Preface
This is the first edition of our book and, needless to say, we are excited to present it to you! This is especially the case because the study of international organizational behavior (IOB) has been growing and evolving rapidly in recent years— encompassing everything from how cultural differences shape employee attitudes, to why conflicts arise in internationally diverse work groups, to the tricky task of managing alliances between firms from different countries. IOB is also an inherently complex area, where actions in corporate contexts are often hard to fathom, thanks to cultural differences in perspectives as well as the simple fact that the motivations behind those actions are not directly observable. Consequently, the management challenges associated with understanding, much less responding to, IOB issues are significant.
TRANSCENDING BORDERS AND CULTURES
The theme of our book is reflected in its subtitle—Transcending Borders and Cultures. Managers and employees alike need to be able to transcend the challenges that inevitably arise when borders—and cultural boundaries—are crossed. Indeed, in today’s increasingly diverse, multicultural business world, managers and employees alike need to move across borders (literally or figuratively) and grasp a wide variety of cultural nuances on a routine basis. Doing this well requires both a sophisticated understanding of cultural differences and a repertoire of skills and management tactics that can be brought to bear to build and maintain a competitive global workforce.
Our book provides both the conceptual framework needed for a transcendent understanding of culture and plenty of practical advice for managing international challenges with organizational behavior. In doing so, we emphasize that firms need to develop corporate leaders with cross-cultural management skills. This first edition is designed to help both employees and managers better understand and effectively respond to IOB issues. Clearly, employees and managers must build their international skills in ways that provide the adaptability and flexibility they need
Business Studies). Consequently, we capture cutting-edge thinking and practices seen around the world as international managers grapple with organizational behavior issues. We believe students must also become good consumers of new knowledge and have an appreciation for research about IOB. After all, research provides the building blocks for most successful applications in international management.
Concise, Engaging, and Action-Oriented Writing. The course, dealing with IOB is ultimately about application and figuring out what works. Consequently, each chapter is full of examples from firms around the world. We also include concrete action recommendations in each chapter. In doing so, we use an engaging writing style that gets right to the point.
Chapter-Ending Case. Each chapter concludes with a case under the banner Making the Case for International Understanding. These two- to three-page cases present real-life organizational behavior challenges that managers face in international contexts. Cases cover content areas relevant to each chapter and include cultural dimensions. Also included are assignment questions for students to address (e.g., diagnosing situations, making recommendations). These questions can be used to guide class discussion and/or a written case analysis prepared by students.
Culture Clash. Each chapter contains this innovative feature, which provides concrete examples of how international firms or managers have made cultural mistakes that caused significant problems or that raise important issues related to organizational behavior. Designed to bring some of the relevant conceptual material from each chapter to life, these boxes will also examine how companies or managers responded to these cultural errors or challenges.
Global Innovations. Another feature found within each chapter, this reports on cutting-edge and creative approaches taken by various companies and managers in response to international organizational behavior issues described in the accompanying text. The focus is on innovative solutions to behavioral challenges that are indigenous to a particular country or region.
Developing Your International Career. This feature appears at the end of every chapter. It presents students with a developmental exercise or self-assessment designed to build self-insight or develop skills to help them prepare for international careers while dealing with the behavioral challenges presented in the chapter.
Coverage Reflecting the Shifting Balance of Power. Throughout the text we provide examples from a wide variety of cultures (e.g., from Africa, the Americas, Asia, Europe, and the Middle East). Also provided are many comparisons against the United States as the world’s largest economy and single largest source of research on international organizational behavior issues. That said, our coverage and examples also emphasize the rapidly growing countries and regions that have gained impressive traction in global business. Specifically, the book reflects this shifting balance of power in international business, focusing more on what are now referred to as the BRIC nations (i.e., Brazil, Russia, India, and China). Indeed, we pay special attention to China and India.
The Role of Culture in Organizational Behavior
MANAGING PEOPLE IN A DYNAMIC GLOBAL CONTEXT
People need to come first in the mix. As companies seek to build local operations in countries such as Brazil, Russia, India and China, identifying and tapping local talent pools becomes increasingly important. Striking the right balance between standardization and localization is always a work-in-progress, but the vast cultural and language gaps from country to country demand it. The days of overseas operations run exclusively by expats are over.
