Issues in globalization Complications in the global business environment: Environment is complex, dynamic, and highly competitive. Global business executives must deal with differences in the environment of business in different countries. World Trade Organization resolves trade and tariff disputes among countries. Protectionism can complicate global trading relationships.

Trading Agreements &Trading Blocs Definition: Preferential trading agreements Members of bloc favored over non-members Expected Advantages to trading blocs Creation of new markets for producers Lower priced goods/services for consumer Promote political stability & economic prosperity Much of world divided into regional trading blocs

Types of Trading Agreements &Trading Blocs Trade Preference Association: Members lower govt. barriers on goods from other members only (e.g., Preferred nation designation). Free Trade Area: Members eliminate barriers against other members but maintain individual barriers against goods from non-members (e.g., NAFTA).

Types of Trading Agreements &Trading Blocs Customs Union: Members eliminate govt. barriers against members imports and establish common tariffs against non-members (e.g, EC, Mercosur). Common Market: Barriers to all transactions removed b/n members, incl. transfers of labor, capital, & services. Common barriers against non-members (e.g., EU).

The 25 Nations of the European Union

What are multinational corporations ? A multinational corporation (MNC) is a business with extensive international operations in more than one foreign country.

Why multinational corporations? Mutual benefits for host country and MNC: Shared growth opportunities Shared income opportunities Shared learning opportunities Shared development opportunities

Problems Experienced by HOST Countries Host country complaints about MNCs: Excessive profits Domination of local economy Interference with local government Hiring the best local talent Limited technology transfer Disrespect for local customs

Problems Experienced by Multinational Companies MNC complaints about host countries: Profit limitations Overpriced resources Exploitative rules Foreign exchange restrictions Failure to uphold contracts

Ethical Concerns for Multinational Corporations Ethical issues for MNCs: Corruption — illegal practices that further one’s business interests. Sweatshops — employing workers at low wages for long hours and in poor working conditions. Child labor — full-time employment of children for work otherwise done by adults.

What should go right and what can go wrong in MNC-host country relationships.

Corruption in Business and Government

Complicated the Roles for Managers Planning and controlling Complexity of international environment makes global planning and controlling challenging. Planning and controlling risks: Currency risk Political risk Management Fundamentals - Chapter 5

Complicated the Roles for Managers Organizing and leading Multinational organization structures Global area structure Global product structure Staffing international operations Competent locals Expatriates Management Fundamentals - Chapter 5

New Challenges for Managers Comparative management How management systematically differs among countries and/or cultures. Global managers Need to successfully apply management functions across international boundaries. Management Fundamentals - Chapter 5

New Challenges for Managers Are management theories universal? North American management theories may be ethnocentric. Participation and individual performance are not emphasized as much in other cultures. Management Fundamentals - Chapter 5

Culture has many Components Popular dimensions of culture: Language Low-context cultures and high-context cultures Interpersonal space Time orientation Religion Contracts and formal agreements Management Fundamentals - Chapter 5

Management Fundamentals - Chapter 5 Remember Hofstede? Values and national cultures: Power distance Uncertainty avoidance Individualism-collectivism Masculinity-femininity Time orientation Management Fundamentals - Chapter 5

Project GLOBE Project GLOBE (Global Leadership and Organizational Behavior Effectiveness) Researches the leadership, organizational practices, and diversity among world cultures. Power distance Uncertainty avoidance Gender egalitarianism Future orientation

Beyond Hofstede Project GLOBE’s nine dimensions continued Institutional collectivism In-group collectivism Assertiveness Performance orientation Humane orientation

Nine cultural dimensions used by Project GLOBE researchers. A large team of international researchers collaborated in Project GLOBE to examine societal cultures using the nine cultural dimensions shown in the figure.  When results from extensive empirical studies were analyzed for 62 countries, they were found to fall into ten culture clusters. Countries within a cluster share many societal cultural practices; countries tend to differ significantly across clusters in their cultural practices.

Employees in an International Workforce Parent-country national – employee who was born and works in the country in which an organization’s headquarters is located. Host-country national – employee who is a citizen of the country (other than parent country) in which an organization operates a facility. Third-country national – employee who is a citizen of a country that is neither the parent country nor the host country of the employer. When organizations operate globally, their employees are very likely to be citizens of more than one country. Employees may come from the employer’s parent country, a host country, or a third country

Employees in an International Workforce When organizations operate overseas, they hire a combination of parent-country nationals, host-country nationals, or third-country nationals. Expatriates – employees assigned to work in another country. The extent to which organizations use parent-country, host-country, or third-country nationals varies.

Managers and Culture Culture Culture shock Cultural intelligence The shared set of beliefs, values, and patterns of behavior common to a group of people. Culture shock Confusion and discomfort a person experiences in an unfamiliar culture. Cultural intelligence The ability to adapt and adjust to new cultures Ethnocentrism Tendency to consider one’s own culture as superior to others.

When Managers go Abroad Stages in adjusting to a new culture: Confusion Small victories The honeymoon Irritation and anger Reality

Expatriate Adjustment Stages Source: GMAC Relocation Services, used with permission.

Causes of Expatriate Assignment Failure Source: Based on data from Global Relocation Trends Survey Report (New York: GMAC GRS/Windham International, 2000), 48.

Global Employee Selection Factors

Spouse, Family, and Dual-Career Issues Adaptability screening assesses how well managers and families are likely to adjust to a foreign culture Language and cross-cultural training for the family is just as, if not more, important than training for employees.

Selecting Expatriate Managers Expatriate managers need technical competence in the area of operations. In addition, many other skills are necessary to be successful in an overseas assignment: Ability to maintain a positive self-image and feeling of well-being Ability to foster relationships with host-country nationals Ability to perceive and evaluate the host country’s environment accurately Most international organizations assign managers to foreign posts. These assignments give rise to significant human resource challenges: Selecting managers for these assignments Preparing them Compensating them Helping them adjust to a return home The same kinds of HRM principles that apply to domestic positions can help organizations avoid mistakes in managing expatriates: Planning and goal setting Selection aimed at achieving the HR goals Performance management that includes evaluation of whether the overseas assignment delivered value relative to the costs involved

Compensating Expatriates After setting the total pay, the organization divides this amount into the four components of the total pay package: Base salary Tax equalization allowance Benefits Allowances

Typical Expatriate Compensation Components

Global Assignment Management Cycle

Helping Expatriates Return Home Repatriation – the process of preparing expatriates to return home from foreign assignment. Communication: the expatriate receives information and recognizes changes at home while abroad Validation: giving the expatriate recognition for the overseas service when this person returns home. As the expatriate’s assignment nears its end, the human resource department faces a final challenge: helping the expatriate make the transition back to his or her home country. The process of preparing expatriates to return home from a foreign assignment is called repatriation.