Solutions Manual For Multinational Management, 7th Edition By John Cullen, Praveen Parboteeah

Chapter 1/Multinational Management In A Changing World

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CHAPTER 1 MULTINATIONAL MANAGEMENT IN A CHANGING WORLD Learning Objectives ♦ ♦ ♦ ♦ ♦

Define multinational management Understand the characteristics of a multinational company Understand the nature of the global economy and the key forces that drive globalization Know the basic classification of the world’s economies Identify the characteristics of the next generation of multinational managers

Introduction ♦

The global business environment is facing unprecedented changes o New multinationals from emerging markets in Brazil, Russia, India, and China (BRIC) are using innovative strategies to compete effectively with their established counterparts in developed countries o The nations of Colombia, Indonesia, Mexico, Poland, and Malaysia all present attractive conditions for growth. Widespread internet use and high population levels represent ideal conditions for investment o In Africa, an emerging middle class, relatively young populations, significant regulatory changes, and the growth of cross-border trade are making many nations increasingly attractive to investors

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Businesses of all sizes increasingly see the entire world as a source of business opportunities The world is becoming one connected economy Any company from any country can become a competitor The internet crosses national boundaries A company’s success in their home market doesn’t always equate to long-term profitability There are significant opportunities for most companies despite challenges and threats such as terrorism, wars, and recessions.

Managers of the next century will need to be multinational in outlook and strategies Students of business should have at least a basic background in multinational management Multinational management – the formulation of strategies and the design of management systems that successfully take advantage of international opportunities and that respond to international threats

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The Nature of the Multinational Company ♦ ♦ ♦ ● ●

Multinational company (MNC) is broadly defined as any company that engages in business functions beyond its domestic borders Most multinational companies are also multinational corporations; that is, publicly owned through stocks What kinds of activities might make a company multinational?

The most apparent activity is international sales Crossing national borders opens up more international options than simply selling internationally Exhibit 1.1 Largest Companies in the World (Lists the top 20 multinational corporations ranked by sales revenue) © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Exhibit 1.2 Newcomers to Global 500 List (Shows the list of newcomers and their country of origin)

The Globalizing Economy: A Changing (but Not Always Stable) Environment for Business ♦ ● ● ● ♦ ● ● ● ● ♦ ● ● ● ♦ ● ● ● ● ● ● ●

Globalization – the worldwide trend of cross-economic integration that allows businesses to expand beyond their domestic boundaries.

Trade barriers are falling World trade among countries in goods and services has grown faster than domestic productions Money is flowing more freely across national borders Downsides of Globalization Not a uniform evolutionary process, and not all economies benefiting or participating equally Terrorism, wars, and a worldwide economic stagnation limit or reverse progress Worrisome effects such as scarcity of natural resources, environmental pollution, negative social impacts, and increased interdependence of the world’s economies Widening of gap between rich and poor countries The Benefits of Globalization Lower prices in many countries as multinationals become more efficient Benefiting many emerging markets such as India and China as these countries enjoy greater availability of jobs and better access to technology The major reason why many new companies from Mexico, Brazil, China, India, and South Korea are the new dominant global competitors Several key trends driving globalization of the world economy and driving businesses to become more multinational to survive and prosper Falling borders Growing cross-border trade and investment Rise of global products and global customers Growing use of Internet and sophisticated information technology Privatization of formerly government-owned companies New competitors emerging in the world market Rise of global standards in quality and production

Countries of the World: The Arrived and the Arriving Exhibit 1.3 Selected Economies of the World (Shows some divisions of the world economies based roughly on classifications used by the United Nations and The Economist) ♦ ♦ ♦ ♦

Developed countries – countries with mature economies, high GDPs, and high levels of trade and investment Developing countries – countries with economies that have grown extensively in the past two decades (i.e. Hong Kong, Singapore, and Taiwan) Transition economies – countries in the process of changing from government-controlled economic systems to capitalistic (i.e., Central & Eastern Europe – Czech Republic, Hungary, Poland, and Russia) Emerging markets – countries that are currently between developed and developing countries and are rapidly growing (i.e. India, China, Brazil, and Russia) ● The term emerging markets, coined by the World Bank around 25 years ago, represents those markets that present tremendous opportunities for all multinationals ● Emerging markets now account for 30 percent of exports, compared to only 20 percent in 1970 © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Recent trends also show that developed countries’ trade with emerging markets has been growing twice as much compared to trade with each other7 ● While emerging markets such as Brazil, Russia, India, and China (BRIC) are now experiencing a significant slowdown in growth, they are still expected to grow at a much faster pace than developed economies ● The slowdown of growth in the BRIC nations has focused attention on upcoming nations, such as Colombia, Indonesia, Kenya, and Malaysia10 Exhibit 1.4 Age Breakdown of Selected Economies (Shows the age breakdown of the population of these nations) Exhibit 1.5 The Globalizing Economy (Illustrates the driving forces of the new world economy)

Disintegrating Borders: The World Trade Organization and Free Trade Areas ♦ ● ♦ ● ● ♦

General Agreement on Tariffs and Trade (GATT) – tariff negotiations among several nations that reduced the average worldwide tariff on manufactured goods Beginning in 1947, negotiations began which ultimately reduced average tariffs on manufactured goods from 45% to less than 7% World Trade Organization (WTO) – a formal structure for continued negotiations to reduce trade barriers and a mechanism for settling trade disputes Continued negotiations in Uruguay from 1986 – 1993 established the WTO There are over 150 nations now in the WTO, including 29 of the UN-classified least developed countries. Thirty more countries, including Russia, seek WTO membership In March 1997, trade ministers from countries representing 92% of world trade in IT products agreed to end tariffs on trade in software, computer chips, telecommunications equipment, and computers  The immediate result was that, with tariffs eliminated, high-tech exports to Europe from Asia and the United States doubled  Developing countries also benefited, as prices began to go down on products such as phones, faxes, and computers produced in tariff-free locations13

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The Doha Round represents the most significant trade negotiations since the WTO was established The trade talks of December 2013 resulted in the ‘Bali Package,’ leading to trade facilitation via simplified customs procedures and duty-free, quota-free access for least developed nations to export to wealthier nations Is free trade working?

The WTO thinks so – data shows that world trade has grown at more than four times the world’s gross domestic product Critics argue that the WTO favors more developed nations because poorer nations have more difficulty competing in an unregulated environment Environmentalists argue that commercial interests have priority over environment, health, and safety Labor unions warn of migration of jobs to lower-wage countries Regional trade agreements – agreements among nations in a particular region to reduce tariffs and develop similar technical and economic standards (also called free trade areas) Such agreements have usually led to more trade among the member nations but are criticized for harming poorer nations who are left out of agreements The three largest groups – EU, NAFTA, and APEC – account for nearly half of the world’s trade

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European Union (EU) – includes 28 members, namely Austria, Belgium, Britain, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden. o Since 1992, the EU countries allow goods and services to move across borders without customs duties and quotas o EU adopted a unified currency called the Euro North American Free Trade Agreement (NAFTA) – a multilateral treaty that links the United States, Canada, and Mexico in an economic bloc that allows freer exchange of goods and services o The Free Trade Area of Americas (FTAA) will expand NAFTA to include most of the other Caribbean, Central American, and South American nations Asia-Pacific-Economic Cooperation (APEC) – a confederation of 21 nations with less specific agreements on trade facilitation in the Pacific region. However, the ultimate goal calls for total free trade in the Pacific Region by 2020.

Exhibit 1.6 Regional Trade Agreements Around the World (Shows all the major regional trade agreements and their member countries)

Sell Anywhere, Locate Anywhere: Trade and Foreign Investment are Growing but Setbacks Are Part of the Challenge ♦ ♦ ♦ ♦

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World trade among countries (imports and exports) grew at an average rate of 6.5% per year between 1990 and 2000, but slowed to 4% by 2004, and grew again to 6 percent in 2005 World trade grew by 8.5 percent in 2006 The latest available figures suggest that trade subsequently slowed down due to the economic recession, remaining sluggish in 2013, and will likely to continue to be lethargic in 2014 The latest report from the WTO suggests the following trends: o Emerging markets continue to show dramatic trade growth, thereby reducing income inequality between countries and increasing general well-being factors in these countries o Developing nations have played a more important role in international production networks known as Global Value Chains (GVC) o Commodities such as energy and minerals have doubled between 2003 and 2008, and countries are finding they can develop growth strategies based on commodities o Macroeconomic shocks seem to affect all countries Foreign Direct Investment (FDI) – multinational firm’s ownership, in part or in whole, of an operation in another country FDI, or cross-border ownership, occurs because multinational companies build global networks that link R&D, supply, production, and sales units around the globe FDI soared between 1996 and 2000 but had been declining, in part due to the declining rate of mergers and acquisitions Despite these declines, the importance of emerging markets is reflected in the growth of FDI in these economies After further declines in 2003, FDI then grew to its highest level in 2007; since 2007, FDI has seen both growth and declines25 The latest data suggests that global FDI flows increased significantly the last two quarters of 2014 by 9% relative to the first half of that year Developing countries provide great opportunities, but pose significant risk Two types of risk Political risk – anything a government might do (or not do) that might adversely affect a company Economic risk – all factors of a nation’s economic climate that may affect a foreign investor

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The Internet and Information Technology Are Making It All Easier ♦ ♦ ♦ ♦ ♦

Companies and individuals can shop and sell anywhere because anyone in the world can access any Web site.

Electronic communication vehicles allow communication around the world, and information technology expands the global reach of an organization Organizations are becoming virtual – linked by networks of computers Information technology is also spurring a borderless financial market Information technologies make available many new tools that facilitate business operations  Developments in computing technology will eventually enable the manufacturing sector to move to highly automated machine tools, operated by computer  The development of the 3D printer will allow prototypes to be printed easily and cheaply, allowing engineers, stylists, and even customers to collaborate with minimal costs

The Rise of Global Products and Global Customers ♦ ♦

Needs of customers for many products and services are growing more similar Global customers search the world for their supplies paying attention to price and quality without regard for national boundaries

New Competitors are Emerging ♦

Current trends suggest that two new forms of competitors are having dramatic influences on global business:  Powerful emerging market competitors using new techniques and strategies to compete successfully in their local markets  Formidable state competitors—companies that are often well run but can also rely on the state for financial support; some state multinationals have also invested aggressively in other countries and have been active in industries beyond oil and energy

The Rise of Global Standards ♦ ♦ ♦ ♦ ♦ ♦ ♦

Increasingly, especially in technical industries, global product standards are common Why? Cheaper to produce fewer product versions, gains in product design efficiencies The company that can establish its standard as dominant will have a tremendous strategic advantage Consistency in quality has also become a requirement to do business in many countries ISO 9001:2000 – the current name for the technical and quality standards of the International Organization for Standardization (ISO) in Geneva, Switzerland ISO 14000 – the current name for the environmental protection standards of the International Organization for Standardization In 1992, ISO compliance became part of product-safety laws in many European countries

Corporate Social Responsibility and Business Ethics ♦ ♦ ♦

Multinationals are under increased scrutiny by both the media and the public to be socially responsible.

Companies that do not pay attention to issues such as climate change, environmental degradation and pollution, sweatshop conditions, and bribery can suffer significant loss in terms of both reputation and finance.

Ethics rankings, such as the annual survey of the world’s most ethical corporations as produced by Geneva-based Covalence, are important to multinationals © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Exhibit 1.7 Ethisphere’s Most Ethical Companies (by Industry and Nationality) (Shows the list of the top most ethical companies as determined by the Ethisphere Institute)

The Next Generation of Multinational Managers ♦ ● ● ● ● ● ● ● ●

The next generation of successful multinational managers must have the following characteristics: Global mindset – mindset that requires managers to think globally, but act locally Emotional intelligence – the ability to manage one’s emotions prepares the manager to better adjust to and deal with new cultures and people A long-range perspective – successful companies must be persistent if they are to overcome the complexities of dealing with the international environment The talent to motivate all employees to achieve excellence – always a hallmark of leadership, they will also need to develop motivational strategies that transcend cultures Accomplished negotiating skills – leaders in the global economy will spend considerable time negotiating cross-culturally The willingness to seek overseas assignments – they will demonstrate management skills and success in more than one cultural environment An understanding of national cultures – multinational managers will often need to learn two or more additional languages as well as the nuances of local cultural differences Three forms of capital: ● Intellectual capital — the general willingness to learn and build one’s knowledge base regarding cultural differences and how to adapt to such differences ● Psychological capital — the ability to be receptive to new ideas and experiences ● Social capital — the ability to develop networks of individuals who are different from one’s self Exhibit 1.8 Forms of Capital Needed to be a Successful International Leader (Shows some ways to build the intellectual, psychological, and social capital needed to succeed as an international leader)

Multinational Management: A Strategic Approach ♦ ♦ ● ● ● ♦ ♦ ● ● ● ●

Why should you study multinational management? Foreign competition and doing business in foreign markets are daily facts of life for today’s managers.

Multinational managers must take a strategic approach to multinational management, namely how they formulate and implement these strategies Strategy – the maneuvers or activities that managers use to sustain and increase organizational performance Strategy formulation – process by which managers select the strategies to be used by their company Strategy implementation – all the activities that managers and an organization must perform to achieve strategic objectives Strategies must include maneuvers that consider multiple countries and cultures, as well as opportunities and competition located anywhere in the world Several trends will shape the future business environment Blurring of industry boundaries – information and other communications technologies make industry boundaries less clear, and harder to identify and understand competitors Flexibility matters more than size – increased outsourcing, alliances, and partnering allow conversion of fixed costs to variable costs, making scale less useful Finding your niche – companies are finding they can do well by finding and satisfying the needs in a niche, as opposed to being the leader in their respective industries Hypercompetition – the new environment is characterized by intense competition coming from companies located in all parts of the world © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Emphasis on innovation and the learning organization – multinationals will need to develop the appropriate mechanisms and systems to integrate the local knowledge to produce value for the company Multinationals will need new strategies to compete with emerging market multinationals and will need to avoid the following traps: ♦ Ignoring the low- and middle-market segments ♦

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Failing to fully commit when entering emerging markets

A fundamental assumption of this book is that successful multinational management requires managers to understand their potential competitors and collaborators This text devotes several chapters to comparative management – the comparison of management practices used by people from different nations Exhibit 1-9 Differences Betwdeen Emerging Market Multinationals and Traditional Multinationals (Shows how each type of multinational addresses various aspects of success in markets)

Summary and Conclusions ♦ ● ● ● ● ♦ ♦

This chapter covered the following items: Key background information that supports the study of multinational management Definitions of multinational management and the multinational company Forces that drive globalization Key characteristics of successful multinational managers Global mindset is perhaps the most encompassing characteristic of successful multinational managers.

After reading this text, you should have the foundation for understanding the latest challenges and practices of multinational management.

Answers to In the News Questions From MindTap Chapter 01: You're Still Welcome: Foreign Firms in China 1. This case discusses the case of India and the potential impact of the new government's reforms on the future of India. The case discusses some of the factors that have prevented India from growing faster while also emphasizing the need for reforms. Answer the following questions: Why have foreign firms have a difficult time in China? What are some of the major factors that make doing business in China difficult?

Suggested Answer: Answers will vary. Growth in China is officially slowing down. Data states that the growth rate is the slowest in 24 years in China. China has led an anti-corruption drive that has made it difficult for anyone seeking government employees willing to look the other way.

Pharmaceuticals and other firms that had hoped their "guanxi" or connections offered them protection from competition but that has not been the case. China has, in the past, set up a system of restrictive and complex rules highlighting how multinationals can invest there. Under some of these rules, foreign companies investing in industries deemed "strategic" for the government can only invest using a joint venture and must transfer the technology involved to the local partner.

This makes it difficult for foreign firms to do business in China.

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2. What are some of the proposed reforms? How will these reforms make it easier for foreign firms to do better?

Suggested Answer: Answers will vary. The proposed reforms promised the global business elite that China would treat Chinese and foreign companies as equals and reject protectionism by easing its restrictions on foreign investment. The draft reforms, which are now open for comment, would include scrapping most of these restrictions. Additionally, foreign firms would be treated the same way as the national ones rather than the current system of case-by-case approvals. This will be replaced by a simpler "negative" list, which will help investors know which particular industries are viable to invest in or not.

3. Why would local firms still have an advantage despite these reforms? What does that tell you about doing business in other countries?

Suggested Answer: Answers will vary. The proposed reforms, while indicating that foreign investment will still be welcome in China, there is very little that they can do to help multinationals compete with well-connected domestic companies. This is due to the subsidies favoring Chinese companies and restrictions on foreign ownership of sectors such as Internet providers and finance. This shows us that other countries are happy to accept capital but are protective of nationally important areas of business.

Chapter 01: Feeling Green: The Mighty Dollar 1. This article discusses the rise of the dollar and the problematic impact it places on many countries. Discuss the following questions: Why is the dollar's rise so problematic for many countries?

Suggested Answer: Answers will vary. Globally, the dollar has a huge impact on the economies of many countries. Most of this impact comes from borrowings by companies outside the United States of America. The dollar rate should increase in value due to an increased growth rate in the US. When the Federal reserve raises its rate on debts, which is expected, the debts associated with the dollar will increase in value, making it more problematic for companies outside the US to pay back their debts.

2. What role do currencies play in terms of global trade?

Suggested Answer: Answers will vary. Globally, currencies have different values, which allow capital to flow from country to country. Stronger currencies are used more often in international trade. Most of the international trade takes places in dollars, with the biggest growth being in emerging markets.

Chapter 01: A Chance to Fly: India's Economy 1. This case discusses the case of India and the potential impact of the new government's reforms on the future of India. The case discusses some of the factors that have prevented India from growing faster while also emphasizing the need for reforms. Answer the following questions: What are some of the factors that show that India has lots of promise to shine among the emerging market economies?

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Suggested Answer: Answers will vary. Nearly half of India's 1.25 billion population is under 25, poor, and possess an entrepreneurial spirit. Prime Minister Narendra Modi and the Bharatiya Janata Party won the recent elections on the back of a promise of an economic revitalization. They promised reforms across the board making India more financially stable and less corrupt. In addition to this, the International Monetary Fund (IMF) has been showing a progressive increase in India's growth rate. These are some of the factors that shows India's promise among the emerging market economies.

2. What are some of the factors that are preventing India from achieving its full potential? Why was China able to achieve such economic growth more easily than India?

Suggested Answer: Answers will vary. India has to encourage reforms in nearly every sector of its governance if it aims to achieve its full potential. China's rise to global economic heights was due to manufacturing for exports. India, while not able to follow in China's footsteps, can achieve this growth by balancing its surplus of unskilled labor by focusing on educating them and providing labor for service sectors like information technology. There is also the question of providing widespread political reform and a strong anti-corruption stance to weed out the harmful aspects that slow down India's economic growth.

3. What are some of the tough reforms that India has to go through in order to succeed?

Suggested Answer: Answers will vary. There a lot of reforms that India needs in order to succeed.

One of these is a reform on how electricity and electricity generation need to be improved to meet larger demands. A lack of power hurts India's economic potential. The majority of state and national laws in India are nebulous when it comes to taxes, labor, and licensing. A unifying law for the entire country would be able to encourage more trade and growth. A lot of archaic and arcane laws that are outdated need to reviewed, changed, or removed. Lastly, the purchase of land is a complex situation and needs to be free of political influence before it can be legally streamlined.

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Chapter 2/Culture and Multinational Management

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CHAPTER 2 CULTURE AND MULTINATIONAL MANAGEMENT Learning Objectives      

Define and understand the basic components of culture Identify instances of cultural stereotyping and ethnocentrism Understand how various levels of culture influence multinational operations Apply Hofstede, GLOBE and 7d models to diagnose and understand the impact of cultural differences on management processes Appreciate the complex differences among cultures and use these differences for building better organizations Recognize the complexity of understanding new cultures and the dangers of stereotyping and cultural paradoxes

Introduction 

This chapter considers two basic questions:  What is culture?  How does culture affect management and organizations?

What is Culture?       

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Culture – the pervasive and shared beliefs, norms, and values that guide everyday life of a group Cultural norms – prescribed and proscribed behaviors, telling us what we can do and what we cannot do Cultural values – values that tell us such things as what is good, what is beautiful, what is holy, and what are legitimate goals in life Cultural beliefs – our understandings about what is true Cultural symbols – these may be physical, such as national flags or holy artifacts. In the workplace, office size and location can serve as cultural symbols Cultural stories – these include such things as nursery rhymes and traditional legends Cultural rituals – ceremonies such as baptism, graduation, the tricks played on a new worker, or the pledge to a sorority or fraternity  Pervasive – the idea that culture affects almost everything we do, everything we see, and everything we feel and believe  Shared cultural values, norms, and beliefs – the idea that people in different cultural groups have similar views of the world To succeed cross-culturally, multinational managers must learn as much as they can about important cultural norms, values and beliefs of the societies in which they work

Levels of Culture 

Levels of culture – the levels of cultural influence including national, business, and occupational and organizational cultures

Exhibit 2.1 Levels of Culture in Multinational Management (Show the levels of culture that affect multinational management)

National Culture  National culture – the dominant culture within the political boundaries of the nation-state © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Most business takes place within the political boundaries of the nation-state Dominant culture influences the language of the business transactions, and the nature and types of laws that govern businesses.

Business Culture 

Business culture – the norms, values, and beliefs that pertain to all aspects of doing business in a culture  Each national culture produces its own business culture  Guides everyday business interactions and business etiquette

Occupational Culture and Organizational Culture 

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Occupational cultures – distinct cultures of occupational groups such as physicians, lawyers, accountants, and craftspeople  The norms, values, beliefs, and expected ways of behaving for people in the same occupational group, regardless of the organizational employer  Occupational cultures are often stronger than national cultures, particularly for professional and technical occupations Organizational culture – the norms, values, and beliefs concerning the organization that are shared by members of the organization  Discovered and created when members learn to cope with problems  Organizations seldom have only one organizational culture  Organizational culture often has as important an influence as national culture  Multinational managers must understand the complex interplay between national, organizational and occupational culture  Research comparing the impact of international and non-international differences on creating barriers to knowledge transfer in multinationals found that the importance of these differences depended on the situation

Cultural Differences and Basic Values: Three Diagnostic Models to Aid the Multinational Manager   

Hofstede model of national culture – a cultural model mainly based on differences in values and beliefs regarding work goals.

Global Leadership an Organizational Behavior Effectiveness (GLOBE) project – recent largescale project based on Hofstede’s model to determine nine cultural dimensions of 62 countries 7d culture model – seven-dimension cultural model based on beliefs regarding how people relate to each other, how people manage time, and how people deal with nature

Hofstede’s Model of National Culture 

Hofstede’s work has received widespread attention by researchers, with his dimensions having been considered in over 180 studies

Exhibit 2.2 Subject Matter Considered in Hofstede’s National Culture Studies (Shows some of the subject matter considered and whether they were studied on the individual, group or country level) 

To describe national cultures, Hofstede uses five dimensions of basic cultural values: 1. Power distance: expectations regarding equality among people 2. Uncertainty avoidance: typical reactions to situations considered different and dangerous 3. Individualism: relationship between the individual and the group in society 4. Masculinity: expectations regarding gender roles 5. Long-term orientation: basic orientation toward time

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Hofstede’s Cultural Model Applied to Organizations and Management 1.

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Human resources management a. Management selection – how people are chosen for jobs b. Training – what the focus of job training is c. Evaluation and promotion – what counts to get ahead d. Remuneration – what accounts for differences in pay Leadership styles – how leaders behave Motivational assumptions – beliefs regarding how people respond to work Decision making and organizational design – how managers structure their organizations and make decisions

Strategy – effects of culture on selecting and implementing strategies  

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Power distance – expectations regarding equality among people.

