International Management Chapter 06 Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Learning Objectives LO1 Describe how the world economy is becoming more integrated than ever before LO2 Discuss what integration of the global economy means for individuals companies and their managers LO3 Define the strategies organizations use to compete in the global marketplace LO4 Compare the various entry modes organizations use to enter overseas markets 6-2

Learning Objectives (cont.) LO5 Explain how companies can approach the task of staffing overseas operations LO6 Summarize the skills and knowledge managers need to manage globally. LO7 Identify ways in which cultural differences across countries influence management 6-3

The Global Environment  The global economy is dominated by countries in three regions: North America, Western Europe, and Asia.  Other developing countries and regions represent important areas for economic growth 6-4

The Global Economy 6-5 Figure 6.1

European Unification  Europe is integrating economically to form the biggest market in the world  Certain structural issues within Europe need to be corrected for the EU to function effectively. 6-6

U.S. Trading Partners Based on Total Imports and Exports Figure

The Americas  North American Free Trade Agreement (NAFTA)  An economic pact that combined the economies of the United States, Canada, and Mexico into one of the world’s largest trading bloc 6-8

Consequences of a Global Economy 1.Expansion of international trade 2.Foreign direct investment (FDI) is playing an ever-increasing role in the global economy 3.Imports are penetrating deeper into the world’s largest economies 4.Companies are finding their home markets under attack from foreign competitors 5.Capital flow, exchange rates. 6-9

Growing Proportion of Goods Being Exported 6-10 Figure 6.3

Consequences of a Global Economy  Opportunities are greater  Environment is more complex and competitive  Production  markets 6-11

The Role of Outsourcing  Outsourcing  Contracting with an outside provider to produce one or more of an organization’s goods or services.  Offshoring  Moving work to other countries. 6-12

Organizational Models 6-13 Figure 6.5

Choosing a Global Strategy  International model  composed of a company’s overseas subsidiaries and characterized by greater control by the parent company over the research function and local product and marketing strategies than in the multinational model. 6-14

Choosing a Global Strategy  Multinational model  consists of the subsidiaries in each country in which a company does business, with ultimate control exercised by the parent company.  How to determine which countries? 6-15

Choosing a Global Strategy  Global model  consisting of a company’s overseas subsidiaries and characterized by centralized decision making and tight control by the parent company over most aspects of worldwide operations 6-16

Choosing a Global Strategy  Transnational model  characterized by centralizing certain functions in locations that best achieve cost economies  basing other functions in the company’s national subsidiaries to facilitate greater local responsiveness  fostering communication among subsidiaries to permit transfer of technological expertise and skills. 6-17

Comparison of Entry Modes 6-18 Table 6.2

Entry Mode Advantages of exporting:  Provides scale economies by avoiding the costs of manufacturing in other countries  Consistent with a pure global strategy 6-19

Entry Mode  International licensing  an arrangement by which a licensee in another country buys the rights to manufacture a company’s product in its own country for a negotiated fee (typically, royalty payments on the number of units sold) 6-20

Entry Mode  Franchising  the company sells limited rights to use its brand name to franchisees in return for a lump-sum payment and a share of the franchisee’s profits. 6-21

Entry Mode Joint ventures benefit a company through:  the local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business systems  the sharing of development costs and/or risks with the local partner. 6-22

Managing across Borders  Expatriates  Parent-company nationals who are sent to work at a foreign subsidiary  Pitfalls 6-23

Managing across Borders  Host-country nationals  Natives of the country where an overseas subsidiary is located  Third-country nationals  Natives of a country other than the home country or the host country of an overseas subsidiary. 6-24

Skills of the Global Manager  15% of all employee transfers are to international locations  Failure rate ranges from 20%-70%  Failure rate  the number of expatriate managers of an overseas operation who come home early  Communication is key to reducing the failure rate 6-25

Identifying International Executives 6-26 Table 6.4

How to Prevent Failed Global Assignments 6-27 Table 6.5

Understanding Cultural Issues  Ethnocentrism  The tendency to judge others by the standards of one’s group or culture, which are seen as superior  Culture shock  The disorientation and stress associated with being in a foreign environment. 6-28

Understanding Cultural Issues  Power distance  the extent to which a society accepts the fact that power in organizations is distributed unequally  Individualism/collectivism  the extent to which people act on their own or as a part of a group. 6-29

Understanding Cultural Issues  Uncertainty avoidance  the extent to which people in a society feel threatened by uncertain and ambiguous situations.  Masculinity/femininity  the extent to which a society values quantity of life over quality of life  dominance 6-30

Positions of 40 Countries on the Power Distance and Individualism Scales 6-31 Figure 6.6

Understanding Cultural Issues  Inpatriate  A foreign national brought in to work at the parent company. 6-32

Understanding Cultural Issues  Americans tend to have specific views about the purpose of meetings and how much time can be spent.  International workers may have different preconceptions about the nature and length of meetings, and managers should make sure foreign nationals are comfortable with the American approach. 6-33

Understanding Cultural Issues  Workers from other countries can work long hours but, in countries with strong labor organizations, often get many more weeks of vacation than American workers.  Europeans in particular may balk at working on weekends. 6-34

Ethical Issues in International Management  Research suggests that regardless of nationality or religion, most people embrace a set of five core values: compassion, fairness, honesty, responsibility, and respect for others.  These values lie at the heart of human rights issues and seem to transcend more superficial differences among Americans, Europeans, and Asians 6-35