1 Objective: To provide an overview of the main organizational issues when establishing and operating in an overseas market. Summary: 6.1 Globalization 6.2 The International Environment 6.3 Planning for International Business 6.4 Organizing an International Business 6.5 Leading in an International Business 6.6 Controlling in International Business 6 T HE N ATURE OF I NTERNATIONAL M ANAGEMENT Objective: To provide an overview of the main organizational issues when establishing and operating in an overseas market. Summary: 6.1 Globalization 6.2 The International Environment 6.3 Planning for International Business 6.4 Organizing an International Business 6.5 Leading in an International Business 6.6 Controlling in International Business

2 Evolution towards an integrated global economy: –International Business = across national boundaries: companies buying/selling product/services to each other; borrowing money; undertaking a joint venture; multinational company = operates at high level in several different countries. –Growth: international trade increased 4 X from1960’s to 1990’s; –transportation and communication improvements; –declining domestic markets; –opportunities and proximity; 6.1 Globalization Evolution towards an integrated global economy: –International Business = across national boundaries: companies buying/selling product/services to each other; borrowing money; undertaking a joint venture; multinational company = operates at high level in several different countries. –Growth: international trade increased 4 X from1960’s to 1990’s; –transportation and communication improvements ( ); –declining domestic markets; –opportunities and proximity;

3 Five components to the general environment: –political-legal; –economic; –sociocultural; –physical –technological. 6.2 The International Environment Five components to the general environment: –political-legal; –economic; –sociocultural; –physical –technological.

4 –political-legal; stability of government in host country is critical; protectionism: –import tariffs; –export restraint agreements; –“buy national” laws/campaigns; government incentives for investment; –economic; country’s economic system; its financial laws and customs (eg: different types of mortgage) ; infrastructure; economic health; –political-legal; stability of government in host country is critical; protectionism: –import tariffs; –export restraint agreements; –“buy national” laws/campaigns; government incentives for investment; –economic; country’s economic system; its financial laws and customs (eg: different types of mortgage); infrastructure (cell phones, transportation…); economic health;

5 –sociocultural; cultural tastes; values; literacy; age distribution; religion; –physical; climate; topography; demography. –technological: availability of qualified workers (labor and management); equipment (eg scaffolding systems). –sociocultural; cultural tastes; values; literacy; age distribution; religion; –physical; climate; topography; demography. –technological: availability of qualified workers (labor and management); equipment (eg scaffolding systems).

6 The task environment = other organizations with which you must interact: –may have to treat customers differently (cultural); –potential quality problems with local suppliers; –differences in payment expectations; –competitors can be local firms or other foreign firms; –many businesses seeking foreign partners (eg: lack technological or financial resources to undertake large projects: technology transfer...); –Regulatory organizations vary from country to country (also unionism and its influence). The task environment = other organizations with which you must interact: –may have to treat customers differently (cultural); –potential quality problems with local suppliers; –differences in payment expectations; –competitors can be local firms or other foreign firms; –many businesses seeking foreign partners (eg: lack technological or financial resources to undertake large projects: technology transfer...); –Regulatory organizations vary from country to country (also unionism and its influence).

7 Decision to go international has 4 factors: –Market Factors, for example: saturation of domestic market; potential of foreign markets; –Production Factors, for example: lower labor costs; lower production costs near source of raw materials; –Competitive Factors, for example: a competitor goes international (need to keep up); –Governmental Factors, for example: foreign government incentives; 6.3 Planning for International Business Decision to go international has 4 factors: –Market Factors, for example: saturation of domestic market; potential of foreign markets; –Production Factors, for example: lower labor costs; lower production costs near source of raw materials; –Competitive Factors, for example: a competitor goes international (need to keep up); –Governmental Factors, for example: foreign government incentives;

8 International Strategies (spectrum of commitment): –1) Pure Domestic Strategy: purchase, production, and sale at home country; –2) Importing/Exporting Strategy: sell product oversea (not manufacture overseas); buy products from overseas; –3) Licensing Strategy: goods produced overseas under specification (by contract); –4) Joint Ventures: between a foreign company and a local company; provides a quick and reduced risk approach to entering market; enables acquisition of local expertise, and technology (2-way); –5) Direct Investment Strategy: establish local plants, distribution systems, marketing and administration systems, etc... International Strategies (spectrum of commitment): –1) Pure Domestic Strategy: purchase, production, and sale at home country; –2) Importing/Exporting Strategy: sell product oversea (not manufacture overseas); buy products from overseas; –3) Licensing Strategy: goods produced overseas under specification (by contract); –4) Joint Ventures: between a foreign company and a local company; provides a quick and reduced risk approach to entering market; enables acquisition of local expertise, and technology (2-way); –5) Direct Investment Strategy: establish local plants, distribution systems, marketing and administration systems, etc...

9 Organization Design: –design influenced by: level of international involvement; magnitude of investment; nature of product; location; –international divisional design: international operations are in a separate division (self- contained); –international matrix design: product managers and location-based division managers (interaction between a DM and many PMs); 6.4 Organizing an International Business Organization Design: –design influenced by: level of international involvement; magnitude of investment; nature of product; location; –international divisional design: international operations are in a separate division (self- contained); –international matrix design: product managers and location-based division managers (interaction between a DM and many PMs);

10 Staffing: –how many local employees to hire? –how many employees to transfer from home? Information Systems and Communication: –systemic differences hinder communication; –cultural differences = misinterpretation of intent...; –language barriers = misunderstanding; –currency differences and fluctuations = confusion; Staffing: –how many local employees to hire? –how many employees to transfer from home? Information Systems and Communication: –systemic differences hinder communication; –cultural differences = misinterpretation of intent...; –language barriers = misunderstanding; –currency differences and fluctuations = confusion;

11 Leaders should have familiarity with local scene: –basic familiarity with local language; –comprehend prevailing local work attitudes; –understand local needs and reasons for working; Leaders must understand local motivating factors; Leaders should appreciate the role of different groups; Leaders should understand local reactions to conflict and change. 6.5 Leading in an International Business Leaders should have familiarity with local scene: –basic familiarity with local language; –comprehend prevailing local work attitudes; –understand local needs and reasons for working; Leaders must understand local motivating factors; Leaders should appreciate the role of different groups; Leaders should understand local reactions to conflict and change.

12 3 main factors account for most control problems: –communication = difficult to implement plans and manage work; –exchange rate fluctuations (difficult to assess profits); –cultural factors (different cultures respond to control differently); 6.6 Controlling in International Business 3 main factors account for most control problems: –communication = difficult to implement plans and manage work; –exchange rate fluctuations (difficult to assess profits); –cultural factors (different cultures respond to control differently);

13 Dealing with control difficulties: –need to develop a control system that: works for you (gathers the info you need, and communicates your plans); is sensitive to the local situation; for example, to speed up work, consider attitudes to working evening overtime, weekend overtime, multiple shifts, etc. or may have to increase resource allocations; –ensure appropriate levels of communication between key parties: for example, rotation system to maintain contact between corporate headquarters and foreign affiliates. Dealing with control difficulties: –need to develop a control system that: works for you (gathers the info you need, and communicates your plans); is sensitive to the local situation; for example, to speed up work, consider attitudes to working evening overtime, weekend overtime, multiple shifts, etc. or may have to increase resource allocations; –ensure appropriate levels of communication between key parties: for example, rotation system to maintain contact between corporate headquarters and foreign affiliates.