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FRIDAY International Management MGT 480/680 Spring 2010 Dr. Yvonne Stedham International Management • Seniors, Juniors, Majors??? • Travelled to other countries? USAC? • Speak other languages? 2 International Management • Why this course? • What do you expect to learn? 3 This week • Purpose of this course • What do you know? • Introduction Course • Content • Format - Syllabus Personal • Instructor • Students – Background Sheet 4 Purpose • Management concepts and skills needed for businesses to succeed in an international environment • External Environment - Globalization, Democracy, Free Markets, Cultural Differencs, and the Bottom Line 5 Website Location http://www.business.unr.edu/faculty/stedham/ 6 Current Developments • National Public Radio (NPR) FM 88.7 - KUNR FM 90.5 – Cap Radio • The Economist https://www.economistacademic.com/subscribe_single.cfm - Student Subscription 12 weeks $19.95 Faculty ID: 4430 • Wall Street Journal – Sign-up sheet 7 For February 2nd • Global Update – Web/Handout • Questions to be handed out in class – next week 8 Student Group International Business Student Chapter (IBSC) – President: Marc Bristol Email: firstname.lastname@example.org Cell phone: 530 613 2377 – Extra Credit – Meeting dates: Every two weeks on Tuesday from noon to 12:50. In AB 402. NEWTRAC – Nevada World Trade Council – www.newtrac.org 9 What do you know? 1. List the five largest countries based on population. 2. What is the world population? 3. What is ―GDP‖? 4. What is the GDP/capita in the U.S.? What is a typical GDP growth rate for the U.S.? 5. Which three countries have the highest GDP/capita? 6. Which countries are culturally most similar to the U.S, which ones most dissimilar? 6. How many countries are there in the world? 10 What do you know? 1. Five largest countries 1. China 1.3 Bill 2. India 1.16 Bill 3. U.S. 307 Mill 4. Indonesia 220 Mill 5. Brazil 190 Mill 6. Russia 140 Mill 7. Japan 127.5Mill 2. World Population 6.6 Bill 11 What do you know? 1. Five largest countries 1. China 1.3 Bill 2. India 1.16 Bill 3. U.S. 307 Mill 4. Indonesia 240 Mill 5. Brazil 198 Mill 6. Pakistan 176 Mill 7. Bangladesh 156 8. Nigeria 149 Mill 9. Russia 140 Mill Mexico 111 Mill #11 10. Japan 127.5Mill Germany 82 Mill #16 2. World Population 6.6 Bill 12 What do you know? 3. GDP/capita GDP/capita in U.S.: ~ $46,000 Growth rate in U.S.: .4% – Typical growth rate ~ 3% – GDP/sector: Agriculture 1.2%; Industry 19.2%; Service 79.6% Mexico: Population 111.2 Mill; GDP/capita: $14,300 – Current growth rate: 1.3% – GDP/sector: Agriculture 3.8%; Industry 35.2%; Service 61% 13 What do you know? 4. Which 5 countries have the highest GDP/capita 1. Luxembourg $102,284 2. Norway $ 79, 154 3. Qatar $ 70,754 4. Iceland $ 62, 976 5. Ireland $ 58,883 6. Denmark $ 57,035 7. Switzerland $ 56,711 8. UK $ 47,300 9. US $ 46, 780 10. Netherlands $ 45,429 14 What do you know? 5. Which countries are culturally most similar to the U.S. Anglo Countries Canada Australia New Zealand U.K. Ireland South Africa 15 What do you know? 6. Number of countries in the world • Total number of countries: 192 -195 • Kosovo, Vatican, and Taiwan • United Nations 192 16 Some Data (APPROX.) Japan China Brazil US World Population 127.5 Mill 1.3Bill 190 Mill 307 Mill 6.6Bill GDP growth -.7% 10.7% 3.7% .4% 5.3% GDP/ $34,100 $7,700 $8,800 $46,780 $10,200 Capita Industry ? ? ? ? NA 17 Data Sources www.cia.gov www.transparency.org www.heritage.org 18 International Government Materials International financial statistics yearbook http://innopac.library.unr.edu/record=b1618229~S0 Trade policy review http://innopac.library.unr.edu/search/ Patrick Ragains Business and Government Information Librarian email@example.com International Management • Introduction – Course • Content – Culture, Globalization, Cost-Benefits-Risk • Format - Syllabus – Personal – Background Sheet • Framework of an international organization • Globalization • Reasons for going international • Types of international organizations 20 Course Format • Syllabus Reminder • Extra Credit – Forms • IBSC Meetings in AB 402 – February 2 – Speaker: Brazil 22 Personal Introductions • Students – background sheets • Introduction – Major – Traveled internationally – Speak other language 23 International Management • Introduction – Course • Content – Culture, Globalization, Cost-Benefits-Risk • Format - Syllabus – Personal – Background Sheet • Framework of an international organization • Globalization • Reasons for going international • Types of international organizations 24 FINAL Termpaper List February 26 Countries and Presentation Dates 1. Finland Brigette, Andria, Andrew April 16 2. Germany Landon, Doug, Nicole April 16 3. Italy John Bender, Colin April 16 4. Spain Ermelinda, Kyle, Ben April 16 5. Mexico Thomas Rich, Debbie, Justin April 23 6. Brazil Megan, Fay, Australia, April 23 7. Peru John, Claudia, Yvonne April 23 8. Japan Brian, Vernon, Dani April 23 9. Philippines Kevin, Lewis, Kyle Aiton April 30 10. Thailand Brenda, Kirk, Stephanie April 30 11. China Rebecca, Brent, Robert April 30 12. Australia Ray, Dustin, Jason April 30 Framework Organizations and Organizational Effectiveness What is an organization? Why do organizations exist? • When is an organization effective? • Efficiency vs effectiveness? 26 Organizations and Organizational Effectiveness What is an organization? Why do organizations exist? – Organizations = People – Mission, goals, objectives • When is an organization effective? – Distinguish between efficiency – and effectiveness. – Distinguish effectiveness measures – for the short, intermediate, – and long run. 27 Measurement of organizational effectiveness Long run? Intermediate run? Short run? • 28 Measurement of organizational effectiveness • Long - Survival • Intermediate - Adaptation, Responsiveness • Short - Productivity, Efficiency 29 Measurement of organizational effectiveness A contingency approach to management (NOT ―administrative theory‖ of management) It is management‘s task to create the best possible fit between the external and internal environments of the organization and must ensure internal consistency between the organization‘s elements. 30 The Organization The External Environment Social Technological Political Economy Environment Environment Environment The Internal Environment People Business Effectiveness Strategy Processes Structure Culture 31 The International Organization The External Environment CULTURE Multiple Multiple Multiple Multiple Technological Political Economies Societies Environment Environment The Internal Environment People Business Effectiveness Strategy Processes Structure Culture 32 Globalization • Thomas Friedman • Why change? • Characteristics of the global system – Previous system? 33 Globalization Thomas Friedman (NY Times) – The Lexus and the Olive Tree – The World is Flat – Hot, Flat, and Crowded With the #1 bestseller The World Is Flat, he helped millions of readers see and understand globalization in a new way. Now Thomas L. Friedman explains how America can lead the green revolution in the 21st century. 34 Globalization • Globalization is not just an economic fad and it is not just a passing trend. It is an international system that replaced the Cold War System after the fall of the Berlin wall • The World is ten years old (1999) 35 Characteristics of the new system • Separation and independence VS Integration and interdependence 36 Characteristics of the new system • Free market capitalism • Homogenization of culture – Americanization • Defining technologies: computerization, miniaturization, digitization, satellite communications, fiber optics, the Internet 37 Characteristics of the new system • Defining measurement: Weight (missles) VS Speed .. Of travel, innovation, communication, commerce 38 Characteristics of the new system • Defining economists: Karl Marx and Keynes VS Schumpeter Capitalism and Creative Destruction 39 Characteristics of the new system • Defining political views: Friends and Enemies VS Competitors 40 APEC Asia Pacific Economic Cooperation Premier forum for facilitating • economic growth, cooperation, trade and investment in the Asia-Pacific region. It is one of the world's most important regional groupings, • encompassing 21 member economies • who collectively represent over 2.6 billion people and • account for approximately half of global GDP and trade. The primary focus of APEC is • promoting trade and investment liberalization and • business facilitation in the Asia-Pacific region. 41 APEC Members Australia Brunei Canada Chile People's Republic of China Hong Kong, China Indonesia Japan Republic of Korea Malaysia Mexico New Zealand Papua New Guinea Peru Philippines Russia Singapore Chinese Taipei Thailand United States Vietnam 42 APEC Business Summit • Invitation-only, annual meeting that provides unparalleled opportunities for strategic engagement and networking with prominent business leaders, international opinion setters, policy makers and leaders of Asia-Pacific Economic Cooperation (APEC) Member Economies. • The Business Summit, formerly the CEO Summit, has been held each year since 1996. It was instituted to enable business leaders to interact with APEC leaders. 