Power distance focuses on: (1) the norms that tell superiors (bosses, leaders) how much they can determine the behavior of their subordinates (2) the values and beliefs that superiors and subordinates are fundamentally different kinds of people High-power-distance countries have norms, values, and beliefs such as:  Inequality is fundamentally good  Everyone has a place; some are high, some are low  Most people should be dependent on a leader  The powerful are entitled to privileges  The powerful should not hide their power

 Characteristics of high-power distance countries      

Strong concern with hierarchy High respect for authority Ideal managers come from high social class or elite university graduates Large wage differences between management and workers Theory X leadership style (authoritarian – people dislike work) Centralized decision making in organizations

Exhibit 2.3 Management Implications of Power Distance (Gives a summary of the managerial implications for power distance)

Uncertainty Avoidance  

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Uncertainty avoidance – how people react to what they perceive as different and dangerous High uncertainty avoidance countries have norms, values, and beliefs such as:  Conflict should be avoided  Deviant people and ideas should not be tolerated  Laws are very important and should be followed  Experts and authorities are usually correct  Consensus is important Characteristics of high-uncertainty-avoidance cultures  Entry-level people are chosen for their potential fit with and loyalty to the organization  The belief that conflict and competition should be avoided  Task-directed leaders  Extensive rules and procedures  Conservative decision makers

Exhibit 2.4 Management Implications of Uncertainty Avoidance (Summarizes the managerial implications of uncertainty avoidance) © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Individualism/Collectivism 

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Individualism – relationship between the individual and the group in society that privileges individual traits and achievements  Individualistic cultures view people as unique  People are valued in term of their own achievement, status, and other unique characteristics Collectivism – set of cultural values that views people largely through the groups to which they belong  Social groups such as family, social class, organization, and team all take precedence over the individual Countries high on individualism have norms, values, and beliefs such as:  People are responsible for themselves  Individual achievement is ideal  People need not be emotionally dependent on organizations or groups Countries high on collectivism have norms, values, and beliefs such as:  One’s identity is based on group membership  Group decision making is best Group protect individuals in exchange for their loyalty. The individualism-collectivism remains one of the most widely studied Hofstede national culture dimensions, with a recent study showing that the collectivism dimension had a positive influence on Chinese firms' desire to engage in joint ventures27

Exhibit 2.5 Management Implications of Individualism (Summarizes the managerial implications of high individualism versus collectivist (low individualism) norms, values, and beliefs)

Masculinity   

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Masculinity – tendency of a society to emphasize traditional gender roles Higher masculinity means the business culture of a society takes on more traditional masculine values, such as an emphasis on advancement and earnings High masculinity countries have norms, values, and beliefs such as:  Gender roles should be clearly distinguished  Men are assertive and dominant  Machismo or exaggerated maleness in men is good  People – and especially men – should be decisive  Work takes priority over other duties, such as family  Advancement, success, and money are important Characteristics of high masculinity culture  Jobs are clearly defined by gender  Work is very central and important to people  Managers act decisively

Exhibit 2.6 Management Implications of Masculinity (Shows the major effects of high masculinity on work and organizations)

Long-Term Orientation 

Long-term (Confucian) orientation – an orientation toward time that values patience  Managers in cultures high on the long-term orientation are selected based more on the fit of their personal and educational characteristics to the company, than on skill  Employees value security and leaders work on developing social obligations  Eastern cultures, which rank highest on long-term orientation, value synthesis in organizational decisions

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Countries with more long-term orientations do not ignore financial objectives, but they prioritize growth and long-term paybacks  The long time horizons allow managers to experiment and seek success by developing their “game plans” as they go along Short-term orientation  Must focus immediately on usable skills, and do not assume that employees will remain with the company for an extended time  Leaders focus on and pay and rapid promotion  Western cultures, which tend to have short-term orientations, value logical analysis in their approach to organizational decisions  Manage purposefully to respond to immediate pressures from the environment  Managers often use quick layoffs of “excess” employees to adjust to shrinking demand for products

Exhibit 2.7 Management Implications of Long-Term Orientation (Summarizes the managerial implications of long-term (Confucian) orientation) Exhibit 2.8 Percentile Ranks for Hofstede’s Cultural Dimensions for Selected Countries by Cultural Cluster (Displays the percentile ranks of selected countries on five of Hofstede’s dimensions of natural culture) 

Country clusters – groups of countries with similar cultural patterns  Although cultures differ within these broad classifications, such summaries are useful for condensing cultural information

Restraint versus Indulgence 

Bulgarian researcher Minkov analyzed data from the World Values Survey and developed a sixth dimension called restraint versus indulgence 32, which examines characteristics not considered by the other five dimensions 

Indulgent societies tend to favor free satisfaction of human needs related to "enjoying life and having fun"33

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Restraint societies are much more restrictive and place strict norms on gratification of needs

Exhibit 2.9 Indulgence versus Restraint (Shows the characteristics of societies high on the two dimensions) 

Research shows that indulgence is more prevalent in societies in North and South American and Western Europe

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Restraint is emphasized in Eastern Europe, Asia, and the Muslim world

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Multinational managers can shape work environments to reflect such preferences 

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In restraint-oriented societies, where it is likely that a more strict and traditional organizational hierarchy would work well, managers may have success by providing a higher degree of order and direction to employees

Restraint – Countries with strict norms on gratification of needs

Indulgence – Countries tending to favor satisfaction of human needs related to "enjoying life and having fun" © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Hofstede’s work has not been without criticisms, including: 

One cannot understand culture simply by collecting surveys

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Some dimensions rest on small samples

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One cannot assume all members of a society share a uniform culture

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One cannot study culture through the lens of a single organization

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Some of the data need to be updated

GLOBE National Culture Frame Work   

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The GLOBE project involves 170 researchers who collected data on 17,000 managers from 62 countries around the world GLOBE researchers developed nine dimensions - only two of these dimensions are independent of the Hofstede model Five dimensions similar to the Hofstede model are: 1. Assertiveness orientation and gender egalitarianism (similar to masculinity-femininity) 2. Institutional and family collectivism (similar to individualism-collectivism) 3. Future orientation (similar to long-term orientation) 4. Power distance 5. Uncertainty avoidance Two dimensions unique to the GLOBE project:  Performance orientation  Humane orientation Performance orientation – the degree to which the society encourages societal members to innovate, to improve their performance, and to strive for excellence.  High performance orientation favors training and development, whereas lower performance orientation views family and background as more important  A recent study using ten years of cross-national data on entrepreneurship from 42 coutnries shows that performance orientation has a positive influence on entrepreunership

Exhibit 2.10 Management Implications of Performance Orientation (Summarizes some of the management implications of performance orientation) 

Humane orientation – and indication of the extent to which individuals are expected to be fair, altruistic, caring, and generous  In high human orientation, the need for belongingness and affiliation is emphasized more then material possessions, self-fulfillment, and pleasure  Less humane oriented societies are more likely to value self-interest and self-gratification

Exhibit 2.11 Management Implications of Humane Orientation (Lists some of the management implications of humane orientation) Exhibit 2.12 The Globe Model of Culture (Shows the various clusters and the corresponding cultural scores)  Similar to Hofstede, the GLOBE framework has also been subjected to criticisms, including: 

Whether all nine dimensions are really necessary

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The difficulty of incorporating all nine dimensions in any study

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Empirical research has shown that many of the dimensions formulated by the GLOBE framework are highly correlated, suggesting that the dimensions may not be as distinct as previously thought

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Whether all dimensions can actually be validated44

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7d Cultural Dimensions Model   

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Fons Trompenaars, a Dutch management consultant, constructed the 7d dimensions from data collected from business clients and participants in his seminars Understands cultures by examining how humans deal with basic problems of survival Five of the 7 dimensions deal with the challenges of how people relate to each other  Universalism vs. particularism – choice of dealing with other people based on rules or based on personal relationships  Collectivism vs. individualism – the focus on group membership vs. individual characteristics  Neutral vs. affective – the range of feelings outwardly expressed in the society  Diffuse vs. specific – the types of involvement people have with each other, ranging from all aspects of life to specific components  Achievement vs. ascription – the assignment of status in a society based on performance vs. assignment based on heritage Two final dimensions deal with how a culture manages time and how it deals with nature  Past, present, future, or a mixture  “Control of” vs. “accommodation with” nature

Exhibit 2.13 The 7d Model of Culture (Gives a summary of the 7d model and the issues addressed by each dimension)

Universalism versus Particularism 

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Universalism – dealing with other people based on rules (i.e. law, religion, cultural principles, etc.)  “Do unto others as you would have them do unto you”  Precise guidelines exist in all situations Particularism – dealing with other people based on personal relationships  Rules represent a rough guide to life  Exceptions are made based on the individual (i.e. family, friends) and the changing circumstances No culture is purely universalistic or particularistic, but tendency to lean in one direction or the other influences business practices

Exhibit 2.12 Universalism versus Particularism: Differences and Managerial Implications (Gives a brief description of universalism and particularism as cultural dimensions and shows the managerial implications for doing business in each)

Individualism versus Collectivism  

Considers the same distinctions as Hofstede’s dimensions Country rankings do not match exactly to Hofstede’s – may be explained by the more recent data used by Trompenaars, which also captures more subtle aspects

Exhibit 2.15 Individualism versus Collectivism: Differences and Managerial Implications © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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(Gives a brief descriptions of the individualistic and collectivistic cultural dimensions and the managerial implications of doing business in each)

Neutral versus Affective   

Neutral versus affective – the acceptability of expressing emotions In more neutral cultures, people expect that interactions are objective and detached – the focus is more on the task In more affective orientations, all forms of emotions are appropriate in almost every situation

Exhibit 2.16 Neutral versus Affective: Differences and Managerial Implications (Gives a brief description of neutral vs. affective cultural dimensions and the managerial implications of doing business within each)

Specific versus Diffuse   

Specific versus diffuse – the extent to which all aspects of an individual’s life are involved in his or her work relationships In specific oriented cultures, business is segregated from other parts of life In diffuse oriented cultures, business relationships are more encompassing and involving

Exhibit 2.17 Specific versus Diffuse: Differences and Managerial Implications (Gives a brief description of the specific vs. diffuse cultural dimensions and the managerial implications of doing business in each)

Achievement versus Ascription   

Achievement versus ascription – how society grants or gives status In achievement-oriented societies, people earn status based on their performance and accomplishments In ascription-oriented societies, one’s inherent characteristics or association define status

Exhibit 2.18 Achievement versus Ascription: Differences and Managerial Implications (Gives a brief description of the achievement vs. ascription cultural dimensions and the managerial implications of doing business in each)

Time Orientation   

Time horizon – the way cultures deal with the past, present, future In future-oriented societies, organizational change is considered necessary and beneficial In past-oriented societies, people often assume that life follow a preordained course based on the traditions or will of God

Exhibit 2.19 Time Horizon: Differences and Managerial Implications (Summarizes the cultural characteristics of different time horizons and gives managerial implications of differing time horizons)

Internal versus External Control    

Internal versus external control – beliefs regarding whether one controls one’s own fate  Best reflected in how people interact with their natural environment Does nature dominate us or do we dominate nature?

In cultures where it is believed that nature dominates people, managers are likely to be fatalistic In contrast, where cultural values support the notion that people dominate nature, managers tend to be proactive

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Exhibit 2.20 Internal versus External Control: Differences and Managerial Implications (Summarizes the internal vs. external cultural dimensions and their managerial implications) Exhibit 2.21 Percentile Ranks for the 7d Model Cultural Dimensions in Selected Countries (Gives percentile rankings for the 7 dimensions in selected countries) Exhibit 2.22 Proverbs: Windows into National Cultures (Shows that proverbs provide less formal insights into national cultures)

Caveats and Cautions      

Cultural paradoxes – when individual situations seem to contradict cultural prescriptions Stereotyping – when one assumes that all people within a culture behave, believe, feel, and act the same Ethnocentrism – when people from one culture believe that theirs are the only correct norms, values, and beliefs Cultural relativism - a philosophical position arguing that all cultures, no matter how different, are correct and moral for people of those cultures Cultural intelligence – the ability to interact effectively in multiple cultures Cultural intelligence has three components o Mental, based on the person's cultural knowledge acquired through education and personal experiences o Motivational, based on the desire to continuously learn new aspects of cultures and adapt to these cultural differences o Behavioral, based on the ability to exhibit the appropriate forms of verbal and non-verbal behaviors in new cultural settings61

Summary and Conclusions   

After completing this chapter, you should know that culture has a variety of levels that affect multinational managers and organizations Models of cultural values proposed by the GLOBE researchers, Trompenaars and Hofstede provide basic concepts for analyzing cultural differences Most successful multinational manager will realize that understanding a different culture is a never-ending learning process

Answers to In the News Questions From MindTap Chapter 02: Living in A New Country 1. This article discusses some of the challenges that a British couple faced as they emigrated to East Africa. It provides some good insights into becoming a multinational manager.

What are some of the major differences between the United States or other developed world and East Africa?

Suggested Answer: Answers will vary. Life in East Africa is challenging and very different than life in the United States. There is a massive disparity in wealth which can make life harder in Africa. Queues at banks, poor delivery of most services, poorly stocked supermarkets, electricity and water shortages, and heavy traffic can be frustrating. All of this makes life for a family of a multinational manager difficult. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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2. What are some of the ways the author has coped with these challenges? What lessons do you learn with regards to managing cultural differences?

Suggested Answer: Answers will vary. According to the author, her life in East Africa throws up new challenges every day. The uncertainty of basic amenities, understocked supermarkets, and poor quality of services can make day to day life difficult. The most important thing, in the author's view, is to keep an open mind and not have preconceived notions about locals and their culture.

3. Use some of the national culture dimensions discussed in Chapter 2 to explain some of the challenges noted in the case.

Suggested Answer: Answers will vary. We shall be using the Hofstede's model of national culture to explain some of the challenges the author faces. Hofstede's national culture dimension points out the concept of power distance, which the author feels when friends and co-workers talk about their hardships at length. The author does her best to listen and help as much as she can. She uses the dimensions of masculinity (which governs expectations of gender roles) and uncertainty avoidance (the typical reactions to situations considered dangerous) to talk of her experiences of differing cultural and social conditions. She also finds herself having stayed there and established her life there for so long that she feels she now belongs to the culture and the locality through the dimensions of individualism and long-term orientation.

Chapter 02: Qatar 1. This case discusses some of the challenges facing an American couple in Qatar based on cultural and other misunderstandings.

What are some of the cultural misunderstandings that led to the couple's arrest?

Suggested Answer: Answers will vary. The police in Doha accused Mr. and Mrs. Huang of murder since their daughter, Gloria, was of a different ethnicity than the couple. She was rushed to the hospital comatose, the police suspected that the Huangs were child traffickers trying to sell Gloria's organs. This has highlighted the fact that interracial and multiethnic relationships are looked upon with suspicion in places like Qatar, which has a dated and slow Islamic-style judicial system, leading to cultural misunderstandings.

2. How can employees who are going to foreign assignments prepare for such assignments? What resources can be used to prepare?

Suggested Answer: Answers will vary. Multinationals usually send their employees on foreign trips for an exposure to different cultures and foreign internships as a means to start developing cultural intelligence. Trips to the foreign country before the assignment can help in understanding as well as learning from employees who have lived there in the past. Multinationals can also provide specific cultural training from their experience of doing business in the country they are sending employees to.

Chapter 02: Summer Woes For Wal-Mart 1. This case discusses some of the challenges Wal-Mart faced when they opened new stores in Germany and why they eventually had to close all German stores.

What are some of the cultural misunderstandings that led to the closing of all Wal-Mart stores?

Suggested Answer: Answers will vary. David Wild, former President and Managing Director of Wal-Mart Germany, spoke of the difficulty in applying the American Wal-Mart model to the © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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German consumer climate. Wal-Mart was criticized for trying to force American culture into its stores. The policy of having employees greet and smile to welcome customers seemed unnatural to Germans, and signs and product placement needed to be reworked. There were attempts to woo the German customer base with an emphasis on food and fresh produce and a greater sensitivity to local culture; however, they proved too little, too late.

2. How do these misunderstandings reflect U.S. culture?

Suggested Answer: Answers will vary. The U.S. culture in general is more consumerist and lays an emphasis on guaranteeing exceptional service at all times. In U.S. culture, businesses like WalMart value the customer's comfort over all else and still provide plastic bags and engage in wasteful consumption that endangers the environment. Also, companies such as Wal-Mart motivate their employees by engaging them in activities like morning cheers. In some states, there are also restrictions on employees, such as lack of fraternization at work and working conditions that would be frowned upon in different cultures.

3. Which aspects of culture are most different between the United States and Germany? How should Wal-Mart have better prepared for this expansion into the German market?

Suggested Answer: Answers will vary. American retail culture involves greeting consumers as they enter the premises by specially designated greeters. The signage and employee culture is different in the United States compared to Germany. In Germany, people do not like smiling at people they do not know personally and are more conscious of using plastic bags. Wal-Mart should have looked at its German competitors to research what kind of culture they had to cater to.

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CHAPTER 3 THE INSTITUTIONAL CONTEXT OF MULTINATIONAL MANAGEMENT Learning Objectives          

Understand the national context and how it affects the business environment Understand the influence of the institutional context of countries on individuals and organizations Define social institutions and understand their basic forms Explain how social institutions influence both people and organizations Describe the basic economic systems and their influence on multinational operations Understand the basic stages of industrialization and their implications for multinationals Discuss the world’s basic religions and how they shape the local business environment Develop an understanding of education and its effects on multinational operations Define social inequality and its implications for multinationals Understand the importance of the national context and its connection with other international management areas

Introduction    

There are other elements besides national culture that can produce important business-related differences among societies Understanding the institutional context of countries is thus extremely critical to better multinational management At a basic level, a complete understanding of any society cannot be fully achieved unless both the national culture and the institutional context are examined National context – national culture and social institutions that influence how managers make decisions regarding the strategies of their organizations.

Exhibit 3.1 The National Context and Multinational Companies (Shows a model of how the national context is extremely critical to multinational management)

Social Institutions and Their Influence on Society 

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Social institution – a complex of positions, rules, norms, and values organizing relatively stable patterns of human resources with respect to sustaining visible societal structures within a given environment  It has profound effects on people’s life conditions and provides the context for psychological differences among people  It provides boundaries and norms that prescribe how people will behave Social institutions can have regulative, normative, or cognitive influence on individuals3  A regulative social institution constrains and regularizes behaviors through its capacity to establish rules, inspect and review conformity, and manipulate consequences to reinforce behaviors  The cognitive dimension refers to the widely shared knowledge regarding how things are done in a society5  The normative dimension refers to the values and norms promulgated by the social institutions

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Other critical dimensions, such as the economic, political, financial, administrative and geographic distance dimensions, explain cross-national differences in addition to national culture7

Exhibit 3.2 Cross-national Distribution as Measured by Institutions (Shows these dimensions, provides a definition of each dimension and shows potential examples of each dimension)  Three key social institutions most likely to influence the business environment  Economic systems (e.g., capitalism or socialism)  Level of industrialization  Types of religion

Economic Systems 

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Economic system – system of beliefs (concerning work, property, and wealth), activities (extraction, production, and distribution), organizations (business firms, labor unions), and relationships (ownership, management) that provide the goods and services consumed by the members of a society  Economic systems are usually reflected in their governments’ influence, specifically in terms of whether productive activities are state owned or privately owned Economic systems can be typified by the extremes of capitalism and socialism with mixtures of elements of both in the mixed economy  Capitalist or market economy – system where production is decentralized to private owners who carry out these activities to make profits.  Socialist or command economy – production resources are owned by the state and production decisions are centrally coordinated  Mixed economy – combines aspects of the capitalist and socialist economies Economic systems have two major implications for strategic multinational management  Dominant market type  Market transitions

Dominant Market Type  

At a basic level, decisions to operate in a country can be based on the dominant economic type Index of economic freedom – determines the extent of governmental intervention in a country  Ten indicators, ranging from trade freedom, taxation policies, and level of governmental intervention in the economy, to property rights and business freedom.

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Governments play a key role in multinational operations when planning where to locate, as they provide

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A legal environment that allows a company to operate

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The education critical to multinationals

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Infrastructure, including roads, railways, and airports

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Basic research and development functions

The debate continues on the appropriate role of government, including the role of corporate taxes

Exhibit 3.3 Index of Economic Freedom (Shows selected top and bottom ten countries on the 2014 assessment of economic freedom)

Market Transitions © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Market transitions – changes that societies go through as they move from socialism toward a market-based economy  An important aspect of transition for many multinationals has been an increase in international strategic alliances  Also important to understand socialism and its effect on people and organizations in order to better understand the workers’ reactions to market mechanisms  Drastic measures have to be taken to turn around formerly inefficient companies into firms that can perform essential business functions o Managers’ thinking has to be changed so that they understand management functions o Financial systems and firms have to be left unregulated o Workers must be trained to trust each other o Mentality that personal relationships are key to success must be changed, as more open systems such as meritocracy are introduced The role of state-owned companies in international business 

Increasingly critical as they globalize

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Often created to address market imperfections

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Can operate in the interest of the public rather than private shareholders

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Adaptable in foreign markets, using different entry and control modes to ensure legitimacy and minimize conflict

Privatization is likely to increase as countries inject private capital to encourage improved performance

Industrialization  

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Industrialization – cultural and economic changes that occur because of how production is organized and distributed in society Preindustrial society – characterized by agricultural dominance and shaping of the economic environment.  In pre-industrial societies, religious norms and tradition are emphasized while social mobility is discouraged  Occupational placement tends to be based on ascription (family background) and social status is largely determined through inheritance Industrial society – characterized by the dominance of the secondary or manufacturing sectors  Reflects the prevalence of technological development that makes rapid economic growth possible  Requires wider ranges of skills in their workforce relative to pre-industrial societies  Occupational placement is based on universalistic criteria such as achievement.

Postindustrial society – characterized by emphasis on the service sectors  The dominance of employment by the service sector leads to a drastic expansion of the role of formal education as there is a need for highly skilled workers with specialized skills

Exhibit 3.4 Distribution of Production Activities by Sector (Shows selected countries and the distribution of employment by primary, secondary, and tertiary sectors) 

Pre-industrial societies tend to be the least economically developed

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Other characteristics of pre-industrial societies  Tend to provide fewer opportunities  Relatively cheap labor compared to more industrialized societies  Poorer infrastructure and business support, and thus may be more costly to operate in such societies.  Multinationals have generally shunned most of the American countries because of political instability, but the future for some African countries is bright Industrial societies tend to be more economically developed than pre-industrial societies Other characteristics of industrial societies  Focus on innovation and individualism as opposed to tradition and communal obligations heavily influenced by religious norms typical of pre-industrial societies  Economic achievement becomes the top priority  Access to an environment very favorable to businesses and a labor force that is often educated and motivated  Tendency of less non-market risks, such as government appropriation, to businesses

Exhibit 3.5 Materialist Values for Selected Countries (Shows the materialist scores for selected countries)   

Materialist scores indicate how much societies value such goals as economic growth and maintaining discipline, both indicators of the degree of industrialization A postindustrial society is characterized by the domination of the service sectors in production activities Other characteristics of a postindustrial society  Demise of the agricultural sector, and significant decline in the manufacturing sector  Significant rise of information-rich occupations such as managerial, professional and technical jobs  Jobs require higher skills and advanced educational achievement  The “emphasis on economic achievement as the top priority is now giving way to an increasing emphasis on the quality of life”  People are more likely to espouse individual expression values and a movement towards a more humane society 

Recent research supports the view that post industrialization is associated with a general decrease of importance in the value of work and a likely stronger emphasis on other nonwork activities, such as leisure

Exhibit 3.6 Postmaterialist Values for Selected Countries (Shows selected countries and their scores on the postmaterialist scale) 

More developed countries have high postmaterialist scores  People tend to value jobs over which they have the most control  Workers more likely to prefer noneconomic incentives over monetary rewards

Religion 

Religion – shared set of beliefs, activities, and institutions that have based on faith in supernatural forces  Religions continue to be an important aspect of most societies  Religions, work, and their interrelationships form the very foundations of human society  Protestant work ethic, formulated by German sociologist Max Weber, proposed that the domination of Protestant religions led to the emergence of modern capitalism in Western Europe © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Religions provide its members with a way of dealing with issues that reflect individual wishes and activities Four religions practiced by a large percentage of the world’s population: Christianity, Hinduism, Islam and Buddhism

Exhibit 3.7 Religion by Percentage of World Population and Number of Followers (Shows the distribution of religions around the world, both in percentage of the world population and in number of followers) 

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Christianity – religion based on the life and teaching of Jesus, and is the most practiced religion around the world  Christianity started with the birth of Jesus Christ around 2,000 years ago and has evolved considerably into different forms because of many internal feuds and divisions  Christians believe that Jesus is the incarnation of God who was sent to clean sinfulness of humanity  The impact of Protestantism on the development of capitalism is seen as a major evidence of the link between religion and economic structuring of societies because Protestantism emphasized wealth and hard work for the glory of God, which allowed the focus on goals attached to economic development and wealth accumulation  In general, Christians agree “on the value and dignity of human life, labor and happiness”.

There is a general support for the freedom to accumulate wealth and possessions  However, human greed and selfishness is nevertheless viewed with contempt and attempts are made to ensure that there is equality of opportunity and fairness for the less fortunate  Ten Commandments provides the basis for what is considered as ethical behaviors Islam – religion based on the submission of the will to Allah (God), as described in the Qur’an  Islam can be traced back to Muhammad, a prophet born in 570 CE  Muslims do not ascribe divinity to Muhammad - rather, he is seen as the messenger of Allah’s (God) revelations  Muslim society is heavily influenced by Islamic standards and norms  Islam provides encompassing guidance in all spheres of life, both social and economic  The Shari’ah requires Muslims to live based on five pillars: Confession, Prayer, Alms Giving, Fasting, and Pilgrimage to Mecca  The above pillars have important implications to multinational strategic management such as accommodating daily prayer, Ramadan rituals, etc.  In general, the Qur’an is supportive of entrepreneurship and earning of profits through legitimate business activities  Muslims are likely to condemn the pursuit of profits through exploitation of others  Muslims (and organizations) are required to share the accumulated wealth by charitable giving to the poor  Islam prohibits the payment or receipt of interest  Many Muslim societies have been working in profit sharing plans to avoid the payment or receipt of interest  Multinationals are likely to be presented with significant opportunities in the Muslim countries in the years to come  Many Muslim societies are strictly divided by gender; thus, multinationals must be aware of implications of their business actions based on gender roles  Recent research focused on Malaysia and the progressive implementation of Islamic rules in the business sector there found that economic development increased from the time when these new Islamic principles were implemented, suggesting that Islam's rules and regulations are compatible with trade

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Hinduism – acceptance of the ancient traditions of India that are based on Vedic scriptures  Hinduism has no specific founder and Hindus place no special significance on historical events or sequences of events  The quest for Brahman (ultimate reality and truth) is the ultimate goal for most Hindus  Hinduism generally believes in the reincarnation of the atma (soul) based on one’s karma, (the effects of one’s past actions)  Those who live life according to the principles of dharma (principles of righteousness and moral order), will be reincarnated in successively more favorable atmas until one reaches Brahman  Multinationals must be aware of the caste system – the ordering of Indian society based on four occupational groups o The highest caste includes priests, followed by kings and warriors o The fourth caste includes manual laborers and artisans  Hinduism provides clear guidelines regarding ethical behaviors, among which performing one’s duty and respect for one’s parents are prominent  Hinduism does not condemn the pursuit of material possessions and multinationals can generally expect an environment that is conducive to business and wealth accumulation  Buddhism - religious tradition that focuses primarily on the reality of worldly suffering and on the ways one can be freed from suffering  Gautama Buddha, born as a prince around the six century BC in India, founded Buddhism  Buddha proposed that to remove the suffering, one had to follow the Eightfold path of right understanding, right intention, right speech, right action, right livelihood, right effort, right mindfulness, and right concentration  Buddhism also believes that the way to end suffering is to meditate to train and soothe the mind to ultimately reach enlightenment or nirvana.  Buddha’s teachings suggest that Buddha saw poverty as the major reason for ethical behavior decline in society  Buddhism therefore prescribed a work ethic that encouraged workers to engage in their best efforts and qualities such as taking of initiative, persistence and hard work  Buddhist workers generally have a positive view of work, but need an environment that values teamwork and ethical means to achieve success at work  Given that Buddhism has a stronger emphasis on compassion and love, it has even been suggested that Western profit oriented companies should adopt Buddhist principles  Another Buddhist principle is the acknowledgement that the positive action of others makes life possible, so multinationals should recognize efforts of workers through ethical treatment  Work is a key component of life, but multinationals should respect a balanced work design for their workers  Multinational managers should be aware of their actions and ensure that decisions are made within the high ethical standards that Buddhism sets for its followers, keeping in mind that a company exists for the betterment of society and other beings  Religiosity -- indication of the importance of acceptance of the core philosophies of religion in one's life  Multinationals should be aware of the role of religiosity in the life of a country  Wide variation in religiosity across countries  Economic effects of religiosity are significant and linked to favorable attitudes toward work and how people allocate their time  It is possible that individuals in countries with higher religiosity have less stressful lives due to the social support provided by attendance at religious services Exhibit 3.8 Religiosity in Selected Countries (Shows the religiosity in selected countries from the World Values Survey) © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Education   

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Education – organized networks of socializing experiences that prepare individuals to act in society Education is seen as a critical path to economic development and progress Education has obvious implications for multinational strategic management  Educational levels indicate the skill and productivity of workers  The more educated workers are, the more skills they possess and the more likely they are to contribute to a country’s production, both in terms of products and services  Additionally, having an abundant supply of well-educated individuals allows countries to facilitate the absorption of technology from developed countries Multinationals can thus gauge the educational levels of various countries they are involved in to determine what to expect from their workers

Exhibit 3.9 Tertiary Enrollment as Percentage of Relevant Age Group (Shows, for a selected number of countries, the percentages of individuals within the relevant age groups enrolled in tertiary education. The scores reported give a very rough estimate of educational potential.) 

Multinationals may thus be also interested in the skills and experience that can be potentially gained from the educational system of the country

Exhibit 3.10 Total Expenditures on R&D as a Percentage of GDP (Shows the percentage of GDP that goes to research and development in selected countries) 

A final issue is the extent to which educational systems actually encourage students to be innovative and creative

Social Inequality   

Social inequality – degree to which people have privileged access to resources and positions within societies In societies that have high social inequality, a few individuals have the ability to control and use important resources as sources of control Multinational companies are facing significant criticisms and negative publicity for their operations in countries with high social inequalities  Many multinational companies are realizing that it is sometimes in their interest to be more socially responsible to mitigate social inequalities  Multinational companies can consider the GINI index as an indicator of the degree of social inequality

Exhibit 3.11 GINI Index for Selected Countries (Shows the GINI indices for selected countries) 

One social inequality study showed the following:  Social inequality negatively impacts the degree to which people are attached to work  Social inequality provides job opportunities only to some highly placed individuals  High levels of social inequality likely result in a less favorable work environment

The National Context and International Management  Social institutions, which shape the norms, values, and beliefs that determine acceptable and unacceptable business practices, are key aspects of understanding the business environment in any country  The national context plays a significant role in a multinational’s strategy, as it determines © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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the comparative advantage of nations, which ultimately determines which strategies multinational companies choose the global platform, namely the areas of business that can be performed the best in a country the human aspect of international management the nature of the relationship between workers and their superiors how people view work and sets the stage for motivation in an international context how multinational companies approach human resource management policies how organizations are designed

Summary and Conclusions 

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To get a full understanding of any society, it is essential to understand both national culture and the institutional context  We examined how both national culture and social institution combine to form the national context  We gained more specific background information on four important social institutions and their implications both for companies and the people they employ The chapter covered the following items:  Definition of social institutions and how they affect individuals and organizations  Economic systems, especially their extreme types o Socialist systems – government owns systems of production o Capitalist systems – private individuals make production decisions  Two major implications of economic systems for multinational strategic management o Extent of governmental intervention o Transition from socialist to free-market economy  Pre-industrial, industrial and postindustrial societies and their implications for multinational strategic management  Four major religions and their business implications: Christianity, Islam, Hinduism and Buddhism  Educational systems and their implications regarding available skills and experiences of the workforce in society  Social inequality and its implications for multinational companies Social institutional differences are important now and in the future Successful multinational managers are the ones who can properly assess the institutional context of the society they operate in and design work environments that fit the institutional context

Answers to In the News Questions From MindTap Chapter 03: Bank Negara 1. This case discusses the creation of a bank to focus exclusively on Islamic finances. The case discusses some of the main differences between Western and Islamic banks.