—Miles White, CEO of medical/pharmaceutical firm Abbott1
White’s comments succinctly capture some of the common management and talent challenges facing multinational companies today. They also underscore where multinationals see the biggest growth opportunities—in rapidly developing countries such as India. Indeed, successfully expanding overseas requires a variety of critical management skills and abilities, including being adaptable and innovative. It also means being able to recruit, develop, motivate, and coordinate a far-flung global workforce, one that might be operating in dozens of countries worldwide. In doing so, international managers must somehow grasp and then bridge myriad cultural differences while scouring the planet for the best talent. At the same time, they must also fight off nimble competitors that can pop up overnight with new products and services driven by the latest technological innovations. In short, successfully managing organizational behavior in today’s dynamic international environment is a tall order.2
Advances in technology have made it possible to operate businesses around the world 24/7—simultaneously lowering barriers between nations while enabling firms to manage their global supply chains with maximum flexibility. And since employees anywhere can interact at any time, recruiting people from all corners of the world, as well as sending jobs offshore, is easier than ever. Indeed, the process of globalization (the increasing interconnectedness of national economies around the world) is fueled, in part, by technological advances. Over the long haul, globalization should continue to spur international business growth and reduce trade barriers.3
That said, optimistic scenarios can be derailed quickly. The interdependence that globalization brings also means that problems in one part of the world can have ripple effects elsewhere. Moreover, rapidly growing nations such as China and India are producing homegrown companies in recent years that are giving multinationals from established markets such as Japan, Europe, and the United States competitive fits. This growth is challenging established multinationals’ ability to
half of the GDP growth in the world and be home to 700 million new members of the middle class. In short, this means that developing countries will have a citizenry that is more affluent and has more disposable income to spend than ever. No wonder established multinationals view developing nations as huge potential sources of new customers. For instance, McDonald’s is hoping to build several hundred new drive-through restaurants in China over the next few years as that nation’s love affair with the automobile deepens (thanks, at least in part, to 30,000 miles of new freeways constructed in the past 10 years).6
But while BRIC nations garner a lot of attention, multinational firms are increasingly looking to countries such as Indonesia, Turkey, and Vietnam for new opportunities in the developing world. Africa is one of the last great untapped frontiers for international business. There are huge unmet market needs, young populations with growing incomes, impressive natural resources, and aggressive local firms to work with. This explains why companies as diverse as General Electric (GE), French food giant Danone SA, restaurant holding company Yum Brands, and retailing powerhouse Wal-Mart have all made significant moves into African markets in recent years. Yum Brand’s KFC restaurant unit wants to double sales in Africa to $2 billion by 2014. To put this in perspective, Yum Brand’s CEO noted that “Africa wasn’t even on our radar screen 10 years ago, but now we see it exploding with opportunity.”7
Indeed, many large international firms see developing countries as more than just sources of cheap labor. They offer increasingly affluent populations eager for better products and services. They also offer talented “frugal innovators”—people who can create on the cheap because of their extensive experience with local constraints (e.g., lack of access to capital). Not surprisingly, these are individuals both local and international companies are eager to employ. Especially attractive in developing countries are innovative homegrown products that are priced to match the lower incomes of local citizens. For instance, in recent years Indian firms such as Tata Motors have been designing and selling $2,000 cars as well as $100 stoves and refrigerators. And established companies from developed nations have started paying attention, creating locally designed products for emerging markets (e.g., GE’s ultra-cheap ultrasound equipment).8
More than ever, developing countries are also producing world-class companies that are challenging their competitors in more developed countries. For instance, how many Europeans and Americans would have recognized names such as Infosys (the information technology giant of India) or Haier (the home appliance maker in China) a decade ago? Today, these firms, and others like them, are giving more established companies such as U.S.-based IBM and Whirlpool a run for their money. In 2010, 139 of the 500 biggest firms in the world were U.S. companies compared to 185 firms in 2002. Conversely, developing countries had just a single representative among the 500 biggest companies back in 1997. But in 2010, there were 67 firms among the world’s largest 500 firms—just from BRIC countries alone.9
swings if they want to avoid sudden losses. Some managers use currency hedging to protect against big currency swings. In essence, they are buying what amounts to an insurance policy that effectively freezes currency rates for a fixed period. Currency hedging is expensive, though, and hardly foolproof. For instance, a South Korean company may buy a hedge to protect its earnings in Europe against a falling euro, only to see the euro rise instead. Another option for reducing the impact of currency volatility is to make products where they are sold, relying on local suppliers in the process. This natural hedging is used by many big firms to insulate themselves from currency problems. For example, Honda makes most of the cars it sells to Americans in U.S. factories, meaning that it can protect U.S. revenues from a rising yen.15