43 OPEC Organization of Petroleum Exporting Countries Twelve members Algeria, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela (Hugo Chavez) OPEC’s Mission is • to coordinate & unify the petroleum policies of member countries & • ensure the stabilization of oil prices – in order to secure an efficient, economic & regular supply of petroleum to consumers, – a steady income to producers & – a fair return on capital to those investing in the petroleum industry. 44 World Economic Forum Davos 1/27-1/31/2010 • https://www.weforum.org/ • Committed to improving the state of the world – Participation Annual Meeting - invitation only - limited to the criteria and quota of each stakeholder group. – Of the 2500 participants, more than half from the business sector. – Over 900 chief executives - Basic Industries, Consumer, Financial Institutions, Information Technology, Electronics & Telecommunications, Mobility, Energy, Health, Media, and Professional Services. – Co-Chairs Josef Ackermann, Chairman of the Management Board and the Group Executive Committee, Deutsche Bank, Germany; Member of the Foundation Board of the World Economic Forum and Melinda French Gates, Co-Chair, Bill & Melinda Gates Foundation, USA – Azim H. Premji, Chairman, Wipro, India Peter Sands, Group Chief Executive, Standard Chartered, United Kingdom Eric Schmidt, Chairman of the Executive Committee and Chief Executive Officer, Google, USA Ronald A. Williams, Chairman and Chief Executive Officer, Aetna, USA Patricia A. Woertz, Chairman, President and Chief Executive Officer, Archer Daniels Midland (ADM), USA 45 World Economic Forum Mission • Independent, international Swiss not-for-profit organization • Motto ‗entrepreneurship in the global public interest‘ • Economic progress without social development is not sustainable, while social development without economic progress is not feasible. • To be the foremost organization • builds and energizes leading global communities; • the creative force shaping global, regional and industry strategies; • the catalyst of choice for its communities when undertaking global initiatives • to improve the state the world. 46 World Economic Forum Values 1. The world‘s key challenges cannot be met by governments, business or civil society alone 2. In a world characterized by complexity, fragility and ever greater synchronicity, strategic insights cannot be passively acquired. They are best developed through continuous interaction with peers and with the most knowledgeable people in the field. Strategies • To carry out its mission, • the World Economic Forum has developed • an integrated value chain • by involving world leaders in communities, • inspiring them with strategic insights and • enabling them through initiatives. 47 World Economic Forum • Members - foremost 1,000 global enterprises. • Characteristics of Members include: · Their rank among the top companies within their industry and/or country · The global dimension of their activities · A leading role in shaping the future of their industry and/or region • Every year, more than 100 of the world‘s most influential companies partner with the World Economic Forum to tackle the most complex challenges facing humanity. Recognizing that each company‘s business needs are unique, the Forum offers the possibility for partners to engage in a specific community, project or event. 48 G7 (G8) and G20 G20 (Group of 20) Purpose (1999): Bring together systemically important industrialized and developing economies to discuss key issues in the global economy. Website: http://www.g20.org Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan,Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, European Union (map) G7 (G8) Countries – US, Canada, Germany, France, Italy, UK, Japan, (Russia) 49 G 20 Map G 20 Groups • Why do organizations go international? List at least 3 reasons 51 Reasons for becoming international 1. A desire for continued growth. 2. Domestic market saturation 3. The potential to now exploit a new technological advantage 4. Preferable suppliers (quality, cost) 5. Labor market (supply, quality, cost) 6. Government involvement/restrictions 7. Reducing distance to customers (cost) 8. Tariff barriers 9. Increased foreign competition in home country 10. Reduce general business risk by diversifying into other countries 52 Reasons for becoming international Profit = Revenue – Cost Profit = (Volume*Price) - Cost 53 Reasons for becoming international Profit = Revenue – Cost = (Volume*Price) – Cost 1. A desire for continued growth. VOLUME 2. Domestic market saturation VOLUME 3. The potential to now exploit a new technological advantage V 4. Preferable suppliers (quality, cost) PRICE, COST 5. Labor market (supply, quality, cost) PRICE, COST 6. Government involvement/restrictions COST 7. Reducing distance to customers COST 8. Tariff barriers COST 9. Increased foreign competition in home country VOLUME, PRICE 10. Reduce general business risk by diversifying into other countries 54 An International Organization 1. operates in multiple environments, 2. home country and one or more host countries, 3. has foreign sales, 4. and a nationality mix of managers and owners. 55 Types of "international" organizations Multi-domestic organization Multinational organization Global or transnational organization 56 Types of "international" organizations Multi-domestic organization: Any organization that exports to/imports from organizations in other countries with primarily domestic production. 57 Types of "international" organizations Multinational organization: An organization with operations in different countries but each is viewed as a relatively separate enterprise. 58 Types of "international" organizations Global or transnational organization: An enterprise structured so that national boundaries become blurred. The best people are hired irrespective of national origin. 59 Graphic Representation Headquarters – Subsidiary Relationship 60 Stages Model of Internationalization Outward looking perspective: activities/issues related to the other countries (e.g., exporting) vs an inward perspective (e.g., importing) Descriptive Reflects the commonly observed pattern of increased commitment to international business 61 Four stages of internationalization Stage 1: Indirect/ad hoc exporting - perhaps from unsolicited export orders Stage 2: Active exporting and/or licensing Stage 3: Active exporting, licensing, and joint equity investments in foreign manufacture Stage 4: Full-scale multinational marketing and production See also: Adler Chapter 1 pages 8 and 9 62 International Orientation • Ethnocentric • Polycentric • Geocentric • Regiocentric 63 International Orientation • PCN – Parent Country National • HCN – Host Country National • TCN – Third Country National 64 The Relationship between Level of Internationalization and Firm Performance More international => more performance????? 65 The Relationship between Level of Internationalization and Firm Performance There is a strong CURVILINEAR relationship between the degree of internationalization and organizational performance 66 The Relationship between Level of Internationalization and Firm Performance Degree of internationalization: "sales generated by foreign affiliates" MNE (multinational enterprise) performance: "profit to sales" or "profit to assets". 67 The Relationship between Level of Internationalization and Firm Performance Performance is at a max. at a level of internationalization of 60 to 80% and then decreases with continuing internationalization Examples – Coca Cola, Colgate, Exxon, McDonald’s, HP, Ralston, Avon 68 EMU January 2009 Eurozone (16) Blue Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. CBR Analysis • Cost – Cultural differences – Lack of infrastructure – Taxes – Resources • Benefits (= reasons for ―going‖ international) – Larger volume – Lower cost – Higher quality – Less competition => Higher price • Risk – Political, Economic, Operational 70 Case 1 • Corporate Social Responsibility • Colombia • Mexico • India • Stakeholders The Multiple Responsibilities of Business Economic Legal Responsibility Responsibility Social Responsibility The Social Responsibility of MNCs • Corporate social responsibility (CSR) MNCs should Profit is anticipate and MNCs’ only solve social goal needs 74 MNC Stakeholders Business Ethics from a Stakeholders‘ Perspective – Employees • Relationship of the firm to its employees: – Hiring, promotion and other employee-related decisions. – Fair wages. – Respect for employee‘s beliefs. – Accountability. – Right to privacy. • Relationship of employees to the firm: – Conflicts of interest. – Secrecy. Relationship of the firm to Other Stakeholders - CSR • Owners – Stockholders – Financial Institutions • Non-owners – Customers/Consumers – Suppliers – Competitors – Unions – Governments – Other Opening Profile: The Enron Case • Illustrates how questionable actions by a company can be harmful to both stakeholders and the company itself—even if the actions are profitable in the short-term • Enron is a symbol of an ―era of management practice‖ (James Post), but is it the end of the era? Global Consensus or Regional Variation? • Global corporate culture • Example of regional variation: The US focuses on following basic business obligations, Europe focuses on serving broader social aims Three Approaches to International Morality and Ethics • Moral universalism • Ethnocentrism • Ethical relativism What is the ―right‖ decision? • Consult home/host country laws • Consult International Codes of Conduct for MNCs • Consult the company‘s code of conduct What is the ―right‖ decision? • Consult your superiors • Fall back on your own moral code of ethics External Environment -Theory National Competitive Advantage – Competitiveness – International Competitiveness 83 External Environment Porter Diamond The major determinants of national competitive advantage Why some nations succeed and others fail in international competition! Porter's research is based on studying 100 industries in 10 nations. 