What are some of the main aspects of Islamic finance that makes it difficult for banks based in the Western world to offer financial services?

Suggested Answer: Answers will vary. Islamic finance prohibits the accrual of interest which is against Islamic religious law and is different from the Western concept of banking. It also prohibit gains from any kind of activity akin to gambling, preferring to direct such profits toward the © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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development and welfare of the community. Western financial services do not adhere to any such religious principles.

2. How does the creation of the Negara bank alleviate such challenges?

Suggested Answer: Answers will vary. The creation of Negara bank aims to offer an alternative to large conventional banking system for Muslims. The bank will bring religiously compliant lenders to carry out larger "sukuk" transactions. Sukuk is a type of financial bond that is compliant with Islamic religious law, the sales of which are on the rise in Islamic countries such as Malaysia.

3. What are the implications for Western multinationals?

Suggested Answer: Answers will vary. The creation of Negara bank will open up new avenues for multinationals to invest in Islamic bonds while complying with religious laws. For multinational banks, this would mean that they would have to either create venues for Islamic finance compliance or risk losing their business to banks such as Negara.

Chapter 03: India's Red Tape 1. This case discusses the investment environment facing Koreans investing in India. Despite the promise of the Indian market, there are significant challenges to any investment in the country.

Why are the Korean investors so reluctant to invest in India?

Suggested Answer: Answers will vary. According to a study conducted by The Associated Chambers of Commerce of India (ASSOCHAM), excessive bureaucracy, the lack of infrastructure, complex tax laws, protectionism, high licensing costs, lax judicial system, and land acquisition problems are the major issues that force investors from Korea to invest in other Asian countries over India.

2. How are the barriers discussed affecting international trade? How important is it for governments to reduce or remove such barriers?

Suggested Answer: Answers will vary. According to an ASSOCHAM report, although the bilateral trade between India and Korea increased by nearly 20 percent during 2012, it is relatively low compared to the size and structure of the two economies. Governments should focus on removing barriers to tap into the potential trade opportunities between countries.

3. What regulatory steps can the Indian government take to make the environment more hospitable to investors?

Suggested Answer: The Indian government should speed up the administrative processes for large scale investment projects and fuel the development of dedicated world-class industrial parks to attract investors. In addition to this, they should focus on tax reforms, logistics, and power and water supply and ensure that they meet world standards. Emphasis should be placed on manufacturing, energy, defense, and tertiary services as these are what investors around the world are looking for when investing in developing nations such as India.

Chapter 03: Employee Remuneration 1. This case discusses Chinese rules and regulations with regards to remuneration of employees who create patents. Challenges for multinationals are discussed.

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Why are multinationals increasingly going to China to tap into Chinese employees for R&D? What are challenges inherent in such moves?

Suggested Answer: Answers will vary. One of the challenges associated with multinationals increasingly going to China to tap into Chinese employees for R&D is that multinationals need to be aware of remuneration laws and patent laws in China. Another challenge is that this move can prove costly for companies, especially high-tech companies.

2. What are some critical elements of Chinese remuneration of employee inventors?

Suggested Answer: Answers will vary. China's patent law states that employers should compensate their employees for their inventions. Such compensation should be made through an agreement that is considered reasonable by all parties involved and should pay out the minimum regulatory amount of compensation. If the invention is commercially used by the employer, a minimum of 2 percent of annual profits resulting from that usage should be used to pay the employee.

3. What can multinationals do to ensure that they do not break such remuneration rules?

Suggested Answer: Answers will vary. Multinationals should be aware of all the regulations that are involved in remunerations. They can draft agreements and policies that reward employees who innovate. Employers should consider having an internal system that rewards and recognizes inventions and innovations. They can also consider having a system that allows an independent, impartial party decide a reasonable level of compensation and oversees compliance with guidelines.

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CHAPTER 4 MANAGING ETHICAL AND SOCIAL RESPONSIBILITY CHALLENGES IN MULTINATIONAL COMPANIES Learning Objectives        

Know the definitions of international business ethics and social responsibility Understand some basic principles of ethical philosophy relevant to business ethics Understand how social institutions and national culture affect ethical decision making and management Understand the implications of using ethical relativism and ethical universalism in ethics management Identify the basic principles and consequences of the U.S. Foreign Corrupt Practices Act Understand how international agreements affect international business ethics Understand the differences among economic, legal, and ethical analyses of business problems Develop skills in international decision making with ethical consequences

Introduction  

Managers at all levels face ethical issues every day The power that multinational firms have, and the competition for foreign investment, both limit the ability (or willingness) of developing countries’ governments to regulate them

Exhibit 4.1 Selected Companies from the Ethisphere Institute’s List of the World’s Most Ethical Companies (Shows the most recent listing of the world’s most ethical companies according to the Ethisphere Institute)

What Are International Business Ethics and Social Responsibility?     

    

Ethics deal with the “oughts” of life – the rules and values that determine the goals and actions people “ought” to follow when dealing with other human beings Most business decisions have also have consequences for people Ethical questions seldom have clear or unambiguous answers that all people accept International business ethics – unique ethical problems faced by managers conducting business operations across national boundaries International business ethics differs from domestic business ethics on two accounts  International business is more complex because business is conducted cross-nationally  Large multinationals often have power and assets equal to those of some foreign governments Corporate social responsibility – idea that businesses have a responsibility to society beyond making profits In practice, ethics and social responsibility are not easily distinguished The ethical and social responsibility issues faced by multinational companies are complex and varied Primary stakeholders – people directly linked to a company’s survival, including customers, suppliers, employees, and shareholders Secondary stakeholders – people less directly linked to the company’s survival, including the media, trade associations, and special-interest groups  As important as primary stakeholders in terms of their effect

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MNC managers must weigh and balance the economic, legal, and ethical consequences of their decisions

Ethical Philosophy 

Two ways to approach ethical decision making  Traditional ethical philosophy  Contemporary philosophical view of how we can think about ethics

Traditional Views 

Two basic systems of ethical reasoning that dominate ethical philosophy  Teleological ethical theory – one that suggests that the morality of an act or practice comes from its consequences o Utilitarianism – argument that what is good and moral comes from acts that produce the greatest good for the greatest number of people  Deontological ethical theory – focuses on actions that, by themselves, have a good or bad morality regardless of their outcomes o Some argue that morality is intuitive and self-evident; others rely on an essential moral principle or value, such as the Golden Rule

Exhibit 4.2 Areas of Ethical and Social Responsibility Concerns for the Multinational Company (Identifies some of the stakeholders in the multinational company and shows typical problems that MNCs face and that affect their stakeholders)  

Multinational companies need to be adept at both identifying and prioritizing stakeholders to determine the correct response to their needs Three stakeholder attributes should be addressed  Stakeholder power refers to the degree to which a stakeholder can exert influence on a company and force it to implement changes  Stakeholder urgency refers to the degree to which a company needs to respond to the needs of a stakeholder in order to keep those stakeholders satisfied  Stakeholder legitimacy refers to the degree to which actions of a stakeholder are viewed as acceptable.

Exhibit 4.3 Stakeholder Attribute Combination and Potential Multinational Response (Shows the possible combination of stakeholder attributes and potential responses)

Moral Languages  

Moral languages – descriptions of the basic ways that people use to think about ethical decisions and to explain their ethical choices Six basic ethical languages identified by Thomas Donaldson, an international business expert  Virtue and vice: Identifies a person’s good or virtuous properties and contrasts them with vices  Self-control: Emphasizes achieving perfection controlling thoughts and actions, such as passion  Maximizing human welfare: The basic language of the utilitarian view, emphasizing the greatest good for the greatest number of people  Avoiding harm: Also sees good or bad in the consequences of behavior or action, but focuses on avoiding unpleasant outcomes or consequences as opposed to maximizing benefits

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Rights and duties: Focuses on principles that guide ethical behaviors (this language fits well into a legal context)  Social contract: Structures ethics as a form of agreement among people Ethical philosophies provide a language or a structure for thinking about ethical decisions and dilemmas

National Differences in Business Ethics and Social Responsibility 

National culture and social institutions affect how businesses manage ethical behavior and social responsibility

Exhibit 4.4 A Model of Institutional and Cultural Effects on Business Ethics Issues and Management (A simple model of the relationships among national culture, social institutions, and business ethics) 

Despite differences in ethical views, some actions are universally condemned from an ethical standpoint (i.e. lying, harming/killing innocent children, etc.)

Exhibit 4.5 Some Examples of Cultural Variations Regarding Acceptance of Ethically Suspect Behaviors (Shows there are significant differences in how actions with moral consequences are viewed) 



Cullen, Parboteeah, and Hoegl suggest possible applications to multinational ethics, as follows:  National culture and social institutions are likely to encourage people to break norms and thereby justify ethically suspect behaviors  Societies with national cultural values of high achievement, high individualism, high universalism, and high pecuniary materialism are likely to have a greater number of people engaging in deviant acts of crime  Social institutions, the type of economic system, family, and education should be related to the breaking of norms Seleim and Bontis examined how cultural dimensions of the GLOBE studies affect corruption  Countries that rate high on future orientation have relatively low levels of corruption  Societies high on institutional collectivism practices tend to have low levels of corruption  Societies high on in-group collectivism has relatively high levels of corruption

Questionable Payments and Bribery  



In many societies, people routinely offer, or are expected to pay, bribes or gifts to expedite government actions or to gain advantage in business deals.

Negative consequences of corruption and bribery  Many developing countries suffer due to increased prices from companies making up the cost of the bribe  Other companies use poorer quality products or materials, and put out inferior products  Collusion among firms drives prices higher  Corruption discourages entrepreneurship because bribery becomes a form of taxation Corruption Perception Index (CPI) is a rating of the perceived levels of corruption in a country

Exhibit 4.6 CPIs for Selected Countries (Shows the CPIs for selected countries where high CPIs indicate the least corruption) 

Most countries have formal laws forbidding corrupt practices, but enforcement differs greatly

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In 1977, in response to several investigations by U.S. government agencies, President Jimmy Carter signed the Foreign Corrupt Practices Act – commonly known as the FCPA

Exhibit 4.7 Excerpts from the Foreign Corrupt Practices Act (Shows excerpts taken directly from the FCPA)  

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  

Foreign Corrupt Practices Act (FCPA) – forbids U.S. companies to make or offer illegal payments or gifts to officials of foreign governments for the sake of getting or retaining business FCPA permits some forms of payments that may occur in international business  Payments made under duress to avoid injury or violence  Small payments that merely encourage officials to do their legitimate and routine jobs  Payments that are lawful in a country A tricky component of the FCPA for U.S. companies focuses on the “reason to know” provision of the law  The reason to know provision means that a firm is liable for bribes or questionable payments made by agents hired by the firm – even if members of the firm did not actually make the payments or see them being made  If it is common knowledge that these agents use part of their fees to bribe local officials to commit illegal acts then the U.S. firm is breaking U.S. law If, the U.S. firm has no knowledge of the behavior of the agent nor any reason to expect illegal behavior from the agent then the U.S. firm has no liability under the FCPA Although recently there have been a larger number of investigations and fines, the FCPA is still seen as ineffective at deterring bribery and corruption26.

The FCPA contains many loopholes and, with its lax regulation, enforcement and a low probability of getting caught, it is seen by many companies mostly as a cost of doing business.

Exhibit 4.8 Number of Convictions under FCPA (Source: Based on Weissman, J. 2012. “The corruption law that scares the bejesus out of corporate America.” Atlantic, April 25, online edition, http://www.theatlantic.com/business/archive/2012/04/the-corruption-law-that-scares-the-bejesusout-of-corporate-america/256314 /.)

Toward Transnational Ethics 

Contact among people with different ethical and cultural systems is creating pressure for ethical convergence and development of transnational agreements to govern business practices

Pressures for Ethical Convergence  

Ethical convergence – the growing pressures for multinational companies to follow the same rules in managing ethical behavior and social responsibility Four basic reasons for ethical convergence 1. The growth of international trade and trading blocs, such as NAFTA and the EC, create pressures to have common ethical practices that transcend national cultures and institutional differences 2. Interaction between trading partners creates pressures for imitating the business practices of other countries 3. Companies that do business though out the world have employees from varied cultural backgrounds who need common standards and rules regarding how to behave 4. An increasing number of business watchdogs such as ethical investment company and nongovernmental organizations also are encouraging multinational to become more ethical

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Prescriptive Ethics for the Multinational 

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Multinational companies should be guided by the three moral languages of avoiding harm, right/duties, and the social contract (Donaldson)  Prescriptive ethics for multinationals – suggested guidelines for the ethical behavior of multinational companies o Multinationals should engage in business practices that avoid negative consequences to their stakeholders o While multinationals retain basic rights (i.e. seeking a fair profit), these rights also imply duties (i.e. providing a fair wage to local employees) o The multinational also has a social contract between itself and its stakeholders These three moral languages are the easiest of ethical systems to specify in written codes such as contracts and international laws For these moral languages to work, there must be codes of conduct to guide the multinationals that are independent of national boundaries These codes must include prescriptive and proscriptive rules to guide multinational behavior  Prescriptive rules tell multinational managers and companies what they should do  Proscriptive rules tell multinational managers and companies what they may not do  Some scholars argue that such ethical guides currently exist based on various international agreements and on the codes of international governing bodies, such as the United Nations and the International Labor Office

Exhibit 4.9 A Code of Conduct for the Multinational Company (Shows a code of conduct that will guide managers to safe ethical and legal ground in nearly all situations) 

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Exhibit 4.9 summarizes ethical stipulations for the multinational company derived from:  The United Nations Universal Declaration of Human Rights  The United Nations Code of Conduct on Transnational Corporations  The European Convention on Human Rights  The International Chamber of Commerce Guidelines for International Investment  The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises  The Helsinki Final Act  The International Labor Office Tripartite Declarations of Principles Concerning Multinational enterprises and Social Policy Two basic supporting rationales for the code of conduct for the multinational shown in Exhibit 4.9:  Basic deontological principles dealing with human rights  The history of experiences in international business interactions

The Ethical Dilemma in Multinational Management: How Will You Decide? 

This section looks at what ethical system one should use and includes an ethical decision model for the multinational manager

Ethical Relativism versus Ethical Universalism   

Ethical relativism – theory that each society’s view of ethics must be considered legitimate and ethical Ethical universalism – theory that basic moral principles that transcend cultural and national boundaries The difficulty for using moral universalism as a guide for multinational business practices is that there is little agreement on which moral principles exist in all cultures

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 

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Even when the same principles are used, there is not guarantee that all societies use the principles in the same way Practical problems for following either ethical relativism or moral universalism  Convenient relativism – what occurs when companies use the logic of ethical relativism to behave any way they please, using the excuse of differences in cultures  Extreme moral universalism also has its pitfalls  The assumption that one can identify universal ethics that all people should follow can lead to ethnocentrism and what Donaldson calls cultural imperialism Hamilton, Knouse, and Hill (2009) provide guidelines for multinationals deciding whether to follow local or universal norms o

First, identify the questionable practice in any decision

o

Second, understand whether the questionable practice violates any laws

o

Third, decide whether the questionable practice is simply a cultural difference or whether it could be an ethics problem

o

Fourth, assess whether the ethics problem or cultural difference violates any industry or other international code

o

Fifth, assess whether a company has leverage (something of value to give) in the host country so that it can follow its own practices

By assessing these steps, a company can determine whether it can follow local norms or do business its own way

Individual Ethical Decision Making for the Multinational Manager   

Although companies develop policies, procedures, organizational cultures, and business practices that have ethical consequences, individual managers ultimately must make decisions Economic analysis – of an ethical problem, focuses on what is the best decision for a company’s profits After considering the business impact, multinational managers must consider the legal and ethical consequences of their actions

Exhibit 4.10 Decision Points for Ethical Decision Making in Multinational Management (Shows a decision flowchart illustrating the issues that multinational managers must consider beyond profits when confronted with ethical decisions)     



Legal analysis – of an ethical problem, focuses only on meeting legal requirements of host and parent countries  Should the law not forbid something, it is ethical In a combination of pure economic and legal analyses, managers should seek to maximize profits within the confines of the letter of the law The legal analysis includes not only a test of whether behaviors or their consequences meet legal standards in the home and host country but, also a comparison against international standards (reference Exhibit 4.7) 2002 Sarbanes-Oxley Act requires multinational companies to hold their executives and senior management accountable for ethical conduct, and addresses the auditor-client relationship Ethical analysis – one that goes beyond focusing on profit goals and legal guidelines  Three components to ethical analysis: one’s organization, the national culture in which the business operates, and personal ethical beliefs  Considers written codes of ethics and the unwritten norms of the company culture Multinational managers are guests in other nations

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The manager must ask his or her self whether what they are doing is consistent and respectful of local cultural norms A manager may begin these analyses at different points (i.e. personal moral beliefs, legal), but ultimately must make a personal moral judgment Managers are ultimately responsible; most courts of law around the world will not accept the defense, “The organization made me do it.”

For the multinational manager, the purely ethical issue in a decision must be weighed against the economic and legal analyses There is no single accepted ethical theory or system that managers can use for a guide, but managers should make use of generally accepted ethical theories (reference Exhibit 4.8) General Electric maintains high ethics and integrity in a large number of countries and across a wide range of industries by observing the following principles: 

Committed leadership and leading by example: All executives are committed to ethics and show such commitment in all activities



Going beyond financial, legal and country rules: In order to maintain the same standards worldwide, GE will often adopt the most rigorous standards that are applied consistently worldwide



Staying ahead of regulators: GE also makes sure that it is constantly being proactive to stay ahead of regulators



Assigning responsibility to all employees: GE ensures that everyone is responsible for leadership in their own areas



Letting employees have a say in ethics: GE discovered that educating and training employees, especially in newly acquired companies or emerging markets, is extremely critical. GE also gives employees several channels to voice their concerns



Holding leaders accountable with ethics metrics: GE ensures that employees receive the necessary feedback regarding integrity and ethics

Summary and Conclusions  

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The multinational manager faces ethical challenges similar to the domestic manager, but magnified by the complexity of working in different counties and cultures This chapter covered the following items:  The relationship between ethics and social responsibility  How ethical philosophies underlay much of our ethical reasoning  Differences among financial, legal, and ethical analysis  Foreign Corrupt Practices Act (FCPA)  A decision model for making ethical decisions in a multinational setting The multinational manager must be able to assess how a country’s social institutions and culture will affect their ability to manage ethical behavior Multinational mangers can never ignore their home country laws Managing ethically in the international environment is a challenge that will continue to grow with increasing interactions among nations

Answers to In the News Questions From MindTap Chapter 04: Anti-corruption Laws 1. This case documents some of the challenges facing multinationals as they encounter AsiaPacific countries implementing and enforcing stronger anti-corruption laws. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Based on the chapter, what are some of the factors encouraging Asia Pacific countries to adopt stricter anti-corruption laws?

Suggested Answer: Answers will vary. Corruption can have a lot of negative repercussions for a country's economy. As such, many developing countries suffer because they are charged higher prices. Companies routinely use low quality products or materials to make up for the bribe.

Furthermore, corruption can also result in collusion among firms, resulting in even higher prices.

As a result, corruption and bribery usually result in higher public spending, lower-quality projects, undermined competition, and the inefficient allocation of resources. A recent review of hundreds of studies by shows that more-ethical companies enjoy positive effects in many aspects of performance, such as better financial performance, increased market, and stock market returns.

Factors and consequences such as these are encouraging Asia Pacific countries to adopt stricter anti-corruption laws.

2. What are some of the specific aspects of the new laws being implemented across the Asia Pacific region?

Suggested Answer: Answers will vary. The new laws being implemented across Asia Pacific are focused on policing money laundering, corruption, and funding of terrorist activities as its focus.

They have also promised to focus on all sectors, as well as corporate service providers and cryptocurrency vendors.

3. What can a multinational do to better prepare to face these new regulations?

Suggested Answer: Answers will vary. Corporates who wish to conduct business in emerging markets need to have a thorough understanding of the destination country's laws. Since each country and its jurisdiction differs with regard to its perceptions of ethics and corruption, multinationals might need to employ local experts to help them navigate the ethical and legal areas.

Chapter 04: Mitigating Anti-Corruption Risks in Emerging Markets 1. This case discusses some of the major ethical challenges facing multinationals as they do business in emerging markets. The case also emphasizes the recent fines levied on Alstom, a French multinational and the factors that were considered when determining the severity of the punishment.

Why is it more difficult to enforce ethical guidelines in emerging markets? What do multinationals need to pay attention to?

Suggested Answer: Answers will vary. In emerging markets, it is difficult to enforce ethical guidelines owing to the difference in anti-corruption laws and cultural understandings about unethical business practices like bribery. As such, the responsibility to do business ethically lies on the multinationals that comply with their own rules, set under the guidelines of the law to prevent such practices.

2. What are some of the factors that the Department of Justice takes into consideration when determining fines for violation of the Foreign Corrupt Practices Act? Suggested Answer: Answers will vary. In trying to ascertain if a multinational company has violated the Foreign Corrupt Practices Act, the Department of Justice (DoJ) takes into consideration if the company has an effective compliance program with regards to ethical business activities. It considers the timely manner of disclosing violations and further cooperating with the authorities when the violation is being investigated. This helps it determine the amount of fine that the companies will incur. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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3. What are some essential requirements of any effective compliance program?

Suggested Answer: Answers will vary. An effective compliance program should have a clear anticorruption policy alongside a company’s code of conduct and ethics. The program should be enforced by an autonomous manager who has resources to enforce the program. In order to ensure that the program is effective, the company should ensure compliance to ethics through training, incentives, and disciplinary measures.

Chapter 04: Walking Away Quietly 1. This case discusses the woes faced recently by Wal-Mart because of the corruption scandals in Mexico. Many top executives had to resign and Wal-Mart is facing several lawsuits.

What are some of the unethical offenses that Wal-Mart executives committed?

Suggested Answer: Answers will vary. In 2012, a news report in The Times claimed that Walmart indulged in consistent bribing of Mexican public officials. The purpose was to obtain building permits to hasten its plans of expansion in Mexico. There was a concern that Walmart's global management had bribed foreign officials to this effect, which is in violation of the US Foreign Corrupt Practices Act. 2. Why did such unethical actions occur? Was it because of the country culture or because of company culture?

Suggested Answer: Answers will vary. As with most multinational business practices, national culture and social institutions play a role, they affect how businesses manage ethical behavior and social responsibility. National culture, by means of cultural norms and values, influences important business practices such as how women and minorities are treated on the job, attitudes toward gift giving and bribery, and expectations regarding conformity to written laws. As the case discusses, many of the high-level executives resigned from their positions after the scandal was exposed.

Wal-Mart denied that any of those executives leaving were tied to the scandal, citing its spending on compliance and ethics within the company.

3. What are some of the new compliance measures that Wal-Mart has implemented? Do you think they will be effective?

Suggested Answer: Answers will vary. Walmart has put in place a new system to prevent corruption and ensure compliance to rules. The global program has been extensively restructured and the compliance personnel have gone up by more than 30 percent, taking the number up to 2,000 people.

With Walmart's new system, any violation of the Foreign Corrupt Practices Act is required to be brought to the attention of the corporate headquarters and the board's audit committee. This move is supposed to make it next to impossible for senior executives to get away with corrupt activities.

I think Walmart's new system will definitely curb bribery to a large extent.

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CHAPTER 5 STRATEGIC MANAGEMENT IN THE MULTINATIONAL COMPANY: CONTENT AND FORMULATION Learning Objectives        

Define the generic strategies of differentiation and low cost Understand how low-cost and differentiation strategies make money Recall multinational examples of the use of the generic strategies Understand competitive advantage and the value chain and how they apply to multinational operations Understand how multinational firms use offensive and defensive strategies Understand the basics of multinational diversification Understand how to apply the traditional strategy formulation techniques, industry, and competitive analysis to the multinational company Realize that the national context affects both the convergence and divergence in the strategies used by multinational companies

Basic Strategic Content Applied to the Multinational Company  

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Strategy – the central, comprehensive, integrated, and externally oriented set of choices of how a company will achieve its objectives A strategy needs to address important areas:  Which business a company wants to be in  What the company will use to create presence in a market  How the company will win customers  For MNCs, a major question is which country to enter at what time or what products to produce Multi companies use many of the same strategies practiced by domestic companies

Competitive Advantage and Multinational Applications of Generic Strategies   

Generic strategies – ways that both domestic and multinational companies keep and achieve competitive advantage Competitive advantage – when a company can outmatch its rivals in attracting and maintaining its targeted customers Two primary generic strategies  Differentiation strategy – strategy based on finding ways to provide superior value to customers o Exceptional product quality, unique product features, or high quality service  Low cost strategy – producing products or services equal to those of competitors at a lower cost o Lower cost by increasing efficiency – quality level acceptable to customers is not sacrificed

How Do Low-Cost and Differentiation Firms Make Money?  