Of course, using natural hedging means that companies must manage more facilities in a wider variety of countries. That can produce new challenges, especially those related to managing talent effectively across borders. Firms operating internationally need to build a workforce with productive and innovative employees to compete successfully. Today, many firms look worldwide for the best possible employees at the best possible price. We tackle some of these talent-related issues next.16
Offshoring and Onshoring: Recent Trends
Offshoring involves sending jobs abroad, often to places where labor is cheap. Both large and small firms have been engaging in offshoring for decades. Traditionally, companies based in developed nations with expensive labor have sent jobs to cheaper countries to cut personnel costs (up to 75% in some cases). For example, employees at foreign affiliates or subsidiaries of U.S. firms rose by over 700,000 from 2006 to 2008 to nearly 12 million—due, at least in part, to offshoring. In 2010 alone, major firms that were offshoring jobs from the United States included Hewlett-Packard, Hilton, and JPMorgan Chase. Among popular offshoring destinations are China, Mexico, and, increasingly, the Philippines.17
India is another common offshoring recipient. In many ways, India is an ideal offshoring destination, with a deep reservoir of inexpensive, highly educated, technical talent with good English-speaking skills. Not surprisingly, many firms, including General Electric, Microsoft, and Intel, have research and development operations in India. On top of that, some 200 of the largest international companies in the world offshore their information technology (IT) work to leading Indian firms such as Infosys and Wipro. These Indian IT powerhouses are not content to simply be offshoring recipients. They also compete against foreign multinationals such as IBM for IT consulting and IT systems integration contracts.18
Offshoring comes with management challenges. Difficult logistics, poor work quality, lousy customer service, high shipping costs, long delivery times, intellectual property theft, cultural differences, and communication problems are common offshoring issues. As a result, some firms have shifted once-offshored jobs back
Competitiveness: The Best Talent Wins
Underscoring many of the trends discussed so far is that developing countries such as India are increasingly sources of highly skilled technical talent. The most competitive and talented workforce usually wins—and winning means keeping the lion’s share of the best jobs. But what constitutes a world-class competitive workforce? There is no simple answer, but training, educational quality, motivation, and having cutting-edge skills are part of the equation. The quality of a nation’s workforce relates to how competitive that country is, both in job creation and in its ability to produce outstanding companies that can excel globally. Table 1.1 lists the top 25 most competitive nations for 2010. One common characteristic that is shared by top nations is the quality of their workforces. Keep in mind, however,
only a few managers with significant international skills. Instead, understanding how culture, business practices, and laws change from place to place is something that, ideally, all managers should grasp. Table 1.2 presents the specific skills and attributes needed to effectively manage organizational behavior across countries.27
To be effective across borders, executives need to have deep multicultural experience and embrace diversity. They must be comfortable sharing information and teaming with local employees to succeed in local markets. They also need to offer high-performing employees everywhere fair pay, excellent development opportunities, and plenty of recognition. International managers will struggle if they remain wedded to a command-and-control mentality—something that does not fully leverage local employee know-how nor allow for rapid reaction to change. Put simply, international companies need mature, sophisticated, and experienced managers who are comfortable with ambiguity and change.28
CONCEPTUAL BUILDING BLOCKS
Underpinning many of the issues discussed so far are a variety of management concepts, including those related to how firms develop and grow internationally. This final section presents many of these concepts. Some will be covered in more detail later, while others will provide a frame of reference that will help you understand material in subsequent chapters.
The Pervasive Impact of Culture
We have already alluded to the fact that culture can impact just about everything associated with managing employees. Of course, many definitions of culture exist. But we like international management expert Geert Hofstede’s definition of culture as “the collective programming of the mind which distinguishes one group or category of people from another.” This “programming” is something that we can only infer from observing how people behave, and culture’s usefulness as a concept depends on how well it can predict people’s actions. Complicating matters is that managers may not fully recognize the impact of culture on their own views and behaviors, much less their subordinates’.29
But that is just the tip of the iceberg. For instance, large cultural differences may exist within countries. Recent research suggests that it might be better to view cultural differences as embedded in a mosaic of dimensions that should shape and inform strategies for managing employees across borders. These could include how economic, financial, legal, and political systems vary across countries as well as national differences in demographic characteristics and knowledge production.30
Regardless, culture can shape everything from how employees expect to be treated to how expatriates adapt, to the international strategies adopted by executives and