84 PORTER DIAMOND • National Competitive Advantage • Why a nation achieves success in a particular industry? • Why Japan -- automobile, cameras • Why CH (Switzerland) -- precision instruments, pharmaceuticals • Why Germany -- engineering 85 Porter Diamond Four broad attributes of a nation • that shape the environment in which local firms compete, and • these attributes promote or impede • the creation of competitive advantage • Diamond of four mutually reinforcing factors 86 Porter Diamond 1. Factor Endowments or Conditions– Basic Advanced Examples: Nokia, Ericsson 2. Demand Conditions – 1. Quality 2. Innovativeness 3. Variety - customization 87 Porter Diamond 3. Related and Supporting Industries – Suppliers (U.S. - semiconductor/comp) 4. Firm Strategy, Structure, Rivalry – Executive background <=> Domestic environment encourages the development of characteristics that make company internationally competitive 88 Porter‘s Diamond References for Porter • 1. Michael Porter, 1990. The Competitive Advantage of Nations. Free Press • 2. M. Grant, 1991. The Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12, 535-548 90 Final Comments Additional Thoughts and Examples • Japan – high priced land – JIT inventory technique • Sweden – short building season – pre-fabricated houses • Clustering – Related and Supporting Industries – Silicon Valley – Detroit – Italy – leather/shoes Review – Types of international organizations • Criterion -- Level of Global Participation • International/Multi-Domestic • Multinational • Transnational/Global – Stages of Development to an International O. • Descriptive Model – Effectiveness of Internationalization • Relationship between extent of internationalization and performance External Enviro – Theory 1. National Competitive Advantage Porter Diamond 2. Trade Agreements 92 External Environment - Theory 2. Trade Agreements • Why? • Protectionism? Pro /Con 93 Types of Trade Agreements 1. Trade Area – Common tariffs among members -- individual tariffs with non-members. – NAFTA, ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam - 420 Mill) 2. Customs Union – Common tariffs for non-members. – ANDEAN (Bolivia, Ecuador, Peru, Columbia, Venezuela) 3. Common Market – Free flow of goods and labor. – Mercosur (Brazil, Paraguay, Uruguay, Argentina, Chile) 4. Economic Union – Common currency, common overseeing institutions – European Union -- 15 Members; Euro; European Parliament; Court of Justice 5. Political Union 94 External Environment - Addendum You need to know this about -- 95 Level of International Activities o International Investment o International Trade 96 North America – United States - which industries most internationally active? Why? – US-Canada Free Trade Agreement (1989) – NAFTA …. – Mexico - wage rate; maquiladora industry (1965) 97 Europe • delayed differentiation • acquisitions/alliances • EU - 27 members ….. • EU – The Euro 98 European Union • EU (27): Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, UK, France, Germany, Ireland, Greece, Romania (07), Bulgaria (07) • EMU (16): Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Spain, Slovenia, Slovakia 99 European Union - continued • The European Commission • The Council of Ministers (counterbalance to Commission) • The European Parliament • The European Court of Justice 100 European Union The European Commission proposes policies and legislation responsible for the administration of the EU ensures - provisions of the EU treaties+the decisions of the other institutions are properly implemented one rep per country (two for the 5 larger countries) represent, protect, further the European interest + its members do not represent or take orders from their national governments 101 Eastern Europe • Break-up of The Soviet Union (Dec 1991) • Russia (glasnost, perestroika) • The Ukraine • Czech Republic • Slovakia • Poland 102 Russia • Gazprom – Europe (25%) • Limitations on foreign ownership • Centralization of authority • Weak infrastructure 103 External Environment Latin America Middle (Central) and South Mexico, Costa Rica, El Salvador, Nicaragua Peru, Colombia, Venezuela Brazil Argentina Chile 104 External Environment Asia • Japan – MITI (Ministry of International Trade and Industry) – keiretsus – Current economic conditions • South Korea - chaebols • China – GNP growth of 10% – low wage rates 105 External Environment What about Australia? 106 External Environment The Four Tigers South Korea, Hong Kong, Singapore, Taiwan Baby Tigers Thailand, Malaysia, Indonesia 107 Less developed countries • Large population, • high unemployment, • inflation, • low or negative economic growth, • low literacy rate India, African countries, Central and South American countries, Middle East 108 Kenya and Tanzania • Kenya – 34 Mill; 6.7% HIV; 85% literacy; $1,200 GDP/capita; growth 5%; UE 40% • Tanzania – 37 Mill; 8.8% HIV; 78% literacy; $700 GDP/capita; growth 6% • USA – 301 Mill; .6% HIV; 95% literacy; $48,600; 109 Major economic regions North America Europe Asia 110 Economic Superpowers The Triad 1. The United States 2. The EU (dominated by Germany), 3. Japan Dominates foreigndirect investment and international trade 111 FDI Clusters for the U.S.: Latin America for EU: Eastern Europe for Japan: The Four Tigers South Korea, Hong Kong, Singapore, Taiwan Baby Tigers Thailand, Malaysia, Indonesia 112 Data US Japan Germany Population 301 Mill 127.5 Mill 82.5 Mill. GDP 3.2% 2.2% 2.7% growth GDP/ $44,800 $33,100 $31,900 Capita CPI 7.3 (20) 7.6 (17) 8.0 (16) ECF 5 18 19 113 Group Dynamics • Why groups? 114 Group Dynamics Group performance = Sum of individual performance PLUS group dynamics • Group dynamics can be positive or negative • Higher quantity and quality of solutions 115 Group Dynamics Advantages – Benefits 1. Different viewpoints 2. Differences in expertise 3. Differences in training and experience 4. Cultural differences 5. Value differences 116 Group Dynamics Process losses 1. Loafing 2. Intra-group conflict 3. Miscommunication 4. Wrong leader 5. In appropriate role and task assignments 6. Role ambiguity 7. Role conflict 8. Informal, dysfunctional norms 117 Group Dynamics Group management 1. Roles • What – List of tasks • Who – Is responsible for what, based on expertise • How - Enforcement 2.Timeline • When – Specific deadlines • What – Effective communication • Who - Commitment 118 Group Dynamics Group management 3.Leadership • Formal • Why • Expertise and role 4.Norms • Must be explicit • Agreed upon by all • Consequences of norm violations 119 FINAL Termpaper List Countries and Presentation Dates 1. Finland Brigette, Andria, Andrew April 16 2. Germany Landon, Doug, Nicole April 16 3. Italy John Bender, Colin April 16 4. Spain Ermelinda, Kyle, Ben April 16 5. Mexico Thomas Rich, Debbie, Justin April 23 6. Brazil Megan, Fay, Australia, April 23 7. Peru John, Claudia, Yvonne April 23 8. Japan Brian, Vernon, Dani April 23 9. Philippines Kevin, Lewis, Kyle Aiton April 30 10. Thailand Brenda, Kirk, Stephanie April 30 11. China Rebecca, Brent, Robert April 30 12. Australia Ray, Dustin, Jason April 30 National Culture Harry and Sally in Saudi Arabia Lack of prep -> ????? -> Loss of contract What went wrong? Specific examples! 121 What went wrong? Specific examples! » Sabbath » Flights » Language - Taxi » Coffee – Refusal – Rude » Food » Role of women » Negotiation – Relationship-building - Time Why did things go wrong? 122 Why did things go wrong? Lack of preparation » Lack of Cultural Knowledge » Lack of Cross-Cultural sensitivity Culture and International Management Relevance • Cultural Toughness – Cultural Distance • Cross-cultural literacy and sensitivity • Cost of doing bus in a particular culture 124 Internationalization Decision • Benefits from internationalization into a specific country • Cost associated with internationalization into a specific country • Risk associated with internationalization into a specific country. Decision = f (benefit-cost-risk tradeoff) 125 Cultural Dimensions All people have common life problems such as …. Possible solutions to such problems ….. Different societies chose different solutions …. Culture 126 Cultural Dimensions • Six basic dimensions describe the cultural orientations of societies • What is the nature of people? • What is a person's relationship to nature? • What is a person's relationship to other people? • What is the primary mode of activity? • What is the conception of space? • What is the temporal orientation? 