Differentiation: people will often pay a higher price for the extra value of a superior product or service Low cost: products or services similar to competitors in price and value yield additional profits from cost savings

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Exhibit 5.1 Costs, Prices, and Profits for Differentiation and Low-Cost Strategies (Shows how the relationships among costs, prices, and profits work for the differentiator and the low-cost strategists, compared to the average competitor) 

Focus strategy – applying a differentiation or low-cost strategy to a narrow market  Competitive scope – how broadly a firm targets its products or service o Companies with narrow competitive scope may focus on limited products, certain types of buyers, or specific geographical areas o Companies with broad competitive scope may have many products targeted at a wide range of buyers

Exhibit 5.2 Porter’s Generic Strategies (Shows the four subdivisions of Porter’s generic strategies, including the basic differentiations and cost-leadership strategies with their broad-market or narrow-market options)

Competitive Advantage and the Value Chain  

A firm can gain competitive advantage by finding sources of lower cost or differentiation in any of its activities Value chain – all the activities that a firm uses to design, produce, market, deliver, and support its product

Exhibit 5.3 Value Chain (Shows a picture of a value chain) 

 

  

Value chain – Primary and Support activities  Primary activities involve the physical actions of creating (or serving), selling, and providing after-sale service of products o Upstream refers to early activities in the value chain, such as R&D and dealing with suppliers o Downstream refers to later value chain activities, such as sales and dealing with distribution channels  Support activities include systems for human resources management, organizational design and control, and a firm's basic technology Value chain enables companies to determine its internal cost structure to for benchmarking efficiency against industry or other competitors Outsourcing – the deliberate decision to have outsiders or strategic allies perform certain activities in the value chain  About half of U.S. manufacturing jobs will be outsourced to more than 28 emerging countries over the next 10 years  In general, outsourcing makes sense if an outsider can perform a value-chain task better or more cheaply  Tasks that are crucial to the company’s ability to achieve competitive advantage should not be outsourced Offshoring – outsourcing to a foreign country China and India provide many multinational companies with platforms for low-cost manufacturing and IT outsourcing, respectively A.T. Kearney, a consulting and research firm, ranks countries for outsourcing potential using dozens of key statistics representing three broad areas 

Financial attractiveness

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People skills and availability

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Business environment

Distinctive Competencies  

Distinctive competencies – strengths that allow companies to outperform rivals Distinctive competencies come from two major sources  Resources – inputs into the production or service processes (tangible or intangible)  Capabilities – the ability to assemble and coordinate resources effectively (ways that lead to lower costs or differentiated output)

Sustaining Competitive Advantage  

Sustainable - characteristic of strategies that are not easily defeated by competitors Capabilities that lead to competitive advantage must have four characteristics  Valuable capabilities create demand for a company’s services or products or give companies cost advantages  Rare capabilities are those that a company possess but no or few competitors possess  Difficult-to-imitate capabilities are not easily copied by competitors  Nonsubstitutable capabilities have no strategic equivalent for competitors

Exhibit 5.4 How Distinctive Competencies Lead to Successful Strategies (Summarizes the relationships among resources, capabilities, distinctive competencies, and eventual profitability)

Offensive and Defensive Competitive Strategies in International Markets 

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Competitive strategies – moves multinational firms use to defeat competitors  In offensive strategies, companies directly target rivals from whom they wish to capture market share  In defensive strategies, companies seek to beat back or discourage their rival’s offensive strategies Offensive competitive strategies – direct attacks, end-run offenses, pre-emptive strategies, and acquisitions  Direct attacks: price cutting, adding new features, comparison advertisements that show lesser quality in competitor’s products, or going after severely neglected or poorly served market segments  End-run offensives: avoid direct competition and seek unoccupied markets  Preemptive competitive strategies: being the first to gain some advantageous position  Acquisitions: firm buys its competitors Defensive competitive strategies – attempts to reduce the risks of being attacked, to convince an attacking firm to seek other targets, or to blunt the impact of any attack  Counterparry – fending of a competitor's attack in one country by attacking them in another country, usually the competitor's home country

Multinational Diversification Strategy   

Business-level strategies – those for a single business operation Corporate-level strategies – how companies choose their mixtures of different businesses (or diversification) Two types of diversification  Related diversification – a mix of businesses with similar products and markets o Three reasons to chose related diversification: sharing activities, transferring core competencies, and developing market power  Unrelated diversification – a mix of businesses in any industry o Main concern is only whether an acquisition is a good financial investment

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Like domestic companies, multinationals also pursue diversification strategies  A quick way to gain a presence  Allows coordination and use of resources from different businesses located anywhere  Can more easily to establish global brand names for different but related products  Allows crosssubsidization, both across countries and across companies Diversification is good up to a certain point – its benefits need to be weighed against the added costs

Exhibit 5.5 Examples of Diversified Multinationals (Shows a selection of Global Fortune 500 diversified multinational companies with major lines of businesses)

Strategy Content: Brief Conclusions  

First section of chapter provided an overview of basic strategies – generic, competitive, and diversified Next section review traditional strategy formulation

Strategy Formulation: Traditional Approaches  

Strategy formulation – process by which managers select the strategies to be used by their company Popular analyses for successful strategy formulation help managers understand the following:  The competitive dynamics of the industry  Their company's competitive position in the industry  The opportunities and threats faced by their company  Their organization’s strengths and weaknesses

Industry and Competitive Analyses  

   

Industries are the main competitive arenas of a company's business activities  Managers must understand the forces affecting the industry, its economic characteristics, and the driving forces of change and competition within it Porter’s five forces model – a popular technique that can help a multinational firm understand the major forces at work in the industry and the industry’s degree of attractiveness  First force – the degree of competition in the industry  Second force – the threat of new entrants – based on the barriers to entry  Third force – the bargaining power of buyers – the degree to which buyers can influence competitors within the industry  Fourth force – the bargaining power of suppliers – the degree to which suppliers exert influence on the industry  Fifth force – the threat of substitutes – the extent to which competitors are confronted with alternatives for their products Economic characteristics that influence strategy selection: market size, ease of entry and exit, and whether there are economies of scale in production Driving forces of change should be monitored – includes the speed of new product innovations, technological changes, and changing society attitudes and lifestyles Extent of competition also affects the industry Key success factors (KSFs) – important characteristics of a company or its product that lead to success in an industry  Examples: innovative technology or products, broad product line, effective distribution channels, price advantages, effective promotion, superior physical facilities or skilled labor, experience of firm in business, cost position for raw materials, cost position for production, R&D quality, financial assets, product quality, and quality of human resources

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Competitor analysis – profile of a competitor’s strategies and objectives  Four steps to the analysis 1. Identify the strategic intents of competitors 2. Identify current and anticipated generic strategies used by competitors 3. Identify current and anticipated offensive and defensive competitive strategies used by rivals 4. Assess the current positions of competitors

Exhibit 5.6 Hypothetical Country-by-Country Competitive Analysis of Rivals (Shows hypothetical competitive profiles of four companies in different countries)

Company-Situation Analysis  

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The most common tool for a company situation analysis is called the SWOT SWOT – analysis of an organization’s internal strengths and weaknesses and the opportunities or threats from the environment  Strength: a distinctive capability, resource, skill, or other advantage of an organization relative to its competitors  Weakness: any competitive disadvantage of a company relative to its competitors  Opportunities: favorable conditions in a firm's environment  Threats: unfavorable conditions in the environment The SWOT analysis for the multinational company is more complex than for the domestic company  More complex general and operating environments because they operate in two or more countries  Each country provides its own national context, representing different opportunities and threat  Import and export barriers  Volatile exchange rates  Local inflation affects international markets  Governmental policies affecting repatriation of earnings A country-by-country SWOT is probably the most prudent approach

Corporate Strategy Selection  

The major strategic question is which businesses in the portfolio are targets for growth and investment and which are targets for divestment or harvesting Matrix analysis is one way of assessing a corporate business portfolio  The BCG growth-share matrix – one popular choice that is used to decide how much of its resources a corporation should devote to any unit o Divides businesses into four categories based on the industry growth rate and the relative market share of the business in question 1. Stars – the most attractive businesses – located in fast growing industries where a company has a relatively large market share 2. Dogs – businesses with relatively low market shares in low-growth industries 3. Cows – businesses in slow-growth industries where the company has a strong market share 4. Problem children – business in high-growth industries where the company has a poor market share

Exhibit 5.7 BCG Growth-Share Matrix for a Diversified Multinational Company (Shows that for each type of business, the growth-share matrix has a suggested strategy) 

GE portfolio matrix – another popular choice

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 

Contains nine cells based on high, medium, and low levels of industry attractiveness and on strong, average and weak levels of a business’s competitive position in the industry  Used to determine the competitive position of a business in its industry For the diversified multinational company, the portfolio assessment becomes more complex  Portfolio analyses must be conducted for each business in each country or region of operation

The National Context and Organizational Strategy: Overview and Observations 

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The national context affects organizational design and strategy formulation and content through the following processes  The social institutions and national and business cultures encourage or discourage certain forms of businesses and strategies in each nation  Each nation must rely on its available factor conditions for developing industries and the firms within industries  Social institutions and culture determine which resources are used, how they are used, and which resources are developed Multinational managers can generalize and apply these ideas in order to understand the actions of rivals or alliance partners in any country where their firms do business

Summary and Conclusions      

Few students will work in industries untouched by global competition Even the managers of domestic firms need a good understanding of multinational business strategy Competitive strategies must be considered on a country-by-country basis Despite global trends of convergence in strategies, the institutional and cultural conditions favor different strategies by competitors from different nations Strategy is a combination of planned intent and adaptive reactions to changing circumstances (new opportunities and threats) Beyond the traditional strategic questions facing all managers, the multinational manager must confront other issues related to strategy, discussed in Chapter 6

Chapter 5 Harley-Davidson, Inc.: Troubled Times Increase H-D’s Reliance on International Sales Synopsis This case describes Harley Davidson and its experiences going international. The case describes the heavyweight motorcycle industry in the light of the luxury goods market. The case discusses the main markets of luxury goods and how Harley Davidson has fared in these various markets.

The case also describes Harley Davidson’s many competitors such as Ducati, BMW, Honda, Suzuki, Kawasaki and Yamaha. The case also discusses Harley Davidson as selling a product to a traditional customer base built on nostalgia/comfort and design to evoke an earlier image while the other main competitors focus on other competitive bases such as technological development, performance, style and performance.

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Learning Objectives This case is well suited for a good discussion of strategic management issues facing a luxury company like Harley-Davidson. Specifically, the following issues can be highlighted:  Is a differentiation strategy appropriate for Harley Davidson? Will this strategy work in all countries?  Is the strategic bases for Harley Davidson (nostalgia, comfort) adequate to ensure sustainable competitive advantage? Should they be concerned about other companies’ efforts to manufacture heavyweight motorcycles based on performance, design, and technology?  The case also provides enough information for a good discussion of Porter’s five forces model. Specifically, the case also provides some understanding of the application of five forces model across countries and cultures.  The case also illustrates a comprehensive comparison of the competition as relevant to global and local markets.

Case Discussion Questions 1.

Which of Porter’s generic strategies is Harley Davidson using? Will this strategy work for all of the countries described in the case? Why or why not?

2.

What does a Porter’s five forces analysis reveal about the strategies Harley Davidson has employed in recent years?

3.

How does Harley Davidson compare to its competitors?

Analysis 1.

Which of Porter’s generic strategies is Harley Davidson using? Will this strategy work for all of the countries described in the case? Why or why not?

For this section, it is necessary to first discuss the various generic strategies available. The two generic strategies are low cost and differentiation. More specifically, companies can try to reduce costs as much as possible (low cost strategy) and target either the broad market (cost leadership general) or specific narrower segment in the market (cost leadership – focused). Alternatively, companies can produce and sell products at a premium price by incorporating additional desirable traits (differentiation strategy), and target either the broad (general) market or narrow (niche) market.

By examining Harley Davidson’s strategic approaches, it is clear that they are manufacturing a product that incorporates unique characteristics (nostalgia, comfort, American image, etc.) and selling their motorcycles at a premium price. It is therefore easy to conclude that they are pursuing a differentiation strategy.

The next key issue is whether they are targeting the broad market or a narrow segment of the market. It should be clear from the case that they are targeting certain types of buyers and offering a somewhat limited range of products. Thus, H-D is pursuing a focused or niche market strategy.

Harley Davidson is therefore a focused differentiator.

It seems likely that this strategy will work in all countries because it is customized enough to accommodate local preferences. Harley Davidson is very keen on preserving their image and reputation for highly exclusive motorcycles. By targeting a narrower segment and maintaining exclusivity, they are more likely to maintain their image and reputation. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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What does a Porter’s five forces analysis reveal about the strategies Harley Davidson has employed in recent years?

At this point, it is useful to discuss Porter’s five forces model and what each force represents. You can break the class in groups and ask each group to focus on each of the geographic areas mentioned in the text (i.e., U.S., Europe, Japan, China, India and Russia). The ensuing discussion will hopefully reveal that the forces are different from one region to the other.

U.S.   

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Degree of competition among existing rivals – moderate. There is some significant competition although Harley Davidson clearly enjoys the dominant position with a 55% market share in 2008.

Threat of new entrants – weak. The heavyweight motorcycle industry already has a number of significant competitors. Harley Davidson’s brand name represents a strong barrier to entry that will be difficult to match.

Bargaining power of buyers – weak to moderate. Heavyweight motorcycle buyers clearly prefer Harley Davidson in the U.S. because of its iconic status. H-D enjoys a strong loyalty from its customer base, and H-D manages its supply carefully so that their bikes are “not too easy to come by” Bargaining power of suppliers – weak to moderate. Because Harley Davidson fully involves their suppliers in the design and manufacture of their products, suppliers can obviously have more power on Harley Davidson. However, it is important to note that Harley Davidson strives for mutually beneficial, long-term relationships with suppliers, and requires that its suppliers be committed to annual cost reductions.

Threat of substitutes – weak. Most buyers in the U.S. buy Harley’s because of the perceived image of freedom and adventure that is afforded by a Harley, its iconic status that is essentially unmatchable by other substitutes.

Europe  Degree of competition among existing rivals – strong. -Harley Davidson faces a number of strong European companies (Ducati, BMW) that offer products with characteristics that Harley Davidson doesn’t offer  Bargaining power of buyers – strong. European buyers are not necessarily looking for nostalgia in their motorcycles. They are more willing to go for style and performance of European manufacturers and are less likely to buy into Harley’s iconic status in the U.S.  Other forces - similar to the U.S. Japan   

Degree of competition among existing rivals – strong. Harley has to contend with strong companies in the Asia-Pacific region Bargaining power of buyers - strong - Japanese buyers have more choice Other forces - similar to the U.S.

China and India  Degree of competition among existing rivals – moderate. These markets are new and attracting competitors. Import tariffs and emission standards provide significant barriers to H-D entering these markets, so other competitors are taking advantage.  Bargaining power of buyers – high. Price is the competitive issues in these markets.

Since motorcycles are often the preferred mode of transportation in these markets, a competitive price and quality product are the preference, as opposed to high-end iconic products like Harley Davidson.  Other forces - similar to the U.S. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Australia and New Zealand  Degree of competition among existing rivals – weak to moderate. These markets enjoy a similar following to that seen in the United States. H-D is seen as a symbol of freedom of the open road in these places, where their roads and landscapes are similar to that of the U.S.  Bargaining power of buyers – moderate. The growth segment in the Australian motorcycle market is off-road or dirt bikes with 40% of the market  Other forces – similar to the U.S. 3.

How does Harley Davidson compare to its competitors?

On the whole, Harley-Davidson produces a good quality bike; however, the technology of their bikes lags behind their competitors. This is, of course, largely intentional because they rely on other factors to sell their product.

All of Harley’s major competitors have their headquarters outside of the U.S., and most operate units of large diversified companies. H-D does have some newer domestic brands such as Big Dog and Polaris, who focus on the ultrahigh-end motorcycle market.

An overview of the competition is as follows: Ducati Motor Holdings  European market  Sells style and performance based on technologically-advanced designs  Dominates the Superbike Championships  Customer tends to be younger and somewhat less affluent than H-D’s BMW

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Strategy based on premium pricing, and setting the standard in technology, environment, and safety Production concentrated on 3 different series Focus on sophistication and class High resale value, but high purchase price limits market share

Honda

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World leader in motorcycle manufacturing Combination of excellent engineering and quality with highly automated manufacturing to achieve economies of scale for low-cost advantage Highly diversified company with many product lines

Kawasaki  World leader in the transportation equipment and industrial good industries with diverse product lines for each category  High performance and low maintenance products  Offering of multiple models of motorcycles to suit different purposes  Large international presence Suzuki

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Third larges manufacturer of motorcycles Significant international presence – over 190 countries © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Joint manufacturing efforts and direct sales subsidiaries Efficiency is the backbone of their low-cost position

Yamaha

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Tailors its products to local market conditions Diverse produce line – boats, generators, golf carts, ATVs, snowmobiles, etc.

Full line of motorcycles ranging from scooters to heavyweights Competitive advantage focuses on speedy and high performance racing bikes

Lessons    

Provides a key example of how competitors fare in the heavyweight motorcycle industry Good understanding of how to apply Porter’s five forces model in different regions/countries Understanding how to evaluate competitors Appropriate understanding of the luxury markets and growing demand from emerging markets

Answers to In the News Questions From MindTap Chapter 05: Taco Bell Expansion 1. Taco Bell is part of Yum! Brands, which includes chains such as KFC and Pizza Hut. The case reports an interview with Nick Dawson, the general manager for Taco Bell in the UK and Europe charged with introducing and expanding the Taco Bell chain in the region. Mr. Dawson discusses the franchise model of market entry and how Taco Bell develops its franchisees to succeed.

How would you assess Mr. Dawson's qualifications to hold his current position? Does he fit your image of an expatriate manager?

Suggested Answer: Answers will vary. Nick Dawson studied modern languages and has a master's degree in European business and management. He joined Yum! Brands in 1993 and worked there for more than 20 years. Mr. Dawson has work experience in various functions. Having spent six years with KFC in France, he has focused experience of the fast-food retail industry in UK and Europe . He is the general manager of Taco Bell in UK and Europe, spearheading its introduction and expansion in the region. His experience, enthusiasm, and commitment make Mr. Dawson an ideal example of an expatriate manager.

2. Taco Bell plans to open 1000 new restaurants around the world next year. How can they offer such a unique product in so many different markets?

Suggested Answer: Answers will vary. Taco Bell will focus on retail and leisure locations that have a high footfall. Franchisees will benefit from a well-grounded international brand with established consumer awareness. They will also receive full business support and training from Taco Bell. Once part of the franchise, franchisees will receive support in all areas of operations.

They will be given training on how to run the store, implement marketing strategies, ensure customer satisfaction and food safety, and gain access to an existing network of food and equipment suppliers.

3. Taco Bell left the UK after 10 years in 1990. What can they do different now to succeed?

Suggested Answer: Answers will vary. Taco Bell enjoyed its presence in the UK between 1980 and the early 1990s. In spite of having a faithful fan base, Taco Bell understood that it was a misfit © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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in the day and time. It learned its lessons from the experience and returned with a focused effort in 2010.

Taco Bell has revamped its image and service according to the energetic fast-service restaurant market and has improved its awareness of brands and Mexican cuisine. Taco Bell has special support teams for the whole of Europe, including the UK. With a strong and trustworthy supply chain, Taco Bell intends to popularize Mexican food that is customized for the people of UK. Chapter 05: Toyota 1. This case shows Toyota and its rival Volkswagen attempt to cut costs by using one underlying platform for numerous models in their automobile lines. At present Toyota lags behind Volkswagen in the number of models produced on similar platforms.

Toyota has many premium models such as the Lexis that are positioned with a differentiation strategy. Producing many models on fewer platforms is a low-cost strategy. Does Toyota face any potential problems in mixing these strategies?

Suggested Answer: Answers will vary. Toyota Motor Corporation plans to move half of its manufacturing capacity to newly made cost-efficient platforms by 2020. Toyota believes that this shift will reduce costs by 20%. The company places high importance on making fuel-efficient, light-weight vehicles equipped with the newest technology. By doing this, Toyota predicts that it can start new manufacturing lines at a lower cost and expand production. The company, however, may face certain challenges because of these cost cutting methods. The recall of units for repairs due to defective parts being used is always a possibility. Toyota is anticipating more profits than losses which may not happen since so many factors are involved.

2. If this manufacturing strategy is successful, are there any barriers to imitation by other manufactures?

Suggested Answer: Answers will vary. Toyota uses strategic capabilities that competitors have found difficult to copy or for which competitors have been unable to create substitutes. Toyota combines manufacturing and production engineering to bring new models to the market quickly and cheaply. Toyota designs cars with the objective of reducing production times by using fewer intricate parts and fewer machines to assemble cars. Toyota dealers use online computers to order models directly from the factory. A built-to-order car can be delivered in as few as five days using its virtual production system.

3. In spite of the predicted success of this strategy, the article by Zacks Equity Research recommends "sell" for Toyota stocks. Why do you think they make this recommendation?

Suggested Answer: Answers will vary. A report for Zach's Equity Research admitted that though Toyota was focusing on trying to cut costs while developing better cars and accessing emerging markets, they are not taking all factors into account. There have been previous instances of product recalls and subsequent fines being imposed on Toyota. Additionally, sales of cars globally are lower than previous years, and Toyota has estimated lower future revenue. These are few of the reasons why I think Zack's Equity Research recommends "sell" for Toyota stocks.

Chapter 05: WashBar 1. This case shows how a small New Zealand company identified an international opportunity to make a unique product for washing dogs and export their products to Australia, Taiwan, Korea, Singapore, and Sweden.

How does a small company like WashBar get its product to market in other countries? © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Suggested Answer: Answers will vary. WashBar's strategy for export involves cooperating with the distributors of each market. In order to manage the offshore markets and study market assessments, WashBar collaborated with Katabolt, an export consultancy firm, and then chose which markets to prioritize. WashBar also joined organizations such as ExportNZ and Buy NZ Made, which promoted their products and helped them find networks.

2. Why did they choose Australia as their first export market?

Suggested Answer: Answers will vary. WashBar chose Australia as their first export market because of the cultural similarities between New Zealand and Australia. Retailers in Australia and New Zealand spoke the same language and had the same sales drive. Moreover, the consumers in both countries were similar. The company markets predominantly to dog owners, and there was a large population of dog owners in Australia.

3. What kinds of organizations exist in your country that help small businesses enter the export market?

Suggested Answer: Answers will vary. In the United States, the United States Commercial Service (USCS), a branch of the International Trade Organization, helps small and medium businesses research, promote, and find distributors in foreign markets. It also plays an important role in educating business owners about export laws and regulations they need to follow.

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CHAPTER 6 MULTINATIONAL AND ENTRY-MODE STRATEGIES: CONTENT AND FORMULATION Learning Objectives      

Appreciate the complexities of the global-local dilemma facing the multinational company Understand the content of the multinational strategies: transnational, international, multidomestic, and regional Formulate a multinational strategy by applying the diagnostic questions that aid multinational companies in solving the global-local dilemma Understand the content of the entry-mode strategies: exporting, alliances/international joint ventures (IJVs), licensing, and foreign direct investment Formulate an entry-mode strategy based on the strengths and weaknesses of each approach and the needs of the multinational company Understand political risk and how multinational can manage such risks

Multinational Strategies: Dealing With the Global-Local Dilemma  

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Fundamental dilemma faced by all multinationals when competing internationally – the global-local dilemma Local-responsiveness solution – responding to differences in the markets in all the countries in which a company operates  Customize organization and products to accommodate country-related or regional differences  Satisfies local customer needs by tailoring produces or services Global integration solution – conducting business similarly throughout the world and locating company units wherever there is high quality and low cost  Reduce costs by using standardized products, promotional strategies, and distribution channels in every country  Seek sources of lower cost and higher quality anywhere in the value chain and anywhere in the world Global-local dilemma – choice between a local-responsiveness and global approach to a multinational’s strategies  This choice forms the basic strategic orientation of the company  This strategic orientation affects the design of organization and management systems as well as supporting functional strategies in areas such as production, marketing, and finance Firms must choose carefully how globally or locally to orient their strategies Four broad multinational strategies  Multidomestic  Transnational  International  Regional Multidomestic and the transnational strategies are bipolar reactions to one side of the globallocal dilemma International and regional strategies reflect compromise positions, attempt to balance conflicting drives

Multidomestic Strategy © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Multidomestic strategy – emphasizing local-responsiveness issues Gives top priority to local responsiveness issues A form of the differentiation strategy – company attracts customers by selling products and services tailored to different countries’ needs Usually costs more – hence higher prices must be charged to recoup cost Not limited to large multinationals – smaller firms that export may adapt to local preferences

Transnational Strategy  

Transnational strategy – An approach that seeks location advantages and economic efficiency through operating worldwide Location advantages – dispersing value chain activities anywhere in the world where the company can do them best or cheapest  Value chain activities (e.g., manufacturing, R&D, sales, etc.) anywhere in the world where the company can "do it best or cheapest" as the situation requires  Global platforms – country locations where a firm can best perform some, but not necessarily all, of its value chain activities o Induced or natural resources in a location provide competitive advantages in cost and quality  Absolute advantage – that arising from cost, quality, or resource advantages associated with a particular nation o Refers to advantages of nations over other nations, as opposed to competitive advantage, which is firms over other firms o Organizations use their nation’s comparative advantages to gain competitive advantages over rivals from other nations  The transnational views any country as a global platform where it can perform any valuechain activity  Location advantages provide the transnational company with cost or quality gains for different value-chain activities  To reduce cost even further, transnational firms strive for uniform marketing and promotional activities throughout the world – thereby gaining economies of scale

International Strategy  

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International strategies – selling global products and using similar marketing techniques worldwide A compromise approach  Global products, similar marketing techniques worldwide  Do not locate value-chain activities anywhere in the world  Upstream and support activities remain concentrated at home country headquarters The international strategist hopes that the concentration of its R&D and manufacturing strengths at home brings greater economies of scale and quality than the dispersed activities of the transnational When necessary for economic or political reasons, companies with international strategies frequently do set up sales and production units in major countries or operation Home-country headquarters retains control of local strategies, marketing, R&D, finances, and production

Regional Strategy  

Regional strategy – An approach that manages raw material sourcing, production, marketing, and support activities within a particular region A compromise strategy  Attempts to gain some economic advantages similar to transnational and international  Attempts to gain some of the local-adaptation advantages of the multilocal strategy

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Regional trading blocks (i.e. NAFTA, EU) provide relative uniformity of customer needs government requirements, and industry specifications Encourage regional strategies

A Brief Summary and Caveat   

Discussed strategies are general descriptions of multinational strategic options Seldom do companies adopt pure form of multinational strategy Companies with more than one business may adopt different multinational strategies for each business

Exhibit 6.1 Multinational Strategy Content (Summarizes the content of the four basic multinational strategies)

Resolving the Global-Local Dilemma: Formulating a Multinational Strategy   

Strategy selection depends on the degree of globalization of the industry in which the company competes Globalization drivers – conditions in an industry that favor transnational or international strategies over multidomestic or regional strategies Types of globalization drivers  Four categories: markets, costs, governments, and competition  The more positive the answer to the questions in each category (below), the more likely it is that the company should select a global transnational or international strategy

Exhibit 6.2 The Balancing Act of Multinational Strategy Formulation (A graphic that shows the balancing of Global Integration pressures and Local Responsiveness pressures)

Global Markets   

Are there common customer needs?

Are there global customers?

Can you transfer marketing?

Costs   

Are there global economies of scale?

Are there global sources of low-cost raw materials?

Are there cheaper sources of high skilled labor?

Governments  

Do the targeted countries have favorable trade policies?

Do the target countries have regulations that restrict operations?

Competition  

What strategies do your competitors use?

What is the volume of imports and exports in the industry?

Caution  

The increasingly popular strategy of going global by making uniform products for the worlds market can sometimes backfire – cultural and national differences still exist Regional strategy is often selected when there are:

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Downstream competitive advantages with strong globalization drivers Upstream competitive advantages with strong pressures for local adaptation

Exhibit 6.3 Multinational Strategies, Value Chain Locations of Competitive Advantages, and Pressures for Globalization of Local Responsiveness (Shows how various factors and the pressures for globalization and local responsiveness combine to suggest different multinational strategies)

Transnational or International: Which Way for the Global Company?  