127 Cultural dimensions Six basic dimensions describe the cultural orientations of societies 1. What is the nature of people? Good/evil/change 2. What is a person's relationship to nature? Dominant/harmony –subjugation 3. What is a person's relationship to other people? Individualistic/group – hierarchical/lateral 128 Cultural dimensions Six basic dimensions describe the cultural orientations of societies 4. What is the primary mode of activity? Doing/being 5. What is the conception of space? Private/public 6. What is the temporal orientation? Future/present/past 129 Characteristics of Culture Values and Norms 1. Social structure 2. Religion 3. Political philosophy 4. Economic philosophy 5. Education 6. Language 130 1. Social structure 1. Social stratification 2. Class consciousness 3. Class membership is a function of ? 4. Social mobility 131 2. Religion • www.adherents.com • Minimal level of self-identification • Non-religious 16% • Christianity 2.1 bill; 33% – Protestant work ethic – Catholic vs Protestant/Lutheran – Take care of your neighbor and the less fortunate – 10 commandments 132 • Islam 1.5 bill; 21% – Sunni and Shi‘ite – best known branches – all embracing way of life, governing the totality of a Muslim being; – prayer five times a day; – free enterprise/hostile to socialist ideals - earning a legitimate profit through commerce and trade; – Koran; – contractual obligations, keeping one's word – role of women and men 133 • Hinduism 900 mill; 14% – spiritual achievement; – Nirvana; – Samsara – birth, death, re-birth; • Buddhism 360 mill; 6% – Central and Southeast Asia, China, Korea, Japan; – "life is suffering; misery is everywhere and originates in people's desire for pleasure; – Noble Eightfold Path: right views, right intention, right speech, right action, right livelihood, right effort, right awareness, right concentration – Japan – Temples, Shrines (Shinto) 134 Characteristics of Culture (Cont’d) 3. Political philosophy • Political freedom – dominant political orientation 4. Economic philosophy • Free Market – to what extent • Economic freedom - www.heritage.org/research/features/index/ 5. Education • Importance • Access • Type 6. Language (verbal/spoken; non-verbal) Communication; word equivalency 135 Ignoring Culture • Religion – Ads for refrigerator, airlines (Middle East) • Language – Baby Food in Africa, – English candy ―Zit‖, – Finnish product unfreezes car locks ―Super Piss‖ – Electrolux sucks (Sweden) 136 The US Culture???? Describe …. 137 Culture • Relevance – CBR Analysis – Cultural toughness – Cross-cultural literacy – Cultural sensitivity • Three aspects 1. Basic Assumptions - Six 2. Characteristics - Six 3. Measurement • Application of cultural dimensions 138 Measurement of Culture • Purpose ???? • Geert Hofstede – 1970‘s – IBM employees – 100,000 across 30+ countries – Survey – typical work situations – Identify systematic differences – Factor Analysis – Four independent factors • Follow up research: Culture‘s consequences (2001) • Culture: Collective programming of the mind 139 Dimensions of culture 1. Individualism/Collectivism 2. Power Distance 3. Uncertainty Avoidance 4. Masculinity/Femininity 5. Confucian Dynamism 140 Individualism/Collectivism • Individualism exists when people define themselves as individuals. It implies loosely knit social frameworks in which people are supposed to take care only of themselves and their immediate families. • Collectivism is characterized by tight social frameworks in which people distinguish between their own groups, "in-groups", (relatives, clans, organizations) and other groups. People expect in-groups to look after their members, protect them, and give security in exchange for members' loyalty. 141 Power distance • Indicates how a society deals with the inequality among people's physical and intellectual capabilities. • A culture with high power distance allows inequality to grow to inequality in power and wealth, one low in power distance aims at removing such inequalities. • Indicates to what extent the unequal distribution of power is accepted. 142 Uncertainty avoidance The extent to which people in a society feel threatened by ambiguous situations and the extent to which they try to avoid these situations by providing greater career stability, establishing more formal rules, and rejecting deviant ideas and behavior. Lifetime employment is more common in countries with high uncertainty avoidance - the reverse is true for job mobility. 143 Masculinity/Femininity Masculinity is defined as the extent to which the dominant values of society emphasize assertiveness and acquisition of money and things (materialism). Femininity is defined as the extent to which the dominant values in society emphasize relationships among people, concern for others, and the overall quality of life. 144 Confucian dynamism or Long-term orientation (1993) • Refers to the time perspective in a society for the gratification of people's needs. • A high CD or long-term oriented society is one which emphasizes thrift and perseverance. • A low CD or short-term oriented society focuses on gratifying needs here and now. 145 Sources for International Research • Hofstede, Geert (1980): Culture‘s Consequences • Hofstede, Geert (1991): Cultures and Organizations • Hofstede, Geert (1984): Culture‘s Consequences: International Differences in Work-Related Values • Hofstede, Geert and Michael Harris Bond (1984): The Confucius Connection: from cultural roots to economic growth. Organizational Dynamics, 16, 4, 4-21 • websites 146 U.S. Japan Germany Individualism: 91 46 67 Power distance: 40 54 35 Uncertainty avoidance: 46 92 65 Masculinity: 62 95 66 ST/LT: 29 80 25 147 Applying Hofstede‘s Dimensions • Lawyers per 100,000 population – U.S. – Germany – Great Britain – Japan – Italy – France 148 Applying Hofstede‘s Dimensions • Lawyers per 100,000 population (1996) – U.S. 312 – Germany 190 – Great Britain 134 – Japan 106 – Italy 81 – France 49 149 Laurent‘s Research-See Adler • 9 Western countries, US, 2 Asian countries • More than sixty common work situation (yes/no) 1. The main reason for hierarchical structure is so that everybody knows who has authority over whom 2. In order to have efficient work relationships, it is often necessary to bypass hierarchical lines 3. It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work 150 Laurent‘s Research The main reason for hierarchical structure is so that everybody knows who has authority over whom US 18% agree, Germany 24%, Italy 50% France 45%, Japan 52% Power Distance 151 Laurent‘s Research In order to have efficient work relationships, it is often necessary to bypass hierarchical lines US 68% agree, Germany 54%, Italy 25% Uncertainty Avoidance 152 Laurent‘s Research It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work US 18% agree, Germany 46%, Italy 66%, Japan 78% Uncertainty Avoidance 153 Fons Trompenaars • Riding the Waves of Culture (1998; 2nd edition) • Dimensions (see textbook): 1. Universalistic–Particularistic (Obligation) 2. Neutral-Affective (Emotional Orientation in Relationships) 3. Specific-Diffuse (Involvement in Relationships) 4. Achievement-Ascription (Legitimization of Power) 154 Expatriate Assignment • Why to use expatriates? – Ethnocentric, polycentric, regiocentric, geocentric • Culture Shock • Selection – KSA Requirements – KSA Assessment • Training – Type and rigor of training • Failure Rates – Reasons 155 Four stages cross-cultural adaptation: 1. Honeymoon 2. Irritation and hostility 3. Gradual adjustment 4. Biculturalism 156 The Expatriate Assignment • Experience of uncertainty – Anticipatory and in-country adjustment • Expatriate Selection Relevant KSA‘s? • Technical, Managerial • Adaptiveness Measurement SMILE: Speciality; management ability; international flexibility; language facility; endeavor (Matsushita) Spouse and Family - Failure rates 40% on average; lower for European and Japanese 157 The Expatriate Assignment Failure rates Rosalie Tung: Reasons 1. Selection is based on headquarter criteria 2. Lack of training, preparation, orientation 3. Alienation/lack of support from headquarters 4. Inability to adapt to local culture/work enviro 5. Problems with spouse, family 6. Compensation 7. Poor programs for career support/repatriation 158 Training Techniques and Rigor of Training • Area studies • Culture assimilators • Language training • Sensitivity training • Field experiences 159 The Expatriate Assignment Training – Cultural toughness – China, Brazil, India, Japan, Russia, Mexico, Saudi Arabia, South Korea, France – Less than 1/3 of expatriates receive training – Pre-departure training, post-arrival training, reentry training – Culture, language, everyday matters – Cross-cultural training to ease the adjustment to the new environment by reducing ―culture shock‖: a state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture 160 The Expatriate Assignment • Training – Examples – ABB (Asea Brown Bovari) rotates 500 managers around the world .. Every two to three years – PesiCo orientation program for foreign managers … one year at U.S. bottling division plants – Honda of America Japanese language, culture, lifestyle training .. Tokyo up to 3 years – GE engineers and managers must have global perspective .. Regular language and cross-cultural training 161 The Expatriate Assignment Compensation – $100,000 manager in U.S. -> $300,000 in London, $1mill in Tokyo or Stockholm – Equity and goodwill – Purchasing power and standard of living – Tax differentials and tax equalization – Balance sheet approach – Allowances – Cost of living, housing, education, home leave, shipping and storage Repatriation – Reverse Culture Shock 162 Expatriate Assignment • DVD 163 Cultural Stereotypes • What are stereotypes? • Why stereotypes? • Good/bad? • Exercise – Five jobs! European Scholars Conference – EU – Consumer Protection – Public Health • Task Force – WHO • Obesity (BMI Index: 30+) – U.S. 33%; UK 22%, G 12%, Switzerland 8%, Italy 9% 165 Progress Report #2 Questions? 166 Overall Attractiveness of a Country • Trade-off between – Costs – Benefits – Risks 167 Overall Attractiveness of a Country Trade-off between – Costs: legal requirements, availability of resources, infrastructure, level of economic development, free market? – Benefits: market size, wealth (purchasing power), future wealth, resources (quality and cost) – Risks: the likelihood that political, economic, legal forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a particular business enterprise. 168 Political Risk – What is risk? – What is economic risk? – What is political risk? 169 Useful website www.buyusa.gov/nevada Left tab: International Trade Links Political Risk Definition – the likelihood – that political forces – will cause drastic changes – in a country's business environment – that adversely affect the profit and other goals of a particular business enterprise. 171 Political Risk Characteristics of countries with a higher likelihood for political risk: 1. Social unrest* (see below) 2. Demonstrations 3. Terrorism *Social Unrest 1. More than one ethnic nationality 2. Competing ideologies battle for political control 3. High inflation and falling living standards 4. Strikes 172 Results of Social Unrest Change in government and/or policy Results of Political Change Expropriation Indigenization 173 Risk Assessment Euromoney Magazine‘s Country Risk Ratings Analytical Indicators: • political risk (20%) - measures stability and potential fall out from instability • economic indicators and risk (20%) Credit Indicators Market Indicators • Political Risk Yearbook 174 Political Risk Data - Example Dun & Bradstreet‘s Guide to Doing Business around the World (textbook) • Comparative Country Risk Rankings • Overall Ratings: • Political Risk, • GDP Growth, Per Capita Income, • Trade Flow with the US, • Monetary Policy, • Trade Policy, • Protection of Property Rights, • Foreign Investment Climate 175 Political Risk • ONDD • Office National Du Ducroirce • www.ondd.be Risk Management 1. Integrative Approach 2. Protective/Defensive Approach 177 Integrative Approach • Become part of the host country‘s infrastructure • Good relationship with host government • Produce locally … in-country suppliers • Joint ventures • Local R&D • Effective in long-run 178 Protective/Defensive Approach • Discourage host government from interfering • As little as possible local manufacturing and R&D • Capital from local banks and outside • Diversify production among several countries 179 Contingency Approach Overall risk for an international company depends on the polit. risk and characteristics of the firm. Three primary factors to be considered: 1.Political risk type - Transfer risk/Operational Risk/Ownership risk 2.General investment type - Conglomerate/Vertical/ Horizontal 3. Specific Investment (1=most risky) - Sector (primary=1 /industrial=3/service=2) Technology (science=2/non- science=1) Ownership (wholly=1/partially owned=2) 180 Political Risk Insurance - covers the loss of firm‘s assets, not the loss of revenue Overseas Private Investment Corp (OPIC) • inability to repatriate profits, expropriation, nationalization, damage from war, terrorism Foreign Credit Insurance Association • war, revolution, currency inconvertibility, cancellation of import or export licenses 181 A Risky Country 1. unstable government 2. unstable economy 3. war/revolution/terrorism 4. unfriendly/hostile people 5. unacceptable customs/values/attitudes 182 A Risky Company 1. type of product and/or service offered 2. type of industry 3. structure of ownership 4. level of technology 183 Termpaper – Integration of course material 1. The purpose of your paper is to report the cost-benefits-risk associated with internationalizing into ―your‖ country. What do you know about the cost, benefits, risk associated with ―your‖ country? 2. The first section in your country analysis is an assessment of the external environment to determine cost-benefits-risk. What aspects of the environment will you review? What of the material that we have covered in class will you be using for that assessment? 3. What is the population size of ―your‖ country? What is the GDP/capita? 4. How will you address the cultural aspects of ―your‖ country? Is ―your‖ country culturally tough for Americans? 5. We started a review of the internal environment of an international organization. You will be reporting on the components of the internal environment in businesses in your country and determine the associated cost-benefits-risk. Give examples of the issues that will have to be addressed in this section of the report. 184 Integration of Course Material Four components of the internal environment 1. Behavior – Group and Individual 1. Leadership 2. Motivation, Rewards, and Compensation 2. Processes 1. Communication 2. Decision-making 3. HR processes 3. Structure 1. Hierarchical versus open 2. Formal versus informal 4. Organizational Culture 1. Six dimensions – tight vs loose control, open vs closed etc 185 Self-Assessment (Group) for Termpaper and Peer Evaluation • Rubric provided to students • Completed self-assessment - submitted when the termpaper is handed in • Each group member evaluates each group member Peer Evaluation - Completed form to be submitted with the termpaper 186 Strategy The science and art of conducting military campaign on a broad scale. A plan or technique for achieving some end. 187 Strategic management set of decisions and subsequent actions used to formulate and implement strategies that will optimize the fit between the organization and its environment in an effort to achieve organizational effectiveness. 188 Strategy and the Firm Purpose of any business: Provide products or services that are desired by society and, hence, to make a profit Profit = Revenue - Cost Profit = Volume * Price - Cost 189 Profit If the price the firm can charge for its output is greater than its costs of producing that output. 190 Profit • To do this, a firm must produce a product that is valued by consumers. 191 Value • Thus the firm must engage in value creation. 192 Value to Customer • The price that consumers are willing to pay indicates the value/worth of the product to the consumer. 193 Strategy Porter, 1985 Strategy Model (Distinguish from Porter’s Diamond - National Competitive Advantage) 194 Strategy • Firms can increase profit in two ways: 1. adding value to a product so that consumers are willing to pay more for it (improve quality, provide service, customize product to consumer needs) 2. by lowering the costs of value creation (perform value creation activities more economically). 195 • The firm is a value chain • composed of a series of distinct • value creation activities Value creation activities 1. Primary activities Production and marketing 2. Support activities Materials management, R&D, Human resource management 196 Strategy - Michael Porter The • steps a firm takes • to ensure that the cost of value creation are reduced and • that value creation activities are performed in such a way that consumers are willing to pay more for the product than it costs to produce it. 197 Strategy and Global Expansion Performing certain value creation activities may have two benefits for the value chain 1. Lower the cost of value creation 2. Improve the quality of the product - create more value Perform value creation in “best” location 198 Strategy and Global Expansion Firms realize location economies by dispersing particular value creation activities to those locations where they can be performed most efficiently and effectively. 199 Location economies and/or experience economies: – Basing each value creation activity that the firm performs – at the location where economic, political, and cultural conditions, – including relative factor costs, – are more conducive to the performance of that activity. – Consider transportation costs (weight-to-value ratio) and trade barriers. 