Select a transnational over an international strategy when: benefits from world wide dispersed activities will offset the coordination costs of a more complex organization Select an international strategy over a transnational when: centralizing key activities such as R&D reduces coordination costs and gives economies of scale  Cost savings offset the lower costs or high-quality raw materials and labor that the transnationalist can find by locating worldwide

Entry-Mode Strategies: The Content Options  

Entry-mode strategies – options multinational companies have for entering foreign markets and countries The choice of how to enter each international market  Several popular entry-mode strategies include: exporting, licensing, strategic alliances, and foreign direct investment

Exporting  

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The easiest way to sell a product in the international market Some of the basic motivations for exporting include 

Increased competitiveness: Companies gain new perspectives on business practices

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Learn to exploit expertise: Outcompete companies in a broader marketplace

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Improved ROI: Larger customer base, expanded customer networks, and exposure to different technologies and ideas affect the bottom line both directly and indirectly

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Use full production capabilities: Increased sales will allow production to run at a greater capacity

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Smooth business cycles: Different countries and regions may have different business cycles that allow the exporter to offset down cycles in some areas

Passive exporting – treating and filling overseas orders like domestic orders At the other extreme, a multinational company can put extensive resources into exporting Although export is an easy strategy, it is still an important one Most governments understand the importance of the economy, and provide assistance to small companies interested in exporting The U.S. government’s Department of Commerce website for the export process notes the following beginning steps to plan your export strategies  Evaluate your product’s export potential  Determine if you are really willing to make a commitment to international markets and evaluating whether your company is “export-ready”  Identify key foreign markets for your products through market research  Evaluate distribution and promotional options and establishing an overseas distribution system  Determine export prices, payment terms, methods, and techniques

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Familiarize yourself with shipping methods, export documentation procedures, export financing, and other requirements for exporting

Export Strategies 

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Indirect exporting – intermediary or go-between firms provide the knowledge and contacts necessary to sell overseas  Export management company (EMC) – intermediary specializing in particular types of products or particular countries or regions o Provide ready-made access to international markets o Have established networks of foreign distributors o Know their products and countries very well  Export trading company (ETC) – intermediary similar to EMC, but it usually takes title to the product before exporting Direct exporting – exporters take on the duties of intermediaries and make direct contact with customers in the foreign market  More aggressive exporting strategy than indirect exporting  Uses foreign sales representatives, foreign distributors, or foreign retailers to get their products to end users in the foreign markets  Sales representatives use the company's promotional literature and samples to sell the company's products to foreign buyers  Foreign distributors buy products from domestic sellers to resell in foreign market at a profit

Licensing 

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International licensing – contractual agreement between a domestic licensor and a foreign licensee  The licensor usually has a valuable patent, technological know-how, a trademark, or a company name that it provides to the foreign licensee  In return, the foreign licensee provides royalties to the domestic licenser Licensing provides one of the easiest, lowest cost, and lowest risk mechanisms for companies to go international

Exhibit 6.4 Content of a Licensing Agreement (Shows the content of a typical licensing agreement)

Some Special Licensing Agreements   

International franchising – comprehensive licensing agreement where the franchisor grants to the franchisee the use of a whole business operation Contract manufacturing – producing products for a foreign companies following the foreign companies’ specifications Turnkey operations – multinational company makes a project fully operational and trains local managers and worker before the foreign owner takes control

The International Strategic Alliances  

International strategic alliances – agreement between two or more firms from different countries to cooperate in any value chain activity from R&D to sales Becoming one of the dominant entry-mode strategies for multinational firms

Foreign Direct Investment 

Foreign direct investment – multinational firm’s ownership, in part or in whole, of an operation in another country  FDI reflects the highest stage of internationalization © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Cross-border mergers and acquisitions are now the major driving force in increasing FDI  Different from Greenfield investments – starting foreign operations from scratch Acquisition investments – starting foreign operations by purchasing a local company In 2014, the number of announced Greenfield investment projects in emerging markets reached a record high, and in value terms they reached the highest level in three years.

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The services sector, driven by large-scale energy projects, contributed 70 per cent of the value of announced Greenfield projects.

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In 2007, main recipients of FDI were U.S., France, U.K., and Canada FDI is increasing in Eastern European countries China is investing more in developing countries like Africa rather than industrialized nations Market penetration is the major motivation to invest abroad Scale of FDI often changes as companies gain greater returns from their investments or perceive less risk in running their foreign operations

Formulating a Entry-mode Strategy 

Formulating a entry-mode strategy must take into account several issues  Basic functions of each entry-mode strategy  General strategic considerations regarding the company and its strategic intent, products, and markets  How best to support the company’s multinational strategy

Basic Functions of Entry-mode Strategies

Deciding on an Export Strategy   

Exporting is the cheapest and easiest entry-mode strategy – although not always the most profitable Good way to internationalize or test new markets Diagnostic questions for selecting the best export strategy  Does management believe it must control foreign sales, customer credit, and the eventual sale of the product and customer? o If yes, choose a form of direct exporting  Does the company have the financial and human resources for creating an organizational position or department to manage export operations? o If not, choose a form of indirect exporting  Does the company have the financial and human resources to design and execute international promotional activities (for example, international trade shows and foreign language advertisements)? o If not, rely on the expertise of intermediaries and choose a form of indirect exporting  Does the company have the financial and human resources to support extensive international travel or possibly an expatriate sales force? o If yes, choose a form of direct exporting  Does the company have the time and expertise to develop its own overseas contacts and networks? o If not, rely on the expertise of intermediaries and choose a form of indirect exporting  Will the time and resources required for the export business affect domestic operations? o If not, favor direct exporting

When Should a Company License?  Based on three factors: © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 The characteristics of the product selected for licensing  The characteristics of the target country in which the product will be licensed  The nature of the licensing company The Product  The best products to license use older or a soon-to-be-replaced technology  Licensed products often no longer have domestic sales potential  Older technologies may remain attractive to the international market for several reasons: o Other countries may not have competitors with new technology o Foreign licenses may not have production facilities capable of producing new technology o The licensee may still have an opportunity to learn from the old technology The Target Country  Added costs of (e.g.) tariffs and quotas may make exporting unprofitable  Sometimes it is the only option due to government requirements or political risk  Market may simply be too small to support an investment larger than licensing The Company  Some lack adequate of financial, technical, or managerial resources to export or to invest directly in foreign operations – does not demand much from the licensing company  Multiple products make licensing more advantageous Some Disadvantages of Licensing  Gives up control  A company may create a new competitor  Low income  Opportunity costs

Why Do Companies Seek Strategic Alliances? 

Given the importance of this topic, they are considered separately in Chapter 9

Some Advantages and Disadvantages of FDI 

Summarized in Exhibit 6.5

Exhibit 6.5 Advantages and Disadvantages of FDI (Summarizes the advantages and disadvantages of FDI) 

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Strategic Intent  Most firms enter international markets with a low emphasis on short-term profit  Firms are motivated by other goals, such as being first in a market with potential or learning a new technology Company Capabilities  Company should consider human resources and production capabilities Local Government Regulations Characteristics of the Target Product and its Market  Products that spoil quickly or are difficult to transport might not be good candidates for exporting  Products that need little adaptation to local conditions might be good candidates for licensing, joint ventures, or direct investment  Must address the question of how to get the product to market Geographic and Cultural Distance  Exporting may be limited by excessive transportation costs  With direct investment, components or raw material often must be shipped to the producing country  When there are distinctly different cultures, direct investment is avoided initially

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Joint ventures allow local partners to deal with many local cultural issues Licensing and exporting remove the foreign company from direct dealings with the local culture

The Control-Versus-Risk Tradeoff: The Need for Control 

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How important it is to monitor and control the overseas' operations  Key areas for concern over control include product quality in the manufacturing process, product price, advertising and other promotional activities, where the product is sold, and after-market service Entry-mode choices that increase control entail greater risk

Exhibit 6.6 Risk-Versus-Control Tradeoff (Shows the tradeoffs between risk and control for common international entry-mode strategies) Exhibit 6.7 Decision Matrix for Formulating Entry-mode Strategies (Summarizes the preferred entry-mode strategies for companies facing different conditions)

Entry-mode Strategies and the Multinational Strategies  

Why a company is in a host country dictates its choice of a general multinational strategy The basic diagnostic question for the multinational is what entry-mode strategy best serves the firm’s objectives for being in a given country or region

Exhibit 6.8 Entry-mode Strategies and the Multinational Strategies (Describes how companies with various multinational strategies might use the different entrymode options)

Political Risk    

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Political risk – the impact of political decisions or events on the business climate in a country such that a multinational’s profitability and feasibility of its global operations are negatively affected Why should a multinational company be concerned about political risk?  It can have a serious impact on profitability Because the world is so connected, political uncertainties in one country can have substantial reverberations around the world Given the importance of political risk, it is useful to understand some of the factors that influence political risk in any society  Some of the most common factors are changes in the government, sudden shift in governmental policies or ideology, social volatility, passage of new laws, leadership changes and the related potential of unrest, and the level of corruption How can a multinational company assess these various factors?  Some multinational companies dedicate whole departments to assessing it  Various agencies provide risk assessment ratings  Index of democracy measures the extent of freedom in a society (suggesting freer operating environment)

Exhibit 6.9 Political Risk in Selected Countries (Source: Based on data reported in info.worldbank.org/governance/wgi/pdf/PRS.xls from Political Risk Services International Country Risk Guide (PRS).

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Given the impact of political risk on operations and profitability, MNCs must take the appropriate steps to assess and manage it  Some private organizations offer political risk insurance – however, it may be expensive, or offer no protection at all in some areas © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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MNCs can also rely on local partners to mitigate risk (i.e. joint ventures) Political risk assessment is a very subjective exercise and can vary greatly by region or industry

Summary and Conclusions        

Multinational managers face an array of complex strategic issues All managers must deal with the dilemma of local responsiveness versus the global solution Multidomestic or regional strategy allows tailoring of products but has higher cost International and transnational strategies have global products with global marketing, and produce high-quality products as efficiently as possible Entry-mode in the international market may occur anywhere in the value chain Entry-mode strategies range from exporting to foreign direct investment (FDI) Complexities of choosing multinational and entry-mode strategies represent significant challenges to multinational managers – several factors are considered Finally, political risk is becoming an increasingly important component of investment decisions

Chapter 6 Case Notes Polaris 2008 Synopsis Securities firm, Polaris Financial Group (Polaris), founded and chaired by Wayne Pai, has been successful in his business ventures within Taiwan and subsequently, to Hong Kong. Pai led the development of the information technology infrastructure to lead markets in the online trading business. Due to their great success, Pai has announced the approval for expansion into more aggressive markets – Singapore, Vietnam, and Abu Dhabi. The complexities of each of these markets weighed heavy on Pai’s mind, as he wanted to take advantage of Polaris’s existing assets and experiences.

Case Assignment Questions 1.

What critical success factors led to Polaris’s launch of online stock trading and online transactions in Taiwan?

2.

How did Polaris transfer its Taiwanese success to Hong Kong?

3.

What advice would you give Wayne Pai?

Analysis 1.

What critical success factors led to Polaris’s launch of online stock trading and online transactions in Taiwan?

Prior to the launch of online stock trading and transactions in Taiwan, Polaris had: © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Established a solid securities firm Focused on wealth management An established successful brokerage team, which took over the online component Innovative information technology

It is also worth noting that the success of Polaris – and the subsequent launch of Polaris’s online business – was, in no small part, due to the entrepreneurial spirit possessed by Pai, in addition to the fact that he owned 20% of Polaris Securities’ stock, which gave have significant influence over the fate of the company. Had those two facts not been present, Polaris’s successful online business may not have been realized.

2. How did Polaris transfer its Taiwanese success to Hong Kong?

3.

The transfer into Hong Kong was rooted in taking advantage of the financial innovation and information technology success Polaris had realized in Taiwan. The similarities in cultures, including the homogeneous language, facilitated the transfer as well.

4. What advice would you give Wayne Pai? 5.

One of the significant keys to Polaris’s success is the continuous improvement and update of its information technology and trading product offerings. In entering new markets like Singapore, Vietnam, and Abu Dhabi, Pai will have to ensure that these offerings meet the local legal and customer requirements. The relative ease of transition into the Taiwanese market may not be quite as simple in these newer, more diverse markets.

Lessons   

This case demonstrated an example of entry-mode strategy This case provides a glimpse into the online stock trading business It also explores the factors involved in a decision to enter new markets, and how to do so

Answers to In the News Questions From MindTap Chapter 06: Ford Motor in India 1. The case describes Ford Motor's plan to build a car and engine manufacturing facility located at Sanand in Ahmedabad city in India. Ford has been in India for two decades but has not made any profits yet. The plan is to use India as an export platform to serve China and other markets and expand the product offerings in India.

How does Ford's strategy in India fit into a transnational strategy framework?

Suggested Answer: Answers will vary. Ford wants to put a manufacturing base in India, which will allow them to not only serve Indian customers, but also allow them to export components and cars to other markets. Conversely, Ford can tap into their global manufacturing process to provide parts for cars here. The same can be said for flexibility in developmental processes throughout Ford's global infrastructure.

2. What local adaptations can Ford make in its cars to meet what Indian customers want? © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Suggested Answer: Answers will vary. Ford can manufacture its cars to suit Indians roads and terrains. Making the vehicles fuel efficient to give the maximum mileage possible will be an added advantage. Indian streets and parking spaces are often crowded; therefore, reducing the length of the cars will make it user-friendly in terms of navigation.

3. What advantages of setting up an export platform in India help Ford serve the emerging market economies?

Suggested Answer: Answers will vary. Some multinational companies, such as Ford, set up foreign manufacturing subsidiaries to find cost-effective labor, materials, or finished products. Export hubs allow multinationals to reduce costs and fuel innovation. Multinationals could, similarly, use India as a manufacturing and export hub to sell in these emerging markets.

Chapter 06: Goodyear in China 1. This case discusses Goodyear's opening of a development center in Pulandian China. Goodyear has two global innovation centers, one in Akron, Ohio and another in Colmar-Berg, Luxembourg that develop core technology for worldwide products. Development centers extend the capabilities of the innovation centers by providing direct interactions with customers and designers and build local capabilities.

What does this case tell us about how innovation can be globalized?

Suggested Answer: Answers will vary. It has been proven through various studies that innovation benefits from global reach. By moving their manufacturing or research departments closer to the customers they cater to, multinationals can foster a greater degree of communication between the parties. Additionally, closer proximity to the markets they are catering to can give global multinationals an idea of what they are dealing with. Combining this knowledge with other innovations around the world in other centers, this proximity fosters a collaborative method to research new product lines and improvements.

2. How can Goodyear benefit from the local knowledge created at its development centers?

Suggested Answer: Answers will vary. Establishing Goodyear's Chinese location in Pulandian, China will enable unhindered dialogue between designers and customers fueling the development of local potential. The location is intended to bolster the company's approach to innovation.

Goodyear's first development in China will let the company gain a foothold in Chinese equipment platforms that are original.

3. What are the benefits of moving innovations in tire technology close to the customers?

Suggested Answer: Answers will vary. Moving innovations in tire technology closer to customers offers an advantage for value chain based activities. It increases the speed at which the company can supply its product to its consumers. Manufacturers like to get in close touch with the customers in local markets to direct innovations. In the case study, Goodyear opened an innovation center at Pulandian, China to interact with designers and customers in order to innovate as it has in other countries around the world.

Chapter 06: Johnny Rockets 1. Johnny Rockets is a U.S. restaurant franchise that offers classic U.S. American food including hamburgers, fried, onion rings, and shakes. They operate in 26 countries from Brazil to Bahrain © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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opening 40 new stores in 2014 alone. They now have more than 120 restaurants operating outside of the United States. Paradoxically, Johnny Rockets prides itself on local adaptation.

What are the attractions of having a core U.S. American offerings combined with menu items that cater to local cuisine and flavor preferences?

Suggested Answer: Answers will vary. Certain American brands offer core US American offerings combined with items on the menu that cater to local cuisine in different countries through franchisees. This helps the brands offer a local alternative to their core menu that is culturally relevant to their customers. In return, it helps brands to experiment and incorporate items into their menus and promotions.

2. Would you describe Johnny Rockets as a "glocal" firm and why?

Suggested Answer: Answers will vary. Johnny Rockets can definitely be described as a "glocal" brand considering its successful amalgamation of locally popular foods and preferences with its robust and familiar all-American fare. It collaborates with its local partners to modify and enhance the menu offerings.

Johnny Rockets intends to stay true to its origins, while adapting to local palates.

3. How does Johnny Rockets learn about necessary local adaptations for their menus?

Suggested Answer: Answers will vary. Johnny Rockets collaborates with its franchisees to study and understand the foods, tastes, and popular preferences of the local population. It then makes changes to its base menu, including and changing certain dishes and recipes to reflect the destination.

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Chapter 7/ Small Businesses and International Entrepreneurship

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CHAPTER 7 SMALL BUSINESSES AND INTERNATIONAL ENTREPRENEURSHIP: OVERCOMING BARRIERS AND FINDING OPPORTUNITIES Learning Objectives       

Understand the basic definitions of small business and entrepreneurship Explain how small businesses can begin as global start-ups or follow the stages of internationalization Understand how small businesses can overcome barriers to internationalization Identify when a small business or entrepreneur should consider going international Describe how small businesses or entrepreneurs can find customers, partners, or distributors abroad Understand how new venture wedge strategies can be used in foreign markets Explain the factors driving entrepreneurship at an international level

Introduction 

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Small businesses contribute significantly to most national economies  In Europe, North American, and Japan, over 98% of all businesses are small  They employ more than 50% of the work force and produce nearly 50% of the countries' GNPs  Small companies created more than 2/3 of the new jobs Consider the following facts regarding small businesses in the US  Represent 99.7% of all employing firms, employing about half of all private employees  Generate about 63% of all new private sector jobs on an annual basis  Employ almost 37% of all high-tech workers  Pay almost 42 percent of the private payroll  Represent 98% of identified exporters, producing 33% of export value in 2014  Generated 16 times more patents per employee than large patenting firms  About 15% of all U.S. small businesses were owned by minorities in 2014  Small businesses generate about 46% of all private sector output Given the importance of small businesses to national economies, it is not surprising that small businesses seek opportunities outside their national boundaries When going international, they can use the same participation strategies and multinational strategies available to larger businesses Research suggests that around 80% of all businesses in the Western world are family owned Many small businesses in industries such as food service, retailing, and garment production are owned by families in emerging markets This suggests that to gain a complete understanding of the environment facing small businesses an examination of family businesses is also necessary

What Is a Small Business? 

Many definitions of what makes a small business  United Nations definition: fewer than 500 employees  Popular press definition: fewer than 100 employees  U.S. Small Business Administration definition: varies by industry, and uses both sales revenue and the number of employees

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Internationalization and the Small Business 

How do small businesses go international?  Small business stage model – incremental process of internationalization followed by many small businesses  Global start-up / born-global firm – company that begins as a multinational company

The Small Business Stage Model of Internationalization 

 

Traditionally, small businesses begin as passive exporters and then later take a more proactive approach to international sales  Stage 1 – Passive exporting: fills international orders but does not seek export business  Stage 2 – Export management: specifically seeking export sales, usually via indirect channels  Stage 3 – Export department: company uses significant resources to seek increased sales from exporting  Stage 4 – Sales branches: setting up of local sales office due to high demand  Stage 5 – Production abroad: production in other countries, beyond downstream activities  Stage 6 – The transnational: development of globally integrated network Research suggests that internationalization for the small business may not always be linear, progressing from one stage to another In addition to jumping stages, some small businesses may conduct one stage then jump to an earlier stage

Small Business Global Start-Up, or Born-Global Firms  

Global start-ups occur when companies begin as multinational companies Born-globals are often very flexible and fast moving, especially in high-technology areas because they tend to be very knowledge intensive



How can someone thinking of creating small businesses foster a mindset to create a born global? 

Adopt global culture from the start, training executives and employees alike to think globally



Network with partners who have international experience to facilitate expansion



Start selling a minimally viable product



Develop a global business model



Make strategic use of information and communication technology

Exhibit 7.1 Comparison of Small Business Model Firms and Born-Global Firms (Shows the major differences between small business model and born-global firms)

Overcoming Small Business Barriers to Internationalization  



Conventional wisdom suggests that small businesses face many barriers that prevent them from becoming multinationals Limitation: Small size  Often means limited financial and personnel resources  Lack of sufficient scale to produce goods or services as efficiently as larger companies  Managers with limited international experience and possibly negative attitudes toward internationalization, feeling it’s too risky Small firms also face the liabilities of foreignness, or a lack of familiarity when facing the new country environment

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Liabilities of foreignness may arise from coordination costs related to distance

Developing a Small-Business Global Culture and a Learning Culture 

Global culture – managerial and worker values that view strategic opportunities as global and not just domestic  Members share a common language to describe international operations  Entrepreneurial owners develop a global mind-set for themselves and their companies  Characteristics of the key decision makers that affect the development of a global culture  Perceived psychological distance to foreign markets – the extent to which managers believe that foreign markets are “just too different” for involvement  International experience – training in foreign languages or international travel / exposure  Risk aversion – an entrepreneurial spirit and thus the willingness to face risks  Overall attitudes towards international strategies – global culture develops when the owner/entrepreneur promotes company values to support and reward the search for international opportunities  Small businesses also need to develop a learning culture in order to overcome the liabilities of foreignness 

Engage in systematic foreign market analysis to learn about the new markets they want to enter



Learn by developing networks, accessing a number of resources to obtain knowledge about foreign markets and benefiting from the mistakes of others

Changing Attitudes of Key Decision Makers   

International sales begin close in culture and in geography Cautious early moves help overcome initial skepticism regarding the international markets Positive attitudes toward international markets are more necessary for global start-ups

Exhibit 7.2 Attitudinal Differences Concerning Internationalization for Small Business Exporters and Nonexporters (Shows that exporters and nonexporters in the U.S. industrial equipment industry have quite different attitudes regarding internationalization)

Gaining Experience: Duties and the Personal life of the Small-Business CEO       

The owner of a small business is often the CEO: driving entrepreneurial force in the business Opening new markets is often the CEO's personal responsibility The CEO must be willing to incur more than economic costs for the venture Increased travel and stress from undertaking a new venture Can adversely affect family life Being away from the daily management of their businesses Job of the small business CEO may change when company becomes multinational

Exhibit 7.3 Training and Knowledge Needs of Small Firm CEOs Entering Internationalization (Shows key skills that CEOs felt they needed)

Is Size a Barrier for Small Business Internationalization? 

Larger firms tend to enter export markets more than small companies  Have more resources to absorb the risk

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Chapter 7/ Small Businesses and International Entrepreneurship

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Often have a greater incentive to export when domestic markets become saturated

Liabilities of smallness – the challenges facing small businesses in getting access to necessary resources to internationalize  Size problem may exist only in the initial internationalization decision-later not a problem International sales intensity – amount of international sales divided by the total sales of the company  Once involved in international ventures, small multinationals often gain sales revenues proportionately equal to or greater than those of larger multinationals

Using the Small Business Advantage   

Smaller organizations can change products and internal operations faster Small business advantage – fast moving entrepreneurs can use their competitive advantage of speed. Being first to market, they can capture significant sales before large competitors react Being first to the market may mean that they catch significant sales before larger companies

The Future: Falling Barriers to Multinational Small Businesses and More Global Start-Ups      

Government programs that support small business exporting and sales are expanding Trade agreements make trade less complex and reduce the resource requirements Rapid growth of international business information from governments and other sources Increase in the number of small businesses engaged in international activities Makes it easier for other businesses to develop a global culture More managers gain experience in international business

When Should A Small Business Go International? 

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Affirmative answers to these questions may suggest a small business is ready  Do we have a global product or service?  Do we have an "as-a-service" product?  Do we have the managerial, organizational, and financial resources to internationalize?

Exhibit 7.4 Questions to Consider in the Small Business Decision to Go International (Gives some of the questions concerning resource requirements that a small business needs to address)    

Even if we have the resources, are we willing to commit them and face the risks of internationalization?

Is there a country in which we feel comfortable doing business?

Is there a profitable market for our product or service?

Which country should we enter?

Exhibit 7.5 Steps in Picking a Foreign Market (Summarizes the steps that small businesses can follow to find customers abroad)   

Do we have a unique product or service that is not easily copied by larger multinational corporations or local entrepreneurs?

Do location advantages exist upstream in the value chain?

Can we afford not to be a multinational?

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Getting Connected to the International Market Participation Strategies 

Small and medium-sized business have the same participation options as larger firms, including exporting, licensing, joint ventures, and foreign direct investment  Most small businesses use exporting as its major international participation strategy

Finding Customers and Partners  

Small businesses must find ways to reach their foreign customers Customer contact techniques  Trade shows  Catalogue expositions  International advertising agencies and consulting firms  Government-sponsored trade missions  Direct contact

Ready to Go and Connected: A Synopsis  

Finding the right overseas partner may be the most crucial decision of all Even with the right company, the right product, and a potential customer, a small business needs a good wedge to break into a new market

New Venture Strategies for Small Multinational Companies  

New ventures need some type of entry wedge to gain an initial position in a business opportunity Entry wedge – company’s competitive advantage for breaking into the established pattern of commercial activity (definition by Karl Vesper, renowned expert on new ventures)

New Product or Service and First-Mover Advantage 

First mover advantage – that of the entrepreneur who moves quickly into a new venture and establishes the business before other companies can react  The new product must be innovative  The new product must be “comprehensive” – meeting customer expectations in areas such as warranty, customer service, and expected components  Technological leadership – being first to use or introduce a new technology o Most common source of first mover advantage  Other sources of first mover advantage o First access to natural and social resources o Close relationships with research universities o Best locations not only for raw materials but also for proximity to customers o Best access to social relationships o Switching costs – expenses incurred when a customer switches to a competitor’s products

Copycat Businesses 

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Copycat businesses – those following the me-too strategy, whereby they adopt existing strategies for providing products or services  Do not copy existing businesses identically  They find a niche or slight innovation to attract customers away from existing businesses Suggestions for successful copycats include

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Be the first to change to a new standard Go after the toughest customers Play to minor differences in customer needs Transfer the location Become a dedicated supplier or distributor Seek abandoned or ignored markets Acquire existing business

International Entrepreneurship and Family Businesses    



Entrepreneur – person who creates new ventures that seek profit and growth New ventures – entering a new market; offering a new product or service; or introducing a new method, technology, or innovative use of raw materials International entrepreneurship – the discovery, evaluation, and exploitation of market opportunities Why should you be concerned about international entrepreneurship?  Most experts consider entrepreneurship the driving force of all small businesses  Entrepreneurship is the driver of innovation and economic development anywhere  Many multinational firms rely on entrepreneurs and small businesses to do business when entering a new country  Small businesses often can provide critical products or services that can facilitate a multinational firm’s entry into a new country  Multinational companies may make location decisions based on the degree to which the country’s inhabitants are entrepreneurial Recent studies on entrepreneurship in emerging markets demonstrate the following 

The importance of networks (social and organizational) in influencing the entrepreneurial process in emerging economies



Research is more focused on individual entrepreneurial characteristics, such as selfcommitment, dynamism, and experience, than on firm- or industry-level characteristics



The individual desire to become entrepreneurs and overcome constraints is more critical than other environmental factors

Exhibit 7.6 Total Entrepreneurial Activity (TEA) Ratings for Selected Countries (Shows the total entrepreneurial activity (TEA) ratings for selected countries) 

Family business – business owned or controlled by members of a family



Majority of small businesses tend to be family-run



Small family businesses tend to have much more conservative growth strategies and show a negative impact of family ownership on growth



Challenges facing family-owned businesses





Family tensions that hurt the growth of the business, including the impact of divorce on the business

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Tendency of second-generation owners to divest the core business

Role of gender in family businesses

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

A growing percentage of family businesses worldwide are headed by women



Recent study shows no significant differences in terms of ten management characteristics between family businesses run by women and those run by men



Other research has shown that the involvement of the wife in family businesses where the husbands are owners often result in business tensions that can impact the success of the business

What are the implications multinational managers when dealing with family-run businesses? 

Managers must understand that family businesses may not always share the same aggressive growth strategies they prefer



Multinational managers need to appreciate the tensions inherent in family businesses



Increasing prevalence of women running family businesses suggests multinational managers should be aware of possible differences in how these companies define growth

Summary and Conclusions             

Small businesses are important to the economies of all nations Often they provide the most jobs, the most economic growth, and the most innovation The small business faces some unique problems and prospects when entering global competition Small businesses can go international – through stages or through global start-ups Global start-ups are replacing stages of internationalization, especially for high tech entrepreneurial companies in fast-changing industries A small business must overcome certain traditional barriers to its internationalization A small business can develop a global culture, change the attitudes of key decision makers, gain crucial international experience, and overcome the size-related barrier Small businesses have the same participation strategy options as larger firms There are many public and private resources available to the business community wishing to become multinational Entering the international market is an entrepreneurial venture which require successful entrywedge strategies A full appreciation of small businesses is not possible without also understanding international entrepreneurship Entrepreneurship is important to a country because it generates jobs and wealth An understanding of the role of family-run businesses is critical for multinational managers

Chapter 7 Case Notes Aregak Micro-Credit Organization in Armenia Synopsis This case showcases an Armenian organization named Aregak Micro-Credit, an organization designed to assist low-income women in starting up small entrepreneurial ventures.

Mariam Yesayan established Aregak Micro-Credit Organization while working for UMCOR in Armenia. The case begins by reviewing Mariam’s background, comprised of university education and charitable organizations, and then describes the recent history in Armenia and the surrounding © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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area – from the fall of Communism, to the Armenian earthquake, to various other factors that led to a depressed nation.

The case goes on to describe how Mariam developed her client base, and onto an explanation of her program’s successful outcome. The case continues by describing the unaffordable and inaccessible alternative sources of financing through the Armenian banking system, and then explains how the microfinance industry offers a viable alternative and ultimately benefits the communities in which it serves.

The case concludes by explaining the dilemma faced by many NGOs – whether to seek government funding and submit to its regulations, or forego state assistance and remain selffunded. This is the decision ultimately faced by Mariam Yesayan for Aregak.

Case Discussion Questions 1.

Summarize the process Mariam Yeseyan used in approaching women about loan opportunities through Aregak.

2.

Compare opportunities for funding for women entrepreneurs through the commercial banking system in Armenia with funding opportunities available to them through the Aregak program in the late 1990s.

3.

Explain the reason for a default rate on loans of only 2 percent with Aregak in spite of the face that their loans were not collaterized.

4.

Discuss the importance of microfinance programs in the progress of developing nations.

5.

In what way might Mariam Yesayan be considered a “social entrepreneur”?

6.

Debate the issue of whether Mariam Yeseyan should take steps to license Aregak as a nonprofit organization in Armenia, which would bring with it regulation by the government, or remain an NGO (nongovernmental organization) as it had been originally structured.

Analysis 1.

Summarize the process Mariam Yeseyan used in approaching women about loan opportunities through Aregak.

First and perhaps most important to getting the project off the ground, Mariam went directly to the communities of women she was trying to help, and worked hard to establish psychological connections with them in their own homes. She focused on building their self confidence and giving them hope. In order to make the women feel comfortable, she visited them wearing some of her oldest clothes, and then began discussions to try to change their attitudes about being dependent on other people or aid agencies. Her approach ultimately developed meaningful connections and trust between her and her would-be customers, a key to the success of any business.

2.

Compare opportunities for funding for women entrepreneurs through the commercial banking system in Armenia with funding opportunities available to them through the Aregak program in the late 1990s.

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Following the fall of communism, and several other setbacks in Armenia, bank loans were neither accessible nor affordable. The bank loans required the women to put up collateral, which many did not have, or were not comfortable risking. Aregak’s program, however, did not require any material collateral. Interest rates through Aregak were between 20-25%, which was consistent with bank loan rates at the time because the commercial banking industry was young and still developing at that time as well. Aregak further offered assistance with business planning and credit consulting – something the banks did not.

3. Explain the reason for a default rate on loans of only 2 percent with Aregak in spite of the face that their loans were not collateralized.

One possible explanation is that the women’s good name was of a high value. As one Armenian woman put it, “If I use my car for collateral of a bank loan, and I can’t pay the loan back, I may lose my car, but I can do without it for a while and finally get another one. But if I lose my good character by not paying back the Aregak loan, I can never get that back.”

As further incentive to remain current on their loans, 35 scholarships of $350 each were being offered to talented children of the entrepreneurs that Aregak had funded.

In addition, Aregak, as a microfinance program institution, offered many development and support tools that traditional banks would not. Aregak’s clients were likely provided financial literacy education, and training on entrepreneurship and management techniques. Aregak offered much more of a hand-in-hand approach that gave the women the support, and the self confidence, necessary to be successful. If their business was ultimately successful, then one can see that there is a much higher chance they will be able to keep their loans current.

4.

Discuss the importance of microfinance programs in the progress of developing nations.

Microfinance organizations are more than a simple banking tool – they include social improvements as well as financial improvement. This industry focuses on helping low-income households. Their assistance extends beyond mere banking, to include overall development in the way improving self-confidence and education on finances, entrepreneurship, and management techniques. They teach people how to market their company, and the importance of paying back loans so they can grow their business. Ultimately, microfinance programs aim to reduce poverty and develop people and markets. All of these things are critical to stimulating the growth and development of a local economy.

5.

In what way might Mariam Yesayan be considered a “social entrepreneur”?

Mariam Yesayan could be considered a social entrepreneur because she was one of the first to offer assistance to a group of low-income women. Far beyond any profit or recognition goal, she set out to change the lives of others – to show seemingly hopeless people that someone believed in them.

6.

Debate the issue of whether Mariam Yeseyan should take steps to license Aregak as a nonprofit organization in Armenia, which would bring with it regulation by the government, or remain an NGO (nongovernmental organization) as it had been originally structured.

This should be an interesting question for the class. If desired, break the class up into small groups to debate the issue, and have each group present their recommendations to the class.

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Key questions to consider in the debate and recommendation:    

Is there a need for Aregak to access formal capital markets, an option which is usually not available to NGOs or unregulated microfinance institutions?

Is there a problem with consumer fraud or other scamming that might be remedied through government regulation?

What will the extent of the Armenian government regulations be? How much of an impact will those regulations have on Aregak and its customers?

What is the overall health of the Armenian economy? Will the social and economic health of Armenia be ultimately improved by a switch to a regulated Aregak?

What was Mariam Yeseyan’s decision?

Aregak was licensed in Armenia in 2006 as a non-for-profit business due to registration and licensing requirements imposed on micro finance practitioners by legal framework.

Lessons 

This case provides a good lesson for small business and international entrepreneurship.



This case offered the opportunity to learn about microfinance organizations – what they are, how they operate, and the impact they can have on depressed or developing areas.



Finally, this case demonstrates how small business and entrepreneurship can have a positive social impact, in addition to an economy.

Answers to In the News Questions From MindTap Chapter 07: HSBC 1. This case discusses the role played by banks in helping small businesses go international. The article discusses the specific services provided by HSBC. What are some of the barriers facing small businesses as they go international?

Suggested Answer: Answers will vary. Small businesses often have limited financial and personnel resources to dedicate to international activities. Small size can also mean a lack of sufficient scale to produce goods or services as efficiently as larger companies. Small companies often have senior managers with limited international experience who view international ventures as too risky and not potentially profitable. Small businesses also have to face contextual and other environmental issues that magnify the difficulties pertaining to international operations. These are a few of the barriers facing small businesses as they go international.

2. Why is it critical for small businesses to go international?

Suggested Answer: Answers will vary. Many experts suggest that the only way a small firm can survive and grow is by going international. The first phase in internationalization is exporting, which can bring several important long-term advantages for the small business. Exporting increases cash flow for small businesses allowing them to invest in large scale production opportunities. Exporting lets smaller businesses to better understand global markets through contact with new cultures and new contacts. Such activities can help the small firm's future foray into new markets and its competitive advantage.

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3. What are some of the services provided by banks such as HSBC? How do they address the barriers mentioned in #1 above?

Suggested Answer: Answers will vary. As a company tries to expand globally, the first tasks are research to identify the correct market, a detailed study of rewards and risks, and finding the perfect business partner. The right partner will have thorough knowledge and experience of the destination along with the required local contacts to grow market share, a positive reputation, and sales.

HSBC can provide dedicated relationship managers to help establish local connections and interactions. These relationship managers located at the destination will act as guides to help the expanding company understand cultural, social, and professional norms.

Chapter 07: Loans for Small Businesses in China 1. This case discusses the importance of small businesses to China. It also emphasizes the government's plea to banks to lend to these small firms.

How important are small firms to the Chinese economy? Discuss some of the factual information presented in the case to support your claim.

Suggested Answer: Answers will vary. Small businesses contribute significantly to most national economies. China has become an economic power primarily because of its small businesses, which support the economy by contributing to economic output and providing jobs for millions of workers. A decade ago in China, most of the economic output was coming from poorly run stateowned enterprises, however, small businesses now contribute almost 60 percent of economic output.

The China Banking Regulatory Commission has claimed that since the beginning of 2014, loans given out to small businesses in China increased by 3.08 trillion yuan, which is equal to 500 billion US dollars. This is estimated to reach 20.7 trillion yuan by the end of the year with loans extended to small businesses making up 23.85 percent of the total.

2. Why is the Chinese government trying so hard to facilitate business for small firms? What potential do these small firms present for China?

Suggested Answer: Answers will vary. Small businesses contribute significantly to most national economies. China has become an economic power primarily due to small businesses, which support the economy by generating employment and adding to the gross domestic product.

China is the world's second largest economy, and the Chinese economy clocked in a 7.4 percent GDP growth rate in 2014. Almost 80 percent of the urban jobs come from small businesses and China plans to formulate tax policies that are friendly toward small companies.

Chapter 07: Steps for Going Global 1. This article discusses the 10 steps small businesses should go through before going international. The article is a good complement to material discussed in the chapter.

What are the 10 steps that small companies should go through when deciding whether to go international?

Suggested Answer: Answers will vary. The ten steps to successfully expand a small business overseas are as follows: 1. Perform a deep dive due diligence: Use various types of analysis to decipher if the company will be able to go global without affecting functioning adversely. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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2. Strategy & business plan development: Construct a detailed and localized plan for expansion that incorporates different factors pertaining to economic, political, cultural, and market conditions.

3. Establish a beach-head team: Choose the right candidates for the company's initial senior managerial team in the overseas expansion. This will allow the company to implement the expansion plan without any managerial obstructions.

4. Product readiness: Conduct tests, surveys, and studies to see if the product needs to fulfil any government regulations or standards and will be able to compete in the new market.

5. Organizational readiness: Put into place flexible yet detailed policies to ensure that the company is sensitive toward local customs and culture, while still being focused on the company's plans.

6. Establish a go-to-market strategy: Come up with a plan to sell and advertise your product in the new market to set it apart from other competitive products and increase revenue.

7. Legal readiness: Some countries have strict laws that govern foreign companies and tend to favor local businesses. Companies must be aware of all the documentation and legal requirements of a country before expanding to minimize any legal infractions.

8. Tax and finance readiness: Ensure that remuneration and taxes are properly set up in a way that they are in compliance with local laws as well as laws of the parent country's jurisdiction.

9. Final budget preparation: Using the knowledge from the previous steps, ensure that the company has adequate finances to complete its operations and become profitable in a set duration of time.

10. Establish close relationships with local businesses: Forge partnerships, collaborations, and good relations with local businesses for tasks that fall outside the company's expertise, such as IT services and other suppliers.

2. Which of the 10 steps do you believe is most critical? Why? Suggested Answer: Answers will vary. Of the 10 steps, the first step of performing a deep due diligence seems very critical, as starting a global expansion from scratch is a major change and can impact existing domestic business for a company. If the move is not thoroughly researched, starting a global expansion can prove to be a costly and disruptive exercise.

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CHAPTER 8 ORGANIZATIONAL DESIGNS FOR MULTINATIONAL COMPANIES Learning Objectives       

Understand the components of organizational design Know the basic building blocks of organizational structure Understand the structural options for multinational companies Know the choices multinationals have in the use of subsidiaries See the links between multinational strategies and structures Understand the basic mechanisms of organizational coordination and control Know how multinational companies use coordination and control mechanisms

Introduction    

  

Best multinational strategies do not ensure success Implementation of a multinational business strategy requires that the managers build the right type of organization Organizational design – how organizations structure subunits and use coordination and control mechanisms to achieve their strategic goals Organizational design is critical to multinationals because constant changes in the business environment mean they must ensure that their structure is aligned with their market and strategy or face serious consequences The choices regarding how to set up an organization are complex and varied Each organizational design has costs and benefits regarding the best way to deliver a product or service to the domestic or international customer This chapter presents a survey or organizational design and a summary of basic background knowledge on organizational structure

The Nature of Organizational Design    



Basic questions of organizational design are: (1) How shall we divide the work among the organization’s subunits?

(2) How shall we coordinate and control the efforts of the units we create?

In very small organizations, everyone does the same thing and does everything As organizations grow, managers divide work into specialized jobs; then subunits Once an organization has specialized subunits, managers must develop mechanisms that coordinate and control the efforts of each unit  Some centralize decision making at company headquarters to make certain that the production and delivery of products or services conform to rigid standards  Others give subunits greater flexibility by decentralizing decision making A properly aligned organizational design allows for quick response to changing environments

A Primer on Organizational Structures  

Organizations usually divide work into departments or divisions based on functions, geography, products, or combinations of these criteria Each choice has its advantages and disadvantages

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The Basic Functional Structure  

Functional structure has departments or subunits based on separate business functions, such as marketing or manufacturing Simplest of organizations and typical of small businesses

Exhibit 8.1 Basic Functional Structure (Shows an organizational chart for a generic functional structure)   

Chosen for efficiency from economies of scale in each function Coordination of units can be difficult as functional subunits are separate from each other Works best when organizations have few products, few locations, or few types of customers; or when the organization faces a stable environment

The Basic Product and Geographic Structures  

Product structure – has departments or subunits based on different product groups Geographic structure – has departments or subunits based on geographical regions

Exhibit 8.2 Basic Product Structure (Shows the basic product structure) Exhibit 8.3 Basic Geographic Structure (Shows the basic geographic structure)        



Functional tasks are duplicated for each product or geographic-area department Often requires more managers and more people Loss of economies of scale Usually less efficient than the functional organization Geographic structure allows a company to serve customer needs that vary by region Product structure are used when product(s) is/are unique enough to require specialized functional efforts Organizations mix structures to best implement strategies Multinationals are exploring customer-focused organizational structures in combination with existing structures  Allow closer relationships with important customers  Contain costs  Offer improved coordination across different markets Hybrid structures – mixes functional, geographic, and product units

Organizational Structures to Implement Multinational Strategies 

When a company first goes international, it seldom changes the structure  Acts first as passive exporters  When international sales become more central to success, appropriate structure is adopted to fit with more sophisticated multinational strategy

The Export Department  

Export department – coordinates and controls a company’s export operations Created when management believes the investment in additional human and financial resources is necessary to sustain and build international sales  Functions of the export department  Deals with international customers for all products  Often controls pricing and promotion of international products  May have specialists for particular country or product © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Deal with export management companies Overseas sales representatives also may report to the export department

Exhibit 8.4 Functional Structure with an Export Department (Shows a hypothetical organization with a functional structure and an export department)

Foreign Subsidiaries   

Foreign subsidiaries – subunits of the multinational company located in another country Used when more complex multinational organizational structures support direct investments in a foreign country A growing component of international business

Subsidiaries 

 

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Subsidiaries are a popular way for businesses to go international  Allow the company to take advantage of opportunities in the new countries  Can offer a way to minimize the uncertainty associated with a host country’s level of risk  Can help multinationals learn about markets and conditions in more developed countries Multinational firms vary their control over subsidiaries  Most avoid managing the local subsidiary and leave management decisions up to it Several types: minireplica and transnational subsidiary  Minireplica subsidiary – scaled-down version of the parent company, using the same technology and producing the same products as the parent company o Produces product and services strictly for the local market, adapts well to local conditions o Uses few expatriate managers o Often little influence from headquarters o Usually a profit center (evaluated based on unit’s productivity)  Transnational subsidiary – has no companywide form or function; each subsidiary does what it does best or most efficiently anywhere in the world o May product products locally or for sale in worldwide market o May contribute to organizational learning Subsidiary location  To take advantage of factor costs (cheaper labor or raw materials)  To take advantage of other resources (for example, educated work force or unique skills)  To gain access to the country Most subsidiaries are neither pure minireplicas nor pure transnationals Multi companies choose the mix of functions for their foreign subsidiaries based on several issues, including  The firm’s multinational strategy or strategies  The subsidiaries’ capabilities and resources  The economic and political risk of building and managing a subunit in another country  How the subsidiaries fit into the overall multinational organizational structure

International Division   

As companies increase the size of their international sales force and set up manufacturing operations in other countries, the export department often grows into an international division International division – responsible for managing exports, international sales, and foreign subsidiaries Differs from an export department in several ways  Usually larger and has greater responsibilities  Oversees foreign subsidiaries that perform a variety of functions  More extensive staff with international expertise

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Exhibit 8.5 International Division in a Domestic Product Structure (Gives an example of an international division in a domestic product structure) 

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International division structure has recently declined in popularity  Not considered an effective structure for multi-product companies operating in many countries  Remains popular and potentially effective for companies of moderate size with limited number of products or country locations Companies abandon their international divisions for several reasons  Too many products often overwhelm the capacities of the division  When the number of locations in different countries grows, it is difficult for the division to manage multidomestic or regional adaptations  The international division makes it more difficult to implement international strategies using worldwide products or location advantages

Worldwide Geographic and Worldwide Product Structure 

Worldwide geographic structure – has geographical units representing regions of the world  Used to implement a multidomestic or regional strategy, which requires differentiation of products or services by country or region  Provides the flexibility to tailor or develop products that meet the particular needs of local or regional markets

Exhibit 8.6 Royal Vopak’s Worldwide Geographic Structure (Shows a geographic structure used by Royal Vopak, a Dutch multinational company that specializes in the distribution of chemicals) 

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Country-level divisions exist only when a country’s market size is sufficiently large or important (i.e. United States, France, Germany, Japan)  For the regional strategist, combinations of countries are as large as possible, and are based on similarities in customer requirements, balanced with efficiencies of uniform products  Worldwide product structure gives product divisions responsibility to produce and sell their products or services throughout the world Worldwide product structure – gives product divisions responsibility to produce and sell their products or services throughout the world

Exhibit 8.7 Worldwide Product Structure (Shows a worldwide product structure)     

Considered the ideal structure to implement an international strategy Attempts to gain economies of scale whereby most upstream activities are based at home Provides an efficient way to organize and centralize the production and sales Sacrifices regional or local adaptations strengths derived from a geographic structure to gain product development and manufacturing economies of scale Foreign subsidiaries in the worldwide product structure serve product goals directed from product-division headquarters – little concern for local markets

Hybrids and Worldwide Matrix Structures 

Both the worldwide product structure and the worldwide geographic structure have advantages and disadvantages for international strategy implementation  The product structure supports strategies that emphasize global products and rationalization © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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   

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The geographic structure supports strategies that emphasize local adaptation (managers are often from the area and are sensitive to local needs) Most multinational companies adopt strategies that include both concerns for local adaptation needs and concern for globalization.

Structures tend to be hybrids, or mixtures of product and area units The nature of the product determines the emphasis given to the product or geographic side of the company  How global are the products?  How complex and different are the major markets?

Worldwide matrix structure – symmetrical organization, usually with equal emphasis on worldwide product groups and regional geographical divisions

Exhibit 8.8 Worldwide Matrix Structure (Shows a symmetrical organization, with equal lines of authority for product groups and for geographic divisions)  

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Allows the pursuit of both local and global strategies at the same time Requires near equal demands from the environment for local adaptation and product standardization (associated with economies of scale)  Product bosses and geographic bosses reach consensus on how to balance local and worldwide needs  Requires extensive resources for communication among the managers  Requires middle and upper level managers with good human relations skills Is the matrix worth the effort?  During the 1980s, it was a popular organizational solution to the global-local dilemma  Has come under fire recently because consensus decision making between product and geographic managers has proved slow and cumbersome  In many organizations, the matrixes have become too bureaucratic, with too many meetings and too much conflict  Many organizations have redesigned their matrix structures to become more flexible – speedier decision making on either product or geographic side depending on the need

The Transnational Network Structure 

Transnational network structure – network of functional product and geographic subsidiaries dispersed throughout the world, based on the subsidiaries’ location advantages  Unlike the matrix, the transnational has no basic form  No symmetry or balance between the geographic and product sides of the organization  Is a network that links different types of subsidiaries throughout the world  Nodes, or units at the center of the network, coordinate product, functional, and geographic information

Exhibit 8.9 Geographic Links in the Philips Transnational Structure Exhibit 8.10 Product Links in the Phillips Transnational Structure 

Three components to the basic structural framework of the transnational network  Dispersed subunits – subsidiaries located anywhere in the world where they can most benefit the company o Some take advantage of low factor costs (i.e. low labor costs) o Others provide information on new technologies, new strategies, and consumer trends o All subunits to try tap worldwide managerial and technical talent  Specialized operations – subunits specializing in particular product lines, research areas, or marketing areas

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Builds on the diffusion of subunits by tapping local expertise or other resources anywhere and everywhere in the company’s subsidiaries Interdependent relationships – continuous sharing of information and resources by dispersed and specialized subunits o Must exist to manage dispersed and specialized subunits o Usually facilitated by building communication systems based on the latest technology o

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Beyond the Transnational: Is There a New Structure for the Multinational?   

Some evidence suggests that the transnational network is not the end of the evolution of the multinational’s structure Metanational – an evolution of the transnational network structure that develops extensive systems to encourage organizational learning and entrepreneurial activities Characteristics of the metanational include  Nonstandard business formulas for any local activity  Looking to emerging markets as sources of knowledge and ideas, not just for local labor  Creating a culture and advanced communication systems that support global learning  Extensive use of strategic alliances to gain knowledge for varied sources  High levels of trust between partners to encourage knowledge sharing  A centerless structure that moves strategic functions away from headquarters and to major markets  A decentralization of decision making away from headquarters and to mangers who serve the key customers and strategic partners

Multinational Strategy and Structure: An Overview Exhibit 8.11 Multinational Strategy, Structure, and Evolution (Shows the relationship between various multinational strategies and the types of organizational structure)   

Most companies support their early internationalization with export departments or international divisions Later, they evolve into worldwide product or geographic structures (see Exhibit 8.12) After this, they move toward a hybrid structure with some matrix or transnational qualities

Control and Coordination Systems   

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Top managers must design organizational systems to control and coordinate the activities of their subunits.

Control systems – vertical organizational links, up and down the organizational hierarchy Two basic functions of control systems  Measure or monitor the performances of subunits regarding their assigned roles in the firm’s strategy  Provide feedback to subunit managers regarding the effectiveness of their units Coordination systems – horizontal organizational links  Provide information flows among subsidiaries so that they can coordinate their activities Multinationals can also use employees for both control and coordination purposes  

Using parent country national expatriates to manage a subsidiary can ensure the interests of the parent company

Using a home country national to manage a subsidiary is indicated when the company is more interested in adapting and excelling in the local market © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Design Options for Control Systems 

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Four broad types of control systems 1. Output control 2. Bureaucratic control 3. Decision-making control 4. Cultural control Output control systems – assesses the performance of a unit based on results, not on the processes used to achieve those results  Output goals for foreign subsidiaries are negotiated to support corporate strategy  Headquarters evaluates subsidiaries and rewards local managers based on how well they achieve output goals  Profit center – unit controlled by its profit or loss performance – most common output control  Other outcomes are market share, developing new technologies, and supplying highquality raw materials Bureaucratic control system – focuses on managing organizational processes through budgets, statistical reports, standard operations procedures, and centralization of decision making  Budgets set financial targets for expenditures during specific time periods  Statistical reports provide information to top management on non financial outcomes)  Standard operating procedures (SOPs) provide the rules and regulations that identify approved ways of behaving Decision making control – level in the organizational hierarchy where managers have the authority to make decisions  In most worldwide product structures, control over functional and strategic activities is centralized in product division headquarters  In worldwide area structures, decentralized decision making is more common  Transnational network structures do not exhibit a tendency for decision-making control in one direction or another Cultural control system – uses organizational culture to control the behaviors and attitudes of employees  The favored control mechanism for transnational network structures

Exhibit 8.12 Use of Control Mechanisms in Multinational Organizational Structures (Shows the relationships between the control mechanisms to varying degrees, depending on their structure) Design Options for Coordination Systems 

   

Six basic horizontal coordination systems 1. Textual communication (memos, reports) 2. Direct contact 3. Liaison roles 4. Task forces 5. Full-time integrators 6. Teams Below, mechanisms are described from those that provide the least amount of coordination, up to the most All organizations use textural communication, such as e-mail, memos, and reports, to coordinate the activities of subunits Direct contact – face-to-face interaction of employees  For multinational companies, direct contact often requires sophisticated video conferencing and knowledge of a common language Liaison roles – part of a person’s job in one department to communicate with people in another department

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 Usually, a liaison role is only part of a manager’s job responsibilities Full-time integrators – cross-unit coordination as the main job responsibility  Product managers are often full-time integrators Task forces – temporary teams created to solve a particular organizational problem Teams – permanent units of the organization designed to focus the efforts of different subunits on particular problems  The strongest coordination mechanism A study examined how to coordinate and control the activities of global R&D labs, considering four possible control mechanisms 

Autonomy, a form of control, refers to the degree to which an R&D subsidiary has the freedom to make strategic decisions that have the potential to impact its operations and directions

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Socialization, another form of control, refers to the degree to which the R&D labs share common missions and values

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Communication, a form of coordination, represents the flow of information both between R&D labs (horizontal communication) and between headquarters and R&D labs (vertical communication)

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Formalization refers to the degree to which the various R&D labs rely on formalized rules and procedures as well as other prescribed procedures to make decisions

Results of the study shows that higher levels of autonomy, socialization and in-person communication are all related to higher innovative capability

Summary and Conclusions    

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Most important part of strategy implementation is having the right organizational design Organizational design entails the choice of subunits (how to divide work) and the choice of coordination and control mechanisms (how to focus the efforts of the subunits) As companies internationalize, they progress from using an export department or international division to more complex organizational structures Multidomestic or regional multinational strategies usually favor worldwide geographic structures; worldwide product structure supports an international strategy; and hybrid and matrix structures support companies with a mixture of strategies for different products and businesses Transnational network structure has no set form, and its subsidiaries respond uniquely; metanational structure is driven by organizational learning and virtual information sharing Organizational structure is not complete without integration mechanisms – they link subunits and coordinate activities

Answers to In the News Questions From MindTap Chapter 08: Matrix Organization Work 1. What is a matrix organization? Why are matrix organizations useful today? How does globalization encourage the use of a matrix organization?

Suggested Answer: Answers will vary. A matrix structure lets a company simultaneously implement local and global strategic plans. The matrix structure breaks firms down to geographic and product divisions, each possessing the same chain of authority. A matrix organization is a © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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flexible form of organization in which geographic divisions prioritize national responsiveness and product divisions try to find ways by which the products can be marketed well. Globalization encourages the use of a matrix organization because a matrix organization offers flexibility, ease of communication, and cooperation between different departments of a company.

2. What are the disadvantages of the matrix organization?

Suggested Answer: Answers will vary. Matrix structures can result in internal complexity.

Employees may be confused by orders that come from different departments and may be unsure of which one to follow. Multiple points of command can cause misunderstandings and rifts between employees and managers. Another disadvantage is that matrix structures are costly to maintain.

Maintaining a large group of skilled managers requires a lot of spending on salaries, and scarce resources may cause friction between departments.

3. Why is the matrix form unavoidable in some cases?

Suggested Answer: Answers will vary. A matrix organizational structure is inevitable in some cases. For example, consider an engineering company that employs technically specialized engineers and managers. Each engineer will have to work on multiple projects in order to fully utilize their engineering skills. A matrix organizational structure would allow the engineer to interact with and report to more than one manager, enabling maximum utilization of skills.

Chapter 08: Spreadshirt 1. This case discusses the acquisition of Vitrinepix by Spreadshirt, a leading company involved in print-on-demand products in apparel and accessories. The case emphasizes the importance of the Brazilian market and the potential that the market offers.

Why did Spreadshirt decide to expand to the Brazilian market?

Suggested Answer: Answers will vary. Spreadshirt decided to expand to the Brazilian market to improve its reach and sales potential for global marketers that it collaborates with. With this move, Spreadshirt has achieved an important milestone in one of the most rapidly growing e-commerce markets of the business world.

2. What form of expansion did they choose? Why did they choose such a form of expansion?

Suggested Answer: Answers will vary. Spreadshirt chose internationalization as its core theme of global expansion. Internationalization lets a company acquire a local business that is performing well in the market that it deals with. This form of expansion is less expensive as Spreadshirt leaves the working authority with Vitrinepix being acquired while enjoying all the benefits of being with an established local business.

3. How did Spreadshirt choose to manage the subsidiary? Why did they choose this form of control?

ANS: Answers will vary. Spreadshirt acquired Vitrinepix, a pioneer e-commerce platform that is involved in print-on-demand products in apparel and accessories. This acquisition will help Spreadshirt gain a foothold in the Brazilian market. Vitrinepix will continue to function, however, as a subsidiary of Spreadshirt, and both companies can pool their expertise and resources.

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CHAPTER 9 INTERNATIONAL STRATEGIC ALLIANCES: DESIGN AND MANAGEMENT Learning Objectives           

Know the steps for implementation of successful international strategic alliances Describe how multinational companies link value chains in international strategic alliances Understand the importance of choosing the right partners for alliances Know the important characteristics to look for in potential alliance partners Distinguish between equity-based international joint ventures and other types of international cooperative alliances Know the basic components of an international strategic alliance contract Understand the control systems and management structures used in alliance organizations Appreciate the unique problems in human resource management faced by managers in alliance organizations Realize the importance of interfirm commitment and trust for building successful international strategic alliances Understand how multinational companies assess the performance of their international strategic alliances Know when companies should continue or dissolve their alliances

Introduction      

Because strategic alliances are fast and flexible ways of gaining complementary resources, they are among the most popular strategies that companies use to develop new products and to expand into new areas Alliances fail most often due to poor design or management as opposed to a poor strategic choice to enter into the alliance Although strategic alliances are attractive, they are inherently unstable and risky Failure rate ranges from 30 to 60% Even profitable alliances can be torn by conflict Successful alliances must make strategic sense but also require good implementation

Exhibit 9.1 Implementing a Strategic-Alliance Strategy (Demonstrates the steps necessary to implement a successful strategic alliance)

Where to Link in the Value Chain?

Exhibit 9.2 Examples of Linking Value Chains in Strategic Alliances (Shows two value chains and the areas in which companies commonly link to gain strategic benefits) 

Alliances that combine the same value-chain activities do so to gain efficient scale of operations, to merge compatible talents, or to share risks  In operations alliances, multinational companies often combine manufacturing or assembly activities to reach a profitable volume of activity  Marketing and sales alliances allow companies to increase the scope and number of products sold and to share distribution systems  Output alliances deliver a service and are perhaps the most popular in the airline industry

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Alliances linking upstream and downstream components of the value chain can serve the objectives of low-cost supply or manufacturing For U.S. companies, the majority of international strategic alliances occur in operations

Exhibit 9.3 Value Chain Links in U.S. International Strategic Alliances (shows patterns in domestic vs. international strategic alliances)

Choosing a Partner: The Most Important Choice?  

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Most experts attribute success or failure of strategic alliances to how well the partners get along Experts advise companies to avoid the cross-border alliance if managers must answer no to any of the following questions regarding the potential partner: 

Does the partner have the necessary resources?

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Will the partner provide access to these necessary resources?

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Can both partners agree on clear goals and objectives for the strategic alliance?

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Have there been attempts to minimize potential for competition and friction with the partner?

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Does the potential partner have any alliances with your competitors?

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Does the potential partner share with you a vision about how the cross-border strategic alliance might evolve?

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Is the partner willing and able to contribute the necessary skills and resources to ensure that the alliance is successful?

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Does the partner have a history of success with previous strategic alliances?

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Have you compared the potential partner with other partners in terms of value creation?

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Does the cross-border alliance fit with your vision of your future alliance network?

Experts identify several key criteria for picking an appropriate alliance partner  Seek strategic complementarity - exists when the alliance partners’ strategies are complementary  Pick a partner with complementary skills – which are ones that enhance but do not necessarily duplicate an alliance partner’s skills  Seek out companies with compatible management styles – As Lord Weinstock, the managing director of Britain’s GEC put it, “You have to suppress the ego – it’s absolute poison in a joint venture.”  Seek a partner that will provide the right level of mutual dependency - with a balanced dependency, both partners feel equally dependent on the outcome of the venture  Avoid the so-called anchor partner – which is a partner that holds back the development of a successful strategic alliance because it cannot or will not provide its share of the funding  Be cautious of the elephant-and-ant complex - occurs in a strategic alliances when two companies are greatly unequal in size

Exhibit 9.4 International Strategic Alliances for Small Multinational Companies: Incentives and Concerns (Contrasts some of the incentives and concerns for small businesses in international strategic alliances) 

Assess operating policy differences with potential partners - need to work out day-to-day operational differences

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Assess the difficulty of cross-cultural communication with a likely partner – managers should expect slower communication and more errors of understanding

Choosing an Alliance Type 

Three main types of strategic alliances  Informal international cooperative alliances  Formal international cooperative alliances  International joint ventures

Exhibit 9.5 Types and Characteristics of International Strategic Alliances (Outlines the major differences among the types)

Informal and Formal International Cooperative Alliances 

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Informal international cooperative alliance – a nonlegally binding agreement between companies to cooperate on any value chain activity  Can be agreements of any kind and can provide links between companies anywhere on the value chain  Companies may use them as a test for more formal agreements  No legal protection means limited involvement between companies Formal international cooperative alliance (ICA) – a nonequity alliance with formal contracts specifying what each company must contribute to the relationship  Sharing of proprietary information or knowledge raises level of involvement between companies  Very popular in some high tech industries because of high costs and risks of R&D

International Joint Ventures 

International joint venture (IJV) – a separate legal entity in which two ore more companies from different nations have ownership positions  The simplest IJV occurs when two parent companies have 50/50 ownership of the venture  Not necessarily two partners; large number of partners is called a consortium (example: Airbus) – although two-partner joint ventures are the most common  No need for equal ownership  Difficulty arises in determining ownership from equity contributions other than cash  50/50 partnership may not mean both partners have equal influences on the venture

Negotiating the Agreement    

IJVs and ICAs require contractual agreements be negotiated and signed The formal agreement is not as important as the ability of managers to get along IJV negotiation issues – points such as equity contributions, management structure, and “prenuptial” agreements regarding the dissolution of the relationship In general, experts recommend that negotiation teams with technical and negotiation experience handle an alliance agreement

Exhibit 9.6 Selected Questions for a Strategic Alliance Agreement (Shows some of the questions that must be addressed as IJV negotiation issues)

Building the Organization: Organizational Design in Strategic Alliances   

Design depends on the type of alliance chosen Informal ICAs often require no formal design Formal ICAs may require a separate organizational unit

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IJVs are separate legal entities, and require a separate organization Two key issues in managing an alliance organization  Decision-making control  Management structure

Decision-Making Control  

Two major areas need to be considered  Operational decision making (day-to-day running of the organization)  Strategic decision making (long-term survival of the organization) Majority ownership does not necessarily mean control of the decision making  In an IJV, strategic decision making is usually at the level of the IJV’s board of directors or the top management team  IJV parent companies who want control of operational decision making usually have most of their people serving as mid- to lower-level managers

Management Structures   

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Mix of strategic and operational decision-making control among alliance partners is often complex and unique Five typical management structures Dominant parent – majority owner or contributor who controls or dominates the strategic and operational decision making of the alliance  The dominant parent usually has majority ownership of the IJV  The dominant parent treats the IJV as if it was a wholly owned subsidiary Shared management structure – occurs when both parent companies contribute approximately the same number of managers to the alliance organization Split control management structure – partners usually share strategic decision making but split functional-level decision making  At the functional level, partners make decisions independently Independent management structure – alliance managers act like managers from a separate company  Characteristic of more mature IJVs – seldom occurs in ICAs  Alliances often recruit managers in this structure from outside the parent companies Rotating management  Key positions in the management hierarchy rotate among partners  Popular for IJV partners from developing countries  Serves to train local management and transfer expertise to the developing country

Choosing a Strategic Alliance Management Structure   

If one parent has dominant position, then dominant management structure is favored Equal ownership shares or equal resource contribution: more balanced management structure such as shared, split, or rotating management structures Key factors considered when designing management structures  If partners have similar technologies or know-how and they contribute this knowledge equally to the alliance, a shared management structure is preferred  If partners have different technologies or know-how and they contribute this knowledge equally to the alliance, a split management structure is preferred  If the alliance has more strategic importance to one partner, a dominant management structure is likely  Mature joint ventures move to independent structures as the IJV’s management team gains more expertise  Joint ventures in countries with a high degree of government intervention produce IJVs with local partner dominance

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Independent management structures more likely when the market is expanding, the venture does not require much capital, or the venture does not require much capital, or the venture does not require much R&D input from its parents

Commitment and Trust: The Soft Side of Alliance Management 

Without trust and commitment, the alliance will either fail entirely or fail to reach its strategic potential

The Importance of Commitment and Trust      

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Commitment – in a strategic alliance, when partners take care of each other and put forth extra effort to make the venture work Attitudinal commitment – the willingness to dedicate resources and efforts and to face risks to make the alliance work Fair exchange – in a strategic alliance, when partners believe that they receive benefits from the relationship equal to their contributions Calculative commitment – alliance partner’s evaluations, expectations, and concerns regarding the potential rewards from the relationship Trust and commitment go hand in hand Two types of trust  Credibility trust – the confidence that the partner has the intent and ability to meet promised obligations and commitments  Benevolent trust – the confidence that the partner will behave with good will and with fair exchange Most experts believe trust develops in “trust cycles” – initial suspicion of partner’s motives; then gradual suspicion decline as each side deals repeatedly with the other

Exhibit 9.7 Trust/Commitment Cycle (Illustrates the trust and commitment cycle in strategic alliances) 

Why is trust important?  Successful cooperation requires that alliance participants contribute quality inputs into the alliance organization  Formal contracts can never identify all the issues that arise in strategic alliances  The technology and know-how of organizations entail tacit knowledge – rules, procedures, and ways of doing things that are part of the organization’s culture

Building and Sustaining Trust and Commitment       

Pick your partner carefully: must believe they can trust each other, and that mutual commitment is possible Know your strategic goals and those of your partner: realize that strategic goals for the ICA or IJV may change Seek win-win situations: each side must gain something of importance from the relationship Go slowly. realize that problems arise and take time to work out Invest in cross-cultural training: cross-cultural sensitivity and language competence leads to more success Invest in direct communication: greater success in dealings face-to-face Find the right level of trust and performance: reference Figure 9.8

Exhibit 9.8 The Right Level of Trust and Commitment (Shows the trade-off between the vulnerability that comes with trust and commitment and their benefits) © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 9/ International Strategic Alliances: Design and Management

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Assessing the Performance of an International Strategic Alliance     

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Strategic alliances should contribute evenly to their parents’ profitability Standard efficiency measures of performance are used when immediate results are needed However, strategic alliances provide direct and indirect benefits Direct Benefits  Stand alone profit centers provide direct financial benefits to parents Indirect Benefits  Penetrate risky markets,  Learn new markets or technologies,  Overcome local political barriers,  Develop a presence in the market  Support other competitive tactics IJV and ICA performance criteria – often must include other than financial criteria, such as organizational learning Subjective performance criteria  Creating harmony among the partners,  Identifying product adaptations for a new market,  Capturing market share to gain first-move advantages over competitors  “Alliance satisfaction”  Goal accomplishment

Exhibit 9.9 Selected Performance Criteria for Strategic Alliances (Shows a list of potential performance measures that parents companies use to evaluate their strategic alliances)

If the Alliance Does Not Work     

If alliance does not work, managers have two choices: negotiate an end to agreements or improve implementation Art of managing alliances means knowing when to quit or invest more resources Escalation of commitment – companies continue in an alliance relationship longer than necessary because of past financial and emotional investments Plan for the end of the alliance from beginning - “prenuptial agreements” Death should not be confused with failure – many alliances are intended to be short-term

Learning to Partner: Building a Dedicated Strategic Alliance Unit and Key Lessons from Cross-Border Alliances    

Alliances are so common today that companies are developing specialized units to manage their design Experiences companies that have had many strategic alliances are taking the experiences of what has worked and has failed and are developing templates of successful practices Typically, only the very large multinational companies have enough alliances to dedicate the resources necessary to create a specialized unit Key lessons learned from successful cross-border alliances  Understand and appreciate business and cultural differences  Keep strong executive support  Communicate  Commitment, trust and dedication  Have checkpoint as the alliance is being implemented  Review alliance’s viability

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Summary and Conclusions        

The use of strategic alliances continues to grow in the global business environment The most important decision in strategic alliances management is picking the right partner Strategic alliances have no set structure in ownership, decision making control, of management control Partners negotiate structures that support their strategic goals Most experts consider trust and commitment as basic foundations for successful alliances Because strategic goals for strategic alliances are varied and subtle, strategic alliances performance is difficult to determine Strategic alliances are inherently unstable and many will fail International strategic alliances are now so common among the major multinational companies that many have formalized the process of implementing them and their organizations

Answers to In the News Questions From MindTap Chapter 09: British Petroleum 1. British Petroleum is one of the largest oil companies in the world. Like many oil companies, there is an attraction to invest in Russia due to its vast reserves of oil. Since 2003, BP operated through TNK-BP, a 50-50 joint venture with AAR, a consortium of Russian investors. Accounting for 25% of BP's production, the TNK-BP joint venture is one of the BP's most valuable assets worldwide.

What are the main challenges TNK-BP's new CEO will face? What should be his or her priorities on taking this position?

Suggested Answer: Answers will vary. TNK-BP's new CEO, when appointed, will have his task cut out for him or her. Challenges will include facing the highly politicized business environment in Russia and falling oil prices. The CEO should expect difficult negotiations with BP's Russian partner Alfa/Access Renova (AAR) as the companies have had disagreements in the past over contracts and payments.

The new CEO must understand that there is a growing trend of nationalization in Russia. Given the country's increasingly important role in the global economy, the Russian government could nationalize and control a majority interest in TNK-BP. The Russian government has the power to affect TNK-BP's operations through taxes, laws, and by setting the prices as it sees fit.

2. World oil prices had dropped to around $40/bbl. How would that affect TNK-BP and especially what impact would it have on AAR's attitude toward TNK-BP? How would it affect the Russian government's attitude?

Suggested Answer: Answers will vary. The lowering of prices would reduce revenues for TNK-BP and give rise to dissent among the partners. AAR would argue, as they have done in the past, that BP runs the operation to best serve its interests by appointing foreign executives and would demand more Russian positions in top management. It will want the TNK-BP partnership to expand their business beyond Russian borders to comfort shareholders and ensure that earnings remain stable.

The Russian government would support this move since revenues from energy exports and the oil industry make up a large portion of Russia's GDP. The government could also nationalize and thereby control TNK-BP by setting the prices, laws, and policies to make terms more unfavorable for BP to run operations in Russia. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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3. Should BP's attitude toward its Russian venture change?

Suggested Answer: Answers will vary. The dangers of investing in Russia have been long underestimated by western companies. Strong nationalist sentiments, slow political and bureaucratic processes, and an abundance of third-party "fixers" have always been a hindrance to investment. BP's interest in the area and its continued interest in Russian operations should not change but rather evolve to find a CEO who will understand the cultural, political, and social climate of Russia.

Chapter 09: Nuclear Power Corporation of India Limited 1. Nuclear Power Corporation of India Limited (NPCIL) is a leading Indian firm specializing in the construction and operation of nuclear power plants. Unlike in some countries, there is significant support in India for nuclear power as a clean form of energy. To meet this demand, NPCIL has used strategic alliances extensively, both domestic and international.

Why have strategic alliances played such a role in Nuclear Power Corporation of India Limited's (NPCIL's) expansion strategy?

Suggested Answer: Answers will vary. NPCIL has collaborated with other Indian firms such as National Electronics Corporation of India (NPTC), Heavy Engineering Corporation Limited (HEC), The Indian Railways, and Indian Oil Corporation (IOC), amongst others. NPCIL has also tied up with international entities such as Areva and Korea Electric Power Corporation. These strategic alliances will allow India's nuclear industry to compete on a global stage by constructing reactors and developing related technology.

2. What benefits can NPCIL achieve by using foreign partners to build nuclear power plants in its home country India? How would you structure such agreements?

Suggested Answer: Answers will vary. NPCIL has signed a memorandum of understanding (MoU) with Kazakhstan, Cambodia, Myanmar, Malaysia, and other countries to export nuclear reactor technology and related services. NPCIL will assist many of these countries to develop their first nuclear reactor. Agreements such as this allow for the development of related services. All this research and development would also help NPCIL build and design better ones.

3. NPCIL uses alliances with partners in other developing nations to export reactor technology.

How might such an agreement be structured to protect NPCIL's intellectual property?

Suggested Answer: Answers will vary. The Department of Atomic energy (DAE) would be instrumental in protecting India's intellectual property in case of agreements with other developing nations. In conjunction with the Controller of patents in India and a special intellectual property rights cell within DAE, any intellectual property created in the process of research and development during such agreements is protected by clauses and belongs to NPCIL. Chapter 09: PGT Healthcare 1. PGT Healthcare is a joint venture between Proctor & Gamble and Teva Pharmaceuticals, a multinational Israeli company. Swisse Wellness is an Australian firm that produces and sells vitamins, minerals, and supplements in Australia, New Zealand, and the United States. This relationship will allow PGT Healthcare to market Swisse Wellness' products in Europe and Asia.

This agreement represents an example of an "elephant and ant" relationship where the elephant, PGT Healthcare, partners with the ant, Swisse Wellness, to market their products worldwide. If © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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you were the Swisse Wellness executives, how would you structure the agreement to avoid domination by the larger partner?

Suggested Answer: Answers will vary. In this agreement, Swisse Wellness still continues to function from its offices in Melbourne and have a say in how it markets its products in Australia while benefiting from the larger partner's expertise in breaking into foreign markets.

Assistance from local and national governments guaranteed in the agreement through laws and negotiations are also crucial in making sure that the smaller partner, Swisse Wellness, is not dominated by the larger company.

2. Given its scale of operations and presence in over 70 countries, would an acquisition of Swisse Wellness be a better structural option for PGT Healthcare?

Suggested Answer: Answers will vary. Swisse Wellness has been a fast growing OTC (over-thecounter) company in Australia. Its performance has been so great that it is now the best in its category of products outside of the new emerging markets. The new licensing deal will combine the expertise and resources for rapid expansion that PGT Healthcare is known for and the values at Swisse Wellness to create a global brand that will make them a household name around the world.

3. What are the complementarities between these companies that suggest that the alliance may be successful?

Suggested Answer: Answers will vary. PGT Healthcare's understanding of consumers worldwide, large scale production, and marketing expertise would be allied with Swisse Wellness's expertise in its Vitamins, Minerals, and Supplements (VMS) product development, expansive portfolio of more than 100 products, and marketing model to allow the new megabrand to market VMS to markets such as Europe, Asia, and Latin America.

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 10/ Multinational e-Commerce: Strategies and Structures

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CHAPTER 10 MULTINATIONAL E-COMMERCE: STRATEGIES AND STRUCTURES Learning Objectives      

Define the forms of e-commerce Understand the structure of the Internet economy Identify the basic components of a successful e-commerce strategy Know the basic multinational e-commerce business models Identify the practicalities of running a multinational e-commerce business Understand the function of enablers in e-commerce operations

Introduction  

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Although still small by comparison to the traditional economy, the Internet economy is booming and growing faster than any other business trend in history The Internet and electronic commerce (e-commerce) are drastically changing how international business is done  By 2016, there will be approximately 3 billion Internet users worldwide  Use of mobile-cellular subscriptions, another important indicator of people's access to the Internet, reached penetration rates of 96% worldwide in 2013 

Mobile broadband subscriptions have also been growing explosively

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Online advertising is expected to grow 12% a year and will total almost $124 billion in 2016

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In 2016, it is expected that 1.32 billion individuals will be buying goods and services online compared to 793 million individuals in 2011

Next generation of multinational managers must address unique challenges in formulating and implementing multinational strategies for the Internet economy Chapter provides essential background on the nature of e-commerce and the Internet economy

The Internet Economy What is E-Commerce?  

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E-commerce – the selling of goods or services over the Internet Two types of e-commerce transactions  B2C – business-to-consumer transactions  B2B – business-to-business transactions o Makes up 70-85% of current e-commerce business o Significance of B2B comes from the revolution in supply chain management made possible by electronic links between businesses and suppliers o The developments in IT and IT-related technologies have enhanced the ability of companies to collaborate on all aspects of the value chain E-commerce diffusion is occurring at a rapid pace worldwide. A recent study identified the factors encouraging this growth o Relative advantage: can e-commerce provide advantages to the company when performing a task compared to previous ways of doing the same task?

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Compatibility: is adoption of e-commerce compatible with widely held values in the company?

Organizational readiness: is the company ready to adopt e-commerce?

Managers' characteristics: does the management of the company have positive attitudes towards adoption of e-commerce?

Security: is e-commerce adoption safe?

Exhibit 10.1 E-Commerce Value Chain (Shows how e-commerce activities work along the value chain)    

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New forms of business are spawning through the use of the Internet C2C – consumer-to-consumer transactions C2B – consumer-to-business transactions (i.e. price comparison web sites) Increased adoption of the Internet by governments worldwide has spawned new forms of government-related e-commerce 

C2G -- citizen-to-government transactions

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B2G – business-to-government transactions

Current global presence of e-commerce is measured by two indicators  Secure server – Internet host that allows users to send encrypted data  Internet host – computer connected to the Internet with its own Internet Protocol address OECD (Organization for Economic Cooperation and Development) countries dominate the Internet

Exhibit 10.2 Internet Economy as a Percentage of GDP for Selected Countries (Shows the data for G-20 countries.)

Exhibit 10.3 Number of Digital Buyers Worldwide (Shows the trend in the number of households with Internet access in different part of the world)    

The OECD sees broadband development as a critical aspect of the Internet and e-commerce Broadband can result in economic growth, facilitating social and cultural development, and even innovation A recent report suggests that countries that invest in broadband enjoy an even greater “productivity surplus” than access to the Internet through other meansA good Internet infrastructure is required to benefit economically from the Internet Network Readiness Index examines the readiness of countries to benefit from products and services relying on the Internet

Fundamentals of E-Commerce Strategy and Structure  

E-commerce is evolving quickly The failure of many start-ups demonstrate that the Internet economy is not without risk

Exhibit 10.4 E-Commerce Business Models: Openings and Barriers for Going Global (Provides a summary of the threats and opportunities in each layer in the Internet economy) Exhibit 10.5 Do’s and Don’ts of E-commerce (Provides a summary of e-commerce do’s and don’ts based on best practices)

Steps for Successful E-Commerce Strategy © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Seven fundamental requirements 1. Leadership - successful e-commerce is only possible through dynamic and strong leadership 2. Build on current business models and experiment with new e-commerce models – search for ways to reduce costs or enhance traditional services 3. Meet the challenge of developing an e-commerce organization – basic choice is between a separate autonomous entity for e-commerce business and a seamless integration into the current model; also requires strong commitment throughout the organization 4. Allocate resources – commit financial, human, and technological resources to developing e-commerce capabilities 5. Have an e-commerce strategy - companies should ensure that e-commerce is not implemented haphazardly; implement a strong strategic plan 6. Develop appropriate e-commerce systems – to fully benefit from e-comments, there has to be a cultural transformation in how information flows through the organization 7. Measure success - companies need to have metrics in place to measure e-commerce success

E-Commerce Strategies: Integrated or Autonomous     

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Each company needs to decide how e-commerce fits into its existing organizational design and management systems Brick-and-mortar – traditional or nonvirtual business operation Degree of interaction between brick and mortar operations and Internet business can occur anywhere in the value chain The degree of integration can range from the near seamless operations of an Office Depot to the mostly independent operations of Barnes & Nobles and Barnesandnoble.com Each choice has benefits  The independent operation can move faster and be more entrepreneurial when freed from corporate bureaucracy and it can seek funding from deep pockets of venture capitalists  The integrated operation can benefit from cross-promotion of shared products, shared customer information, increased large-quantity purchase leverage, and economies of scale by using the same distribution channels Best option for companies is something in between independent and integrated

Exhibit 10.6 Key Decisions in Web Business Integration (Shows a decision model with the questions that managers must consider when choosing the best level of integration for the e-commerce unit) 

Ways companies can integrate their online and offline operations  Keep customers informed  Share customer data across channels

Additional Operational Challenges for an E-Commerce Business 

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Findings of the Towers Perrin Internetworked Organization Survey  Many companies have difficulty finding partnerships and alliances with customers or third parties  Because of shortage of people with e-commerce skills, it is difficult to attract, retain, and develop employees in the e-commerce unit  Training and development in e-commerce are not yet adequate  Finding ways to provide individuals with growth opportunities and job satisfaction drives employee retention in e-commerce  Deciding what e-commerce functions to outsource is difficult How can companies meet these challenges?  Develop information and management systems to respond to rapid growth

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 Maintain rapid decision making, creativity, innovation, and flexibility  Build external relationship with e-commerce support companies and customers  Attract and retain e-commerce-capable talent  Develop an effective management team Traditional companies with e-commerce must:  Build a common vision and commitment to the e-commerce operation throughout the organization  Change the organization structure to emphasize quick reconfiguration of assets and capabilities  Change the organization culture to create a supporting environment for e-commerce  Attract and retain e-commerce-skilled employees  Alter HR programs to suit the different skill requirements of e-commerce employees

Exhibit 10.7 Recent and Expected Organizational Changes in Major Multinational Companies Building E-Commerce Businesses (Shows the organizational changes multinational companies are making to implement their ecommerce strategies)     

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E-commerce security – degree to which customers feel that their private and personal information is safeguarded by companies collecting it Cyber criminals are becoming increasingly sophisticated As the Internet becomes a crucial medium of international trade and commerce, countries are also being urged to improve Internet security Multinationals also are being encouraged to beef up their Internet security.

Companies need to be concerned about a number of information security issues.  Confidentiality - making sure that private information is protected  Availability - ensuring that information is accessible to authorized users  Integrity - ensuring that the information collected is accurate and reliable  Authentication - having systems in place to ensure that persons using the systems are legitimate To ensure that these Internet security issues are addressed, experts suggest the following: 1. Use firewalls, intrusion detection software, and antivirus shields 2. Encrypt data 3. Require two-phased authentication 4. Use Web site monitoring tools 5. Abide by privacy rules

Globalizing Through the Internet   

The increase in information exchanges and efficiency due to the Internet and e-commerce has made it possible for companies to reach customers worldwide However, the Internet also is enabling the emergence of a new form of multinational, the bornglobal firms.

Although a Web site immediately gives the entire world access to a company’s products or services, many of the challenges of globalization faced by traditional brick-and-mortar companies remain  A company must still solve the global-local dilemma

Multinational E-Commerce Strategy Formulation: The Nature of the Business 

What kind of e-business is easiest to make global?

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 

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Depends to a large degree on the types of products or services offered through ecommerce E-Commerce companies work in three areas  Some move bits or computerized information  Others move money in payment flows  Others move physical products Each type of operation requires an infrastructure to support the transactions There is a hierarchy of difficulty in e-commerce depending on infrastructure requirements  Portals and infomediaries, are the simplest, and provide gateways to the internet  At the next level are businesses such as travel services, digital music, and software vendors – must rely on local infrastructure to take payments for their products  Most difficult are e-commerce businesses that rely on a physical infrastructure Large multinational firms that enter e-commerce with an existing global presence often have an advantage

Basic Opportunities and Threats of Multinational E-Commerce 

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Major attractions of e-commerce globalization are:  Cost reduction – relatively inexpensive to reach international customers via Web  Technology – readily available  Efficiencies – electronic communication and processes can be very efficient  Convenience – Web is in operation all the time regardless of location  Speed of access – company’s products or services can be accessed from anywhere in the world Some deterrents include:  Return/receipt burden and cost of delivery – if pattern follows catalogue sales, companies should expect 30-40% return rate  Costs of site construction, maintenance, upgrades – can cost millions of dollars per year  Channel conflicts – a company’s websites can conflict with distributors and retailers selling the company’s products  Easily copied models – competitors can easily see and copy product/service/business model  Cultural differences – Web sites must be multilingual and culturally appropriate  Traditional cross-border transaction complexities – exchange rates, varying taxes, and government regulations  Standard or local Web sites – decision to standardize or tailor to local context  Customer trust and satisfaction – determine whether customers abroad will trust and be satisfied Multinationals considering e-commerce need to consider a range of factors, such as culture, customs, and technical sophistication, in addition to adapting their products to meet local needs, as significant cultural differences can pose serious challenges to e-commerce

Picking a Market 

Web entrepreneurs should target countries based on two factors  Attractive market for e-commerce are those with market inefficiencies – ex: formerly state-controlled economies  Target markets with attractive demographics – includes locations with: o Internet population of at least 5% o High literacy rate o A country that participates in at least one free trade agreement o Government with viable legal system  E-commerce potential is great in South America because of the Mercosur trade group and in Southeast Asian countries in the ASEAN trade group © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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The European Union is the next boom for e-commerce because many countries such as France, Italy, and Germany have retained market inefficiencies of the pre-Union days Not all countries are equally e-commerce ready  The population must have access to computers and infrastructure links to the Internet  Governments and financial institutions must be ready to protect and process e-commerce transactions

Exhibit 10.8 Web Index for Selected Countries (Shows a ranking of the e-commerce readiness of selected countries)  

Growth in e-commerce shows that benefits outweigh the risks Competition is heating up – achieving sustainable competitive advantage is difficult where competitors can easily copy business models

Multinational E-Commerce Strategy Implementation 

Successful implementation of a multinational e-commerce strategy requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions

The Multinational E-Commerce Organization  

Amazon.com and Yahoo! provide the most likely models They are three-tiered, mixing global and local functions  Corporate headquarters provide the vision, strategy, and leadership that drive the electronic marketing  Headquarters provides shared services  Local subsidiaries, which actually deliver goods, take charge of functions better done locally such as managing the supply chain and dealing with regulations

Exhibit 10.9 Organizational Structures of the Multinational E-Corporation (Illustrates the Levels and Functions of the Multinational E-Corporation)

Technical Capabilities and Implementation Options for Multinational ECommerce 

Components of a successful multinational online presence require electronic capabilities and support throughout the value chain, such as:  Software to process pricing in multiple currencies  Systems that calculate and show purchase information on international shipping, duties, and local taxes such as VAT  Systems that check regulatory compliance with local and international laws  Ability to give support in multilingual service centers  Fraud protection  Electronic payment models in addition to credit cards

Web Sites: Localize or Standardize?    

Standardized web site – web site that is similar in design and layout around the world Localized web site – web site that is adapted to the local cultures Decision to standardize or localize should consider cultural factors, language differences, need for information flow, and customer demands McDonalds is an example of a company that has chosen to localize its online presence, designing its websites to appeal to both high-context and low-context cultures

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Recent studies show evidence of the need for multinationals to adapt their websites according to cultural preferences

 Exhibit 10.10 Major Problems Identified in Web Site Globalization (Suggests that organizational challenges are among the most important issues affecting Web site globalization)

To Build or Outsource Technical Capabilities? 

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Two basic options:  Run all e-commerce functions themselves  E-commerce enablers – fulfillment specialists that provide other companies with services such as Web site translation (as an outsource option) The enablers provide services and software that translate Web sites, calculate shipping, valueadded taxes, duties, and other charges unique to each country E-commerce enablers exist because many companies do not have the internal resources or capabilities to conduct all e-commerce functions Many enablers now exist that specialize in helping companies globalize their e-commerce In addition to e-commerce enablers that provide transaction services, numerous companies also offer web translations Some have automated the process Culturally sensitive enablers go beyond simple translation - Web sites must be sensitive to cultural and religious differences Discussion forums, blogs, and social networking sites are creating new opportunities for companies Consumers are using user-generated content (UGC) to make purchasing decisions

Summary and Conclusions      

Chapter introduced basic concepts of general and multinational e-commerce E-commerce is expanding geometrically Although the US dominates e-commerce, other areas of the world are catching up Fundamentals of e-commerce strategy emphasize building on traditional business models and experimenting with cost reductions and areas of differentiation that Internet use might provide Companies conducting multinational operations via the Internet face some of the same challenges faced by brick-and-mortar multinationals The Web will probably be one of the most important drivers of globalization in the future

Answers to In the News Questions From MindTap Chapter 10: Bodybuilding.com 1. This case discusses the services provided by an e-commerce facilitator, Sajan Inc., in assisting the Bodybuilding.com company enter the Brazilian market. The case discusses some of the challenges inherent in developing a website for a new market.

What are some of the challenges facing Bodybuilding.com as it enters the online market in Brazil?

Suggested Answer: Answers will vary. Some of the challenges that Bodybuilding.com faces as it enters the online market in Brazil are as follows: Bodybuilding.com would need to hire a translation provider to translate its existing online platform into the local languages. Such a service provider would have to ensure that the translation would be understood and should provide © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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appropriate branding for Bodybuilding.com's products. The platform would also have to be flexible, allowing the addition of languages, and should be an intuitive, yet robust backend for the company's products.

2. What services does Sajan Inc. provide to make entering the Brazilian online market much easier? Why does Bodybuilding.com not enter the market on its own?

Suggested Answer: Answers will vary. The team at Sajan Inc. used its own translation management system, Sajan Transplicity, automating the management of the company's content from around the globe. Sajan's localization team worked closely with the staff at Bodybuilding.com to gain an understanding of how the processes at Bodybuilding.com worked. This has helped Bodybuiling.com to express its highly structured content to people in Brazil in their native language.

Bodybuilding.com did not enter the market on its own as it did not possess enough resources to adequately take on the challenge of localization.

Chapter 10: Belinda Chen 1. This case discusses Belinda Chen's decision to join Chinese online retailer JD.com instead of Amazon.com. She graduated from the Wharton and decided to join a Chinese rival of Amazon.

Why is the Chinese e-commerce retailing market booming?

Suggested Answer: Answers will vary. China is experiencing a huge e-commerce boom because of companies such as Alibaba, Tencent, JD.com, and Huawei. Most of these Chinese companies are so successful that they are starting to compete with international giants such as Apple and Microsoft. The growth of these companies is fueled by the innovation of talented Chinese professionals who are choosing to stay in China rather than try their luck in foreign assignments after their higher education.

2. Do you think it is a smart decision for Ms. Chen to join JD.com instead of Amazon.com? Would you make the same decision in her situation? Why or why not?

Suggested Answer: Answers will vary. It is definitely a smart decision for Ms. Chen to join JD.com instead of Amazon.com. China's e-commerce boom and thriving tech sector are attracting young professionals.

Therefore, it is a great opportunity to work in such a high-growth environment such as online retail.

I would also make the same decision if I were in her place since it would be a great career move to join these companies during this phase of economic growth in the sector.

3. What are some advantages Ms. Chen expects from joining JD.com?

Suggested Answer: Answers will vary. By joining JD.com, Ms. Chen expects advantages such as opportunity to work in a high-growth environment, being closer to her family, and help from her existing local networks, which will help her create innovative products and services. Another advantage is that she will be closer to senior management.

Chapter 10: Global E-commerce 1. This case reports on a recent study about the extent to which global businesses are e-commerce ready to expand globally. The case emphasizes the potential that websites offer in terms of such global expansion. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Why is global expansion through e-commerce a critical goal for any organization worldwide?

Suggested Answer: Answers will vary. Increasingly, large and small business worldwide are taking advantage of international trade through the Internet. Organizations can expand their interactions with customers directly through e-commerce, making it vital for any company that wants to sell products or services. E-commerce lowers costs with regards to trade and logistics across borders.

This allows organizations to gain more profit, which, in turn, is invested to create new products or services and to expand their market influence.

2. What are the critical elements of any company's effort to go global through a website? What features of such websites are critical?

Suggested Answer: Answers will vary. Companies who want to go global through a website need to customize their presence online in a way that reflects local culture and language and gets their branding across clearly. For example, preferred social platforms and search engine optimization are dramatically different around the world. There is no one-size fits all solution. Translation and localization services are the most in-demand internationalization requirements.

3. What are some factors preventing companies from going global through their websites? What are some critical barriers?

Suggested Answer: Answers will vary. Though going global through the Internet helps companies reduce the cost of logistics, communication costs go up. Part of the increase in costs is due to adapting the company's message to local culture or language in different parts of the world. This shifts the company's focus from other priorities such as procurement or processing.

This kind of case-by-case localization is a critical barrier that prevents companies from going global through their websites.

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 11/ International Human Resource Management

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CHAPTER 11 INTERNATIONAL HUMAN RESOURCE MANAGEMENT Learning Objectives          

Know the basic functions of human resource management Define international human resource management Understand how international human resource management differs from domestic human resource management Know the types of workers that multinational companies use Explain how and when multinational companies decide to use expatriate managers Know the skills necessary for a successful expatriate assignment Understand how expatriate managers are compensated and evaluated Appreciate the issues regarding expatriate assignments for female managers Know what companies can do to make the expatriate assignment easier for their female expatriates Understand the relationship between choice of a multinational strategy and international human resource management

Introduction  

More multinationals are seeking internationally experienced managerial talent to run their operations in the global market Key ingredient of any successful multinational strategy includes using compatible human resource management (HRM) policies

International Human Resource Management Defined 

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Human Resource Management – recruitment, selection, training and development, performance appraisal, compensation, and labor relations  Deals with the overall relationship of the employee with the organization  Major goals are managing and developing human assets Basic HRM functions:  Recruitment: identification of qualified individuals for a vacant position  Selection: choosing an individual for the position  Training: providing opportunities to help the individual perform  Performance appraisal: assessing the individual’s performance  Compensation: providing the adequate reward package  Labor relations: the relationship between the individual and the company

International Human Resource Management and International Employees  

International human resource management (IHRM) – all the HRM functions, adapted to the international setting Two added complexities compared to domestic HRM  Mixture of workers of different nationalities  Necessary to decide how much HRM policies should be adapted to national culture, business culture, and social institutions

Types of Employees in Multinational Organizations 

Expatriate – employee who comes from a country that is different from the on in which they are working © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Home-country nationals – employees who come from the parent firm’s home country Third-country nationals – expatriate workers who come from neither the host nor home country  Host-country nationals – local workers who come from the host country where the unit is located  Inpatriates – employees from foreign countries who work in the country where the parent company is located  Flexpatriates – employees who are sent on frequent but short-term international assignments  International cadre (or globals) – managers who specialize in international assignments  Given the high cost of expatriate assignments, flexpatriates and short-term assignments are becoming more popular  Commuter assignments employees -- employees who live in one country but spend at least part of the working week in another country  Self-initiated expatriates are employees who independently decide to move to another country to work and can offer many advantages to the multinational  Provide the multinational with expertise in the local culture  Do not require the same expensive packages compared to regular expatriates  Provide the multinational with qualified local job expertise at minimal cost  Possible disadvantages  Can be unreliable  Their vision may not always coincide with the multinational's goals

Multinational Managers: Expatriate or the Host-Country   

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Deciding on how many expatriates or local managers to use depends on a company’s multinational strategy A firm can approach this staffing decision by answering questions such as:  Given our strategy, what is our preference for this position (host country, home country, or third country national)?

For Expatriate Managers:  Is there an available pool of managers with the appropriate skills for the position?  Are these managers willing to take expatriate assignments?  Do any laws affect our assignments of expatriate managers?

For Host Country Managers:  Do our host country managers have the expertise for the position?  Can we recruit managers with the desired skills from outside our firm?

Is the Expatriate Worth It?   

IHRM decisions using expatriates must take into account the costs of such assignments Compensation packages depend on the cost of living in the host country Multinationals are also advised to properly train their employees to deal with emergencies and to plan for catastrophic events 

Develop protocol as well as ways of dealing with the local government



Develop processes and plans for dealing with specific events

Exhibit 11.1 Percent of Millenials who want to Work Outside of their Home Country During their Careers (Shows the percentage, by country, of Millenials who want to work outside their home countries.)  

Even with such high costs, the success of an expatriate manager is not guaranteed Surveys show that U.S. multinational often have failure rates for managers in overseas assignments ranging from 10 to 40%  Typical reasons for U.S. expatriate failure © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 

Individual o Personality of the manager o Lack of technical proficiency o No motivation for international assignment  Family o Spouse or family members fail to adapt to local culture or environment o Family members or spouse does not want to be there  Cultural o Manager fails to adapt to local culture or environment o Manager fails to develop relationship with key people in the new country because of the complexities of cultivating networks with diverse people  Organizational o Excess of difficult responsibilities or international assignment o Failure to provide cultural training and other important pre-assignment training such as language and cultural acquisition training o Failure of company to pick the right people for the job o Company’s failure to provide the technical support domestic managers are used to o Failure of company to consider gender equity when considering candidates Some companies sees international assignments as having a key strategic role Benefits  International assignments help managers acquire skills necessary to develop successful strategies in a global context  Expatriate assignments help a company coordinate and control operations dispersed geographically and culturally  Global assignments provide important strategic information  Global assignments provide crucial detailed information about local markets  Global assignments provide important network knowledge  Global assignments can benefit employees personally

Exhibit 11.2 Most and Least Expensive Cities (Shows the 2014 rankings for the ten most and least expensive cities based on the 211 cities surveyed by Mercer)

The Expatriate Manager 

Successful multinational organizations develop IHRM policies that maximize their effectiveness

Selecting Expatriate Managers   

US multinationals traditionally assumed that domestic performance predicts expatriate performance Besides professional and technical competence, other factors are important for success Key success factors for expatriate assignments are relational abilities, family situation, motivation, and language skills  Technical and managerial skills: only managers with excellent technical, administrative, and leadership skills have strong likelihood of success  Personality traits: to be able to deal with uncertainties and novelty, expatriate must be flexible, willing and eager to learn new things, be able to deal with ambiguity, have an interest in other people and cultures, and have a good sense of humor  Relational abilities: need the skills to be able to adapt to strange or ambiguous situations; to modify their own behaviors and attitudes  Family situation: consider family situation as the assignments affect spouse and children

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International Motivation: managers must have motivation to accept expatriate assignments  Stress tolerance: the ability to tolerate stress, to maintain composure in the face of extreme stressors  Language ability: ability to speak, read, and write the host country language enhances other success factors  Emotional intelligence: being aware of oneself, understanding and relating to others, being empathetic, and managing one’s emotions  Cross-cultural social intelligence: the ability of an individual to gauge and understand verbal and nonverbal cues from a variety of cultures, suggesting that the individual can make accurate social inferences from the cultural situation and is also able to behave in the appropriate way to address these cues Exhibit 11.3 Expatriate Success Factors and Selection Methods (Shows some of the key success factors and selection techniques used in the expatriate selection process) 

Priority of success factors depends on four assignment conditions:  Assignment length: short-term assignments focuses primarily on technical and professional qualifications  Cultural similarity: between home and host country  Amount of required interaction and communication: with local people  Job complexity and responsibility

Exhibit 11.4 What Percentage of Companies are Using more Short Term Assignments?

(Based on latest trends as reported by Mercer Consulting.)

Exhibit 11.5 Selecting Expatriates: Priorities for Success Factors by Assignment Characteristics (Summarizes issues to consider in setting priorities in the expatriate selection process)

Training and Development   



 

Cross-cultural training – increases the relational abilities of future expatriates and, in some cases, of their spouses and families Many multinational companies still do not invest heavily in cross-cultural training The content of the training should be matched with the multinational’s goal in the new country 

Intercultural training can be critical in ensuring success



Should include immersive learning opportunities in addition to general knowledge or facts about the host country

Training rigor – extent of effort by both trainees and trainers required to prepare the expatriate  Low rigor training lasts for a short period and includes techniques such as lectures and videos on the local culture and briefings concerning company operations  High rigor training may last for over a month and contains more experiential learning, extensive language training, and often interactions with host country nationals Host country mentors can positively impact expatriates’ organizational knowledge, job performance, promotability, and teamwork Host country buddy programs can help expatriates adjust to their new surroundings and deal with the challenges of settling into a new country—for example, shopping for houses and selecting schools

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Performance Appraisal for the Expatriate  

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Conducting a reliable and valid performance appraisal is one of the greatest IHRM challenges Some issues that make expatriate performance appraisals difficult  Fit of international operation in multinational strategy – companies often enter international operations for strategic reasons other than immediate profits  Unreliable data – local subunit data may not be comparable to home country data or from other international operations  Complex and volatile environments - international environment can change rapidly  Time differences and distance separation – expatriates are often out of sight, out of mind Steps to improve the process  Fit the evaluation criteria to strategy - use appropriate performance measures  Fine tune the evaluation criteria - consider carefully all objectives for the international operation  Use multiple evaluators with varying periods of evaluation - complexity of international situation demands more information than similar appraisals done at home A recent study identified the following as characteristics of performance appraisal system success 

clarification of expectations before the appraisal is conducted

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a generally fair system

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incorporation of how the performance appraisal would be used to enhance career development

Exhibit 11.6 Building Cross-Cultural Training Rigor: Techniques and Objectives (Shows various training techniques and their objectives as the rigor of the cross-cultural training grows) Exhibit 11.7 Training Needs and Expatriate Assignment Characteristics (Suggests a need for increased training rigor) Exhibit 11.8 Evaluation Sources, Criteria, and Time Periods for Expatriate Evaluation (Shows several common components of expatriate performance appraisals)

Expatriate Compensation   

Expatriate compensation presents significant challenges to companies Companies must manage high cost of expatriate assignments with appropriate packages needed to entice expatriates to relocate and motivate performance Compensation packages tend to include many common factors.  Local market cost of living  Housing  Taxes  Benefits

The Balance Sheet Approach   

Balance sheet method attempts to equate purchasing power in the host country with purchasing power in the expatriate’s home country Aim is that the expatriate should not be any better or worse financially as a result of taking the assignment Typically provided additional salary to include adjustments for differences in taxes, housing costs, and basic goods and services

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Exhibit 11.9 A Balance Sheet Approach to Expatriate Compensation (Provides a simple view of how the balance sheet approach works) 

Other allowances and perquisites  Foreign service premiums - from 10% to 20% of base pay for accepting the individual and family difficulties associated with an overseas assignment  Hardship allowance: extra money for difficult posting due to issues such as high risk or poor living conditions  Relocation allowances: often one month’s salary paid at beginning and end of assignment for miscellaneous costs of relocating  Home-leave allowances: transportation costs for expatriates and families to return home once or twice a year

Other Approaches  

  



Headquarters-based compensation system – paying home-country wages regardless of location  Works well when home country wages are high compared to local assignment’s cost of living Drawbacks to the headquarters-based compensation system 

Can be a problem in high-cost locations



Accentuates salary inequities between expatriates and local managers



Can result in salary inequities even among expatriates going to different countries

Wean expatriates gradually from dependence on perks and allowances Host-based compensation system – adjusting wages to local lifestyles and costs of living  Expects the expatriate to become an efficient consumer Global pay systems – worldwide job-evaluations, performance appraisal methods, and salary scales are used  Often used for multiple and continual global assignments  Reduces waste from expatriate perquisites, eliminates steep differences in compensation, and maintains compensation equity for long-term international cadre managers Experts suggest that multinationals consider the following when designing compensation systems 

Design compensation systems that are attractive enough to encourage managers to take on expatriate assignments in areas critical to the multinational

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Be mindful of costs associated with various compensation plans and implement the most effective and efficient programs

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Strive to provide systems to ensure that expatriates have stability in terms of lifestyle and economic status

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Treat all of its employees fairly and consistently



Be consistent with the overall direction and strategy of where the multinationals want to be in the future



Implement systems that are easy to administer



The Repatriation Problem 

Bringing expatriate employees home and back into full participation in the company is a difficult problem for many organizations © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Repatriation problem – the difficulties that managers face in coming back to their home countries and reconnecting with their home organizations “Reverse culture shock” - people must relearn the subtleties of their own cultural norms, values, and beliefs  The expatriate must adapt to what is often a new work environment and organizational culture of the home office  Expatriates and their families must relearn to communicate with friends and coworkers in the home and organizational culture  Many expatriates need time to adapt to the basic living environment such as school, food, and weather Strategies for successful repatriation  Provide a strategic purpose for the repatriation  Establish a team to aid the expatriate  Provide home country information sources  Provide training and preparation for the return

International Assignments for Women        

Only 12% of expatriates are women Statistics show that, although multinational companies are willing to promote women domestically, they are reluctant to post them overseas Personnel managers believe foreigners would be prejudiced against women managers Very women few have top management positions North American companies use more women in international positions than do Asian or European companies Expatriate glass ceiling – the organizational and structural barriers preventing female managers from receiving international assignments Why are there such strong barriers?

Two important “myths”  Myth 1: Women do not wish to take international assignments: not true, survey showed that three-quarters of women would choose an international position  Myth 2: Women will fail in international assignments because of the foreign culture’s prejudices against local women: survey showed that over 95% of women reported successful expatriate assignments

Successful Women Expatriates: Foreign, Not Female  

Women are considered as foreigner, not female Cross-cultural interactions depend more on how host country people react to people of another nationality than on how they react to an expatriate’s gender

The Woman’s Advantage and Disadvantage 

The woman’s advantage  They are more visible  More likely to excel in relational skills, a major factor in expatriate success  A wider range of interaction options  A recent study found that female expatriates had higher scores of self-transcendence than male expatriates, which is linked to stronger cultural and work adjustment



The woman’s disadvantages  Face the glass ceiling  Need to balance work and family responsibilities  Need to worry about accompanying spouse

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What Can Companies Do to Ensure Female Expatriate Success?  

Due, in part, to an increase in dual-career couples, fewer men are willing to take assignments Some potential steps to ensuring success:  Provide mentors  Provide opportunities for networking with other working women as a form of organizational support  Identify and remove barriers  Provide support to cope with dual-career issues

Multinational Strategy and IHRM 

Examine IHRM orientation or philosophy to ascertain a company’s approach to IRHM

IRHM Orientations 

IHRM Orientation – a company’s basic tactics and philosophy for coordinating IHRM activities for managerial and technical workers

Exhibit 11.10 IRHM Orientation and IHRM Practices for Managers and Technical Workers (Shows how the IHRM orientations relate to some of the basic HRM functions)

Ethnocentric IHRM Orientation     



Ethnocentric IHRM – all aspects of HRM for managers and technical workers tend to follow the parent organization’s home country HRM practices Past performance at home and technical expertise govern selection criteria for overseas assignments Managers’ performances assessed using the same criteria and measures used at home Ethnocentric conditions limit and discourage cultural adjustments for expatriates Benefits of Ethnocentric IHRM:  Little need to recruit qualified host country nationals for higher management  Greater control and loyalty to home country nationals  Little need to train home country nationals  Key decisions centralized Costs of Ethnocentric IHRM:  Possibly limited career development for host country nationals  Host country nationals may never identify with the home company  Expatriate managers are often poorly trained for international assignments and make mistakes

Regiocentric and Polycentric IHRM Orientations        

More responsive to the host country differences in HRM practices Both emphasize adaptation to cultural and institutional differences among countries Regiocentric IHRM – region-wide HRM policies are adopted Polycentric IHRM – firm treats each country-level organization separately for HRM purposes Both recruit and select managers from host countries or regions, but regiocentric companies may also look to home country for candidates Usually place home country nationals in top-level management or technical positions Tendency for international assignments to have negative effects on the managerial careers of home country nationals Benefits of polycentric and regiocentric IHRM policies  Reduced training expenses  Fewer language and adjustment issues

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 Lessened hiring and relocation costs Costs:  Coordination problems with headquarters based on cultural, language, and loyalty differences  Limited career path opportunities for host country and regional managers  Limited international experience for home country managers

Global IHRM Orientations      



Global IHRM – recruiting and selecting worldwide, and assigning the best managers to international assignments regardless of nationality Fit of the manager to the requirements of the job is most important Capable managers adapt easily and well to different cultures  Usually bilingual or multilingual International assignment necessary for a successful career Managers need continual training for cultural adaptation Benefits of Global IHRM  Bigger talent pool  High international expertise  Development of transnational organizational cultures Costs:  Difficulty in importing managerial and technical employees  Added expense

Finding a Fit: IHRM Orientation and the Multinational Strategy  Properly matching IHRM to the selected multinational strategy is a major requirement for successful strategy implementation  Companies with multidomestic strategies concentrate on being responsive to local conditions and generally benefit from the country-by-country focus of polycentric IHRM  The firm with a regional strategy encounters increased demands for coordinating the activities of subunits located in different countries and can benefit from the regiocentric IHRM strategy  The international strategy emphasizes globalization on the upstream end of the value chain, and for these companies the ethnocentric IHRM is likely the most efficient strategy  Organizations adopting transnational strategies, almost without exception, adopt a global orientation to IHRM Exhibit 11.11 IHRM Orientations and Multinational Strategies (Shows IHRM orientations and multinational strategies)

Summary and Conclusion     

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When HRM are applied in an international setting, it becomes IHRM Two key issues in IHRM are the mixture of expatriate and host country managers, and knowing how to adapt home company HRM practices to the host country’s situation Expatriate managers have some benefits and costs As companies face a global shortage of mangers, they will increasingly rely on their women managers to fulfill expatriate responsibilities It is therefore imperative that multinationals become more aware of the significant barriers their women managers face in taking international assignments  Multinationals need to take the necessary measures in order to facilitate the female expatriate experience Successful IHRM presents one of the most important challenges in the 21st century

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Answers to In the News Questions From MindTap Chapter 11: Cigna-NFTC 1. This case discusses a recent survey conducted to uncover some of the challenges facing expatriates as they go on international assignments. The report emphasizes the gap between what multinationals offer to their expatriates and what these expatriates perceived as missing.

Why is it so costly to employ expatriates in other countries? What are some of the major costs associated with expatriates?

Suggested Answer: Answers will vary. Expatriates are costlier to employ because of the expectation of a standard of living that they had prior to relocating. Expatriates expect a remuneration package three to five times higher than a local employee's salary. In addition to this, relocating an expatriate from his or her country to the country of employment requires a cost that the company must pay. This cost of relocation is higher if the expatriate has dependents or family traveling with him or her as there would be additional costs. This cost of relocation is higher if the expatriate has dependent costs associated with healthcare, accommodation, school fees, and childcare. In the end, repatriation costs must also be paid for in part by the employer.

2. What are some important trends revealed by this survey? How do these trends compare to the report conducted in 2001?

Suggested Answer: Answers will vary. Compared to the survey in 2001, expats today are older than previous expats and are on shorter assignments. They increasingly choose to leave their spouses or families rather than relocate with them. There are, on average, more expats from Asia moving around the world, with the number of North American expats choosing to stay in their country of origin increasing. There has also been a shift toward expats taking up assignments in the Middle East, North Africa, and Greater Arabia rather than in Europe compared to the earlier survey.

3. If you were the HR manager for a multinational, what would be your recommendations as to how to improve services offered to expatriates?

Suggested Answer: Answers will vary. As the HR manager for a multinational, my recommendations for improving expatriates' experience would include clearly communicating to the expatriates about their assignment, its duration, benefits, and challenges. This would include providing help with legalities and paperwork, such as visas and work permits. Expatriates would also be given information sessions on financial and tax consequences of working abroad and language and cross-cultural training. Expatriates with families would be provided access to medical care and assistance with educational opportunities for their children if any.

Chapter 11: Italian Education 1. This case emphasizes Italian society and its institutions and why young Italians are more likely to leave the country to seek fortunes abroad.