200 Strategy and Global Expansion • Firms that expand to international markets will gain greater returns from their distinctive skills or core competencies. • Core Competencies - Skills within the firm that competitors cannot easily match or imitate. Examples. 201 Strategy and Global Expansion Constrains on transferring core competencies result from the need for local responsiveness Need for local responsiveness results from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions, and government policies - these constrain the firm's ability to transfer core competencies and realize location economies. 202 Strategy of an international organization • concerns identifying and • taking actions that will • reduce the cost of value creation and/or • will add value • by better serving the consumer needs • through transferring core competencies and • realizing location economies taking • into account national differences. 203 Strategic Predispositions Ethnocentric: strategic decisions are made at headquarters, key jobs at both domestic and foreign operations are held by headquarters management personnel (PCN's). 204 Polycentric: the MNC's subsidiaries are treated as distinct national entities with extensive decision-making autonomy (HCN's mane the foreign operations). Geocentric: tries to worldwide integrate business strategy and decision-making. Regiocentric: reflects the geographic structure of the MNC. 205 Strategic Planning Process – External Scanning and Internal Scanning (SWOT) – Opportunities/Threats Strengths/Weaknesses – Vision, Mission, Goals, Objectives, Strategies Strategy Implementation 206 Three Traditional Strategies Multinational Strategy: focus on cost reduction and product standardization that is marketed worldwide. International Strategy: limited local responsiveness, focus on transfer of valuable skills and products where indigenous competitors lack those skills and products. Multidomestic Strategy: like international but extensive local responsiveness. 207 Pressures for Local Responsiveness 1. Differences in consumer tastes and preferences 2. Differences in infrastructure and traditional practices 3. Differences in distribution channels 208 Privatization • http://www.privatizationbarometer.net/ • Register but free • Library – ask business librarian for help 209 The Internal Environment of an International Organization Organizational Culture People Processes Structure 210 Organizational Culture • What is it? • Relevance? Why is it important? • Where does it come from? • What happens when two companies merge? Boeing-McDonnel Douglas; GE and Bently NV • What happens when two companies from different countries merge? 211 Organizational Culture • What is organizational culture? The shared values, beliefs, norms, and patterns of behavior in an organization. • Schein's Three Layer Model: Artifacts, Values, Basic Assumptions • Measurement of organizational culture In the workplace cultural differences are accounted for by work practices. 212 Dimensions of Organizational Culture 1. Process ↔ Results oriented 2. Tight ↔ Loose Control 3. Job ↔ Employee oriented 4. Parochial ↔ Professional oriented 5. Closed system ↔ Open system 6. Normative ↔ Pragmatic 213 Culture and Org Characteristics Structure Communication Rewards Decision- Making Process Results Job Employee Tight Loose Parochial Professional Open Closed Normative Pragmatic 214 Organizational Culture • Creating and changing the culture of an organization? • National and Organizational Culture – Organizations in Japan, Germany, the U.S. are likely to have which org. culture characteristics? – Hofstede • The Organizational Culture of a MNC – A universal org. culture? 215 Behavior Individual Behavior P = f (A, M) Motivation defined! Homeostasis---applied to psychological needs MotivationTheories --- Applicability across cultures?? 216 Behavior MotivationTheories Content Theories Maslow‘s Need Hierarchy Two Factor Theory of Motivation McClelland Achievement Motivation 217 Motivation Theories - International Context How applicable are the motivation theories proposed by Maslow and Herzberg in the international context? 218 Motivation Theories in the International Context • Maslow‘s needs, in particular the upper-level ones, are important at the managerial level • Ronen concluded that need clusters are constant across nationalities and that Maslow‘s need hierarchy is confirmed by these clusters. • Also, Herzberg‘s categories are confirmed by the cross-national need clusters. 219 Behavior - Motivation Process Theories Equity Theory of Motivation Goal - Setting Expectancy Theory of Motivation valence Effort Performance Outcome expectancy instrumentality 220 Motivation and Hofstede • High UNC - job security • Low UNC - fast-track, more risky opportunities • Low POW - motivation through teamwork and peers • High POW - motivation depends on boss • High IND - motivation through opportunities for individual advancement • Low IND - motivation through appeals to group goals and support • High MASC - comfortable with traditional division of work roles • Feminine - looser definition of roles, more flexible 221 Reinforcement Theory • Applicability? • Assumptions?? • Behavior is a function of its consequences 222 The External Environment CULTURE Multiple Multiple Multiple Multiple Technological Political Economies Societies Environment Environment The Internal Environment People Business Effectiveness Strategy Processes Structure Culture 223 Motivation Theories - Summary Theory Main Attributes International Applicability Maslow – Need Hierarchy Herzberg – Two Factor Theory McCelland – Learned Needs Stacy Adams – Equity Theory House – Goal Setting Vroom – Expectancy Reinforcement 224 Motivation Theories - Summary Theory Main Attributes International Applicability Maslow - Need Five needs With modification – order of Hierarchy needs Herzberg – Two Hygiene factors – work With modification – best in Factor Theory context and Motivators – individualistic environment work content McCelland – Learned Three needs With modification – Needs Collectivistic vs individualistic Stacy Adams – Social comparisons With modification – does not Equity Theory work in collectivistic culture House – Goal Setting Goal commitment, difficulty, With modification – best in ST MBO environment Vroom – Expectancy Effort, performance, Applicable – all factors are outcome, expectancies, explicit and can be determined instrumentalities, valence based on culture Reinforcement Behavior is a function of its Applicable – very BASIC model 225 consequences The Meaning of Work • Tied to economic necessity • What else? 226 The Meaning of Work • Six functions of work: 1. needed income, 2. interesting & satisfying, 3. contact with others, 4. serve society, 5. keeps one occupied, 6. status and prestige These may be satisfied through other aspects of life 227 MOW - Work Centrality ―the degree of general importance that working has in the life of an individual at any given point in time.‖ As the mean work centrality score increases, the more motivated and committed the workers would be. 228 Study results • Britain (lowest), • Germany, • Netherlands, • Belgium, • USA, • Israel, • Japan 229 Work Centrality Mean work centrality score 8.0 7.78 Japan N = 3144 7.75 7.5 7.30 (former) Yugoslavia N = 521 Work is 7.25 more 7.10 important Israel N = 893 and more 7.0 6.94 USA N = 996 central in 6.81 Belgium N = 446 life 6.75 6.69 Netherlands N = 976 6.67 Germany N = 1276 6.5 6.36 Britain N = 409 6.25 6.0 230 Group Behavior Group effectiveness = individual behavior + Mature group = effective group Stages of development (F, S, N, P) Two main characteristics for the analysis of groups Leadership Composition 231 Leadership Which Hofstede dimension? Types of leadership styles: autocratic, participative, group authoritarian, democratic, laissez-faire Theory X, Theory Y 232 Leadership Research Traits, Behaviors, Contingency approach Kouzes and Posner: Challenging the process, inspiring shared vision, enabling to act, modeling the way, encouraging the heart Across cultures: Haire, Ghiselli, Porter South-European and Nordic-European --- more autocratic, more Theory X South-European give a little more autonomy to employees in working out details 233 Japanese Theory Y --- employees learn from mistakes Germans Theory X --- autocratic, stop poor performance asap 234 Culturally-Contingent Beliefs Regarding Effective Leadership Styles Country N Charisma Team Self- Part. Humane Auton. Protective Austria 169 6.03 5.74 3.07 6.00 4.93 4.47 Brazil 264 6.01 6.17* 3.50 6.06* 4.84 2.27 China 160 5.57 5.57 3.80 5.05 5.18 4.07 Denmark 327 6.01 5.70 2.82 5.80 4.23 3.79 England 168 6.01 5.71 3.04 5.57 4.90 3.92 India 231 5.85 5.72 3.78 4.99 5.26* 3.85 Japan 197 5.49 5.56 3.61 5.08 4.68 3.67 Mexico 327 5.66 5.75 3.86* 4.64 4.71 3.86 Russia 301 5.66 5.63 3.69 4.67 4.08 4.63* USA 399 6.12* 5.80 3.16 5.93 5.21 3.75 Scale 1 to 7 in order of how important those behaviors are considered for effective leadership (7 = highest) 235 Culturally-Contingent Beliefs - Effective Leadership Style • Americans appreciate two kinds of leaders. – They seek empowerment from leaders who grant autonomy and delegate authority to subordinates. – They also respect the bold, forceful, confident, and risk- taking leader, as personified by John Wayne. • The Dutch place emphasis on egalitarianism and are skeptical about the value of leadership. – Terms like leader and manager carry a stigma. If a father is employed as a manager, Dutch children will not admit it to their schoolmates. • Arabs worship their leaders – as long as they are in power! 236 Culturally-Contingent Beliefs Regarding Effective Leadership Styles (contd.) • Iranians seek power and strength in their leaders. • Malaysians expect their leaders to behave in a manner that is humble, modest, and dignified. • The French expect their leaders to be “cultivated” – highly educated in the arts and in mathematics. R. House, et al. 237 Group Composition --- Multicultural Teams Impact of cultural diversity on group performance? group productivity = f(task, resources, process) actual productivity = potential productivity - losses due to faulty process actual productivity or = potential productivity or - losses or 238 Benefits associated with cultural diversity: # of alternatives generated; quality of alternatives; creativity/divergence; no groupthink 239 Process Losses: potential for miscommunication increases; cohesiveness decreases; negative attitudes (dislike, mistrust); perceptual problems (stereotyping); stress 240 Multicultural teams have the potential to be the most or the least effective teams Group development stages: entry, work, action Task: innovative or routine 241 Manage culturally diverse teams through: task-related selection recognition of differences super-ordinate goals equal power mutual respect feedback 242 Hofstede and Internal Environment UNC POW MAS/F IND/C ST/LT Motivation and Rewards Leadership Decision Making Communication Org. Culture Structure 243 Communication: Macro - Level • Communication Flows – upward/downward – formal/informal 244 Communication: Micro - Level • Micro/Interpersonal Level Definition: Transmission of meaning through the use of common symbols Sender -> Message -> Receive (Encoding) (Medium) (Decoding) 245 Communication: Micro - Level • Interpersonal communication Process – encoding – message – decoding 246 Communication: Micro - Level Communication barriers – language – perception - stereotyping – culture – nonverbal communication – projected similarity – parochialism 247 Micro -Level • Explicit vs implicit communication • High vs low context • High vs low contact 248 Opening Profile: Keeping Your Foot out of Your Mouth • Small slips can be big errors: ―Hello, wife of the boss‖ ―Thank you for your hostility‖ Patting someone on the head Do you shake hands, bow, hug, or kiss when meeting someone? 249 The Communication Process 250 Cultural Noise Behavior Attribution American: ―How long will it American: I asked him to participate. take to finish this report?‖ Greek: He is the boss. Why doesn‘t he tell me? Greek: ―I don‘t know. How American: He refuses to take responsibility. long should it take?‖ Greek: I asked for an order. 251 Trust in Communication • Business transactions based on long-standing vs. arm‘s length relationships • High propensity to trust: Nordic countries, China, Canada, US, Britain • Low propensity to trust: Brazil, Turkey, Romania, Slovenia, Latvia 252 The GLOBE Project and Communication • High performance orientation (e.g., US) present objective information directly and explicitly • Low assertiveness (e.g., Sweden) two-way discourse and friendly relationships • High humane orientation (e.g., Ireland) avoid conflict, be supportive 253 Cultural Variables in Communication • Attitudes – Stereotyping • Social organization – e.g., United Auto Workers (UAW) • Thought patterns – The meaning of double lines 254 Cultural Variables in Communication • Roles • Language – ―Come out of the grave with Pepsi‖ – When ―yes‖ doesn‘t mean ―yes‖ 255 Cultural Variables in Communication • Nonverbal communication – Kinesic behavior (e.g., sticking out the tongue in China) – Proxemics (e.g., the corner office, closeness when talking) – Paralanguage (e.g., the sound of silence) – Object language (e.g., monochronic vs. polychronic) 256 Context 257 Comparative Management in Focus: Communicating with Arabs • Arabs are quick to ―sound off‖ • Communication is built on friendship, honor, hospitality • Arabs are high-contact communicators • Time is key in communication process 258 Managing Cross-cultural Communication • Develop cultural sensitivity – Anticipate the meaning the receiver will get • Careful encoding – Use words, pictures, and gestures – Avoid slang, idioms, regional sayings 259 Managing Cross-cultural Communication • Selective transmission – Build relationships face-to-face if possible • Careful decoding of feedback – Get feedback from multiple parties – Improve listening and observation skills • Follow-up actions 260 Micro -Level Non-verbal communication – Body Language – Emblems – Illustrators – Affect Display – Regulators/Adaptors – Space (proxemics) – Touch – Voice – Dermal Code 261 Decision-Making Quality of decisions Organizational Effectiveness Differences across Cultures? 262 DM Process and Culture 1. Problem Recognition 2. Information Search 3. Alternative Generation 4. Choice 5. Implementation 263 International Negotiations Definition: The process in which at least two partners with different needs and viewpoints try to reach an agreement that is acceptable to all on matters of mutual interest -> International managers spend more than 50% of their time negotiating 264 Recommendations (Fisher and Ury "Getting to Yes"): 1. Separate the people from the problem 2. Focus on interest, not position 3. Insist on objective criteria 4. Invent options for mutual gain 265 The Negotiation Process 266 Stage One: Preparation • Develop profiles of counterparts • Find out likely demands, team composition, and counterpart authority – Uzbekistan had to learn from scratch • Choose a negotiation site – British/French Chunnel negotiations 267 Stage Two: Relationship Building • Getting to know one‘s contacts and building mutual trust • Nontask sounding (nemawashi) • Use an intermediary • ―I have come as a mediator…‖ 268 Stage Three: Exchanging Task-related Information • Cultural differences remain an issue – Mexicans can be suspicious and indirect – The French enjoy debate and conflict – The Chinese ask many questions, but provide ambiguous information in return • Show understanding of the other viewpoint 269 Stage Four: Persuasion • Dirty tricks are in the eye of the beholder – False information – Ambiguous authority – Uncomfortable rooms – Rudeness, threats – Calculated delays 270 Stage Five: Concessions and Agreement • Russians and the Chinese start with extreme positions • Swedes start with what they will accept • Starting with extremes may be most effective 271 Comparison of Negotiation Styles Japanese North American Latin American Emotionally Hide emotions Deal impersonally passionate Litigation, not Subtle power plays Great power plays conciliation Methodical Impulsive, Step-by-step approach organization spontaneous Group/individ-ual good Group good is aim Profit is aim is aim 272 Successful Negotiators: Americans • Know when to compromise, but stand firm at beginning • Refuse to make concessions beforehand • Keep cards close to chest, but make other party reveal his/her position • Keep maximum options open, operate in good faith 273 Successful Negotiators: Indians • Look for and say the truth, not afraid to speak up • Exercise self-control • Respect other party, look for solutions acceptable to all parties • Will change their minds, even at risk of seeming inconsistent and unpredictable 274 Successful Negotiators: Arabs • Protect honor, self-respect, dignity and, thus, are trusted and respected • Avoid direct confrontation • Come up with creative, honorable solutions • Are impartial and can resist pressure 275 Successful Negotiators: Swedes • Quiet, thoughtful, polite, straightforward • Overcautious, but flexible • Slow to react to new proposals, but eager to be productive and efficient • Able to hide emotions, afraid of confrontation 276 Successful Negotiators: Italians • Have a sense of drama, do not hide emotions • Good at reading facial expressions and gestures • Want to make a good impression and use flattery, but are distrusting • Handle confrontation with subtlety and tact 277 Managing Negotiation • Avoid person-related conflict • Examples – Low-context Americans appear impatient, cold, and blunt to Mexicans. – Americans must approach negotiations with Mexicans with patience and tolerance; refrain from attacking ideas 278 Cross-cultural Negotiation Variables 279 Comparative Management in Focus: Negotiating with the Chinese 280 Comparative Management in Focus: Negotiating with the Chinese • Two problems – Chinese desire for detail – Apparent insincerity • Saving Face – Lien – Mien-tzu 281 Comparative Management in Focus: Negotiating with the Chinese • Importance of harmony – Guanxi – Guanxihu networks • Two stages of Chinese negotiation – Technical – Commercial 282 Comparative Management in Focus: Negotiating with the Chinese • Some recommendations: – Practice patience – Accept prolonged stalemate – Refrain from exaggerated expectations – Expect shaming – Resist blaming for difficulties – Understand Chinese cultural traits 283 Managing Conflict Resolution • Instrumental oriented • Expressive oriented 284 Low-context, High-context Sources of Conflict Low-context High-context Analytic, linear logic Synthetic, spiral logic Why Individualistic oriented Group oriented violations When violations Revealment, confrontational Concealment, non- What confrontational Explicit, open, direct Implicit, ambiguous, indirect How 285 The Influence of Culture on Decision Making • Individualism vs. collectivism • Objective vs. subjective approach • Risk tolerance • Comfort with unfamiliar solutions 286 Approaches to Decision Making • Utilitarianism vs. moral idealism • Autocratic vs. participative leadership • Speed of decision making 287 Summary of Cultural Variables in Decision Making 288 Comparative Management in Focus: Decision-making in Japan • Wa • Amae • Shinyo • Ringi 289 Comparative Management in Focus: Decision-making in Japan 290 Course Summary Global Economic System – MACRO – When and what – Institutions Companies make decisions with respect to specific countries - MICRO ==> Europe? Asia? Latin America? Australia? • Specific countries? Internationalization Strategy: Generalizations?? – Cost … Management - cultural differences ... • religion, education; Hofstede – Benefits …. Market growth (pop size; income) and Value creation activities (labor cost, exp.) – Risk .... South America? Asia? Europe? 291 The International Organization The External Environment CULTURE Multiple Multiple Multiple Multiple Technological Political Economies Societies Environment Environment The Internal Environment People Business Effectiveness Strategy Processes Structure Culture 292 Managing the International Organization Environment ... Porter Diamond; Status Quo; 1.External Culture (Hofstede) 2.Strategy ... Value creation activities; Location economies; Market entry 3.Internal Environment ... Behavior: Individual (Motivation) and Group (Leadership; Multicultural Teams) Processes: Communication -- Macro (communication flow); Micro (communication process); Nonverbal communication; Decision Making; Negotiation; HR Processes (The Expatriate Assignment). Organizational Culture – six dimensions; Structure – Macro and Micro – power distance; 293 294 295 296 297 Strategy – Defined 298 India Where India has the edge (in comparison to China): LANGUAGE - English gives India a big edge in IT Services and Back-Office work. CAPITAL MARKETS - Private firms have readier access to funding. China favors state sector LEGAL SYSTEMS - Contract law and copyright protection are more developed than in China. DEMOGRAPHICS - Some 53% of India's population in under age 25, vs. 45% in China. 299 External Environment Relevant variables: GDP GDP/capita GDP growth and factor endowments; demand conditions The GDP (gross domestic product): The value of the final output of goods and services produced by the residents of an economy (World Bank). There are several methods to calculate the GDP. The PPP (purchasing power parity) method reflects the cost of a basket of goods in two countries in their local currencies. 300 ISA Analysis – Fall 2008 1. The Global Update report provides a useful overview of current political and economic issues. a) Zimbabwe - summarize the current political and economic challenges in Zimbabwe. – Robert Mugabe, President, only ruler since 1980 – Pseudo-Democracy, contested election in Spring 2008 – No clear winner – Mugabe self-proclaimed winner -> violence – White population 1% but owns 70% of land -> Mugabe took away land – African Union leaders do NOT put enough pressure on Mugabe – Agricultural production and inflation are severe economic issues – Solutions: stay in office, share power with opponentTsvangirai, foreign military will intervene b) Vietnam - Summarize the challenges and the predictions for Vietnam‘s economy. – GDP growth 8.5% to 6.5% AND 20% inflation – Domestic market; foreign markets (exports) – Long term good – low cost manufacturing, hi-tech programs, relatively stable government 301 ISA Analysis – Fall 2008 1. The Global Update report provides a useful overview of current political and economic issues. c) African countries tend to not be part of the ―new‖ global economy. What do you think are a couple of primary reasons for that? Nigeria, South Africa, Kenya, and Zimbabwe – compare. – Lack of democratic political system and free-market economic system. – Lack of infrastructure – Corruption – AIDS and other health issues – Lack of education – Culture?Religion? d) Asian countries such as Thailand, Vietnam, and the Philippines What do you think do these countries have to offer to foreign investors that China is lacking? Compare. – All have (except Vietnam) have more economic freedom than China – All have high corruption BUT also high GDP growth – Cultural differences – see religion – Attitude towards U.S. companies 302 ISA Analysis – Fall 2008 Table 1: Compare African Countries Table 2: Compare Asian Countries 303 ISA Analysis – Fall 2008 2. Venezuela, Colombia, and Bolivia. Summarize current activities related to America‘s conflict with these countries. What do these countries have to offer that may be of interest to U.S. businesses? What is the CPI ranking for each country? • Colombia – Drugs, FARC, • Bolivia – Drugs – coca, natural gas, nationalization • Venezuela -Hugo Chavez – Farmers, Colombia, Constitution, Bolivia – U.S. – oil 15% – Nationalization electricity and telephone – UN Speech 2006 – CPI – 162 - Venezuela, 68 - Colombia, 105 - Bolivia 304 ISA Analysis – Fall 2008 3. a) Which countries belong to the EU? Only some of the 27 EU members are also members of the EMU (European Monetary Union). Which countries belong to the EMU? European Union (EU): Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom. European Monetary Union (EMU) Ireland, Belgium, France, Spain, Portugal, Finland, The Netherlands, Germany, Luxembourg, Austria, and Italy. b) Italy has the worst CPI ranking of the Western EU countries. What is the current issue related to that reported in the ISA Global Update? Berlusconi, immunity from law for government officials; c) Russia is not a member of the EU but is of critical importance to the economies of the European countries. Why? Oil and natural gas; Gazprom 305 ISA Analysis – Fall 2008 4. OPEC - Organization of Petroleum Exporting Countries. Algeria, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates (UAE), Indonesia, Ecuador, Angola, and Venezuela (http://www.opec.org/aboutus/index.htm). The OPEC Countries coordinate their oil production policies in order to help stabilize the oil market and help oil producers achieve a reasonable rate of return on their investments. It is also designed to ensure that oil consumers continue to receive stable supplies of oil (http://www.opec.org/aboutus/functions/functions.htm). 5. The World Economic Forum (WEF) has a 3-fold vision aiming to be the foremost organization which builds and energizes leading global communities; the creative force shaping global, regional, and industry strategies; the catalyst of choice for its communities when undertaking global initiatives to improve the state of the world. WEF is a Geneva-based non-profit foundation best known for its annual meetings bringing together top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world (http://www.weforum.org/en/about/Our%20Organization/index.htm). Forum Members are companies that are driving the world economy forward. The typical Member Company is a global enterprise with more than 5 billion dollars in turnover, although the latter varies by industry and region. The Forum has 1,000 member companies Group of Seven (G7) consists of Canada, France, Germany, Italy, Japan, United Kingdom, and the United States of America (Russia). G7 is an international forum for governments. 306 ISA Analysis – Spring 2008 • U.S. Economic Slowdown – Indicators • Housing Market • Lowering of interest rates • GDP growth • Unemployment – Developed Countries • Same effect – Less Developed Countries • Export dependence – Central and Eastern Europe; Mexico • NOT – India and China – strong domestic demand 307 ISA Analysis • Venezuela – Recent events – Hugo Chavez – Farmers – Colombia – Constitution – Government restructuring – Bolivia – U.S. – oil 15% – Nationalization electricity and telephone – Television station – UN Speech 2006 308 ISA Report • Catholicism in Latin America – Table • Turkey – EU Opposition – Kurds – Human Rights – Economic and political requirements – Religion – Islam – Culture and location – Cyprus 309 ISA Report • Kenya – Table • Tata Motors – $7.6 bill revenue and 22,000 employees – Commercial vehicles – 18% international – Africa, Middle East, Europe, Australia, S and SE Asia • Japan – Declining domestic car market – Oil prices – Eco growth 310
"480 Slides Friday Spring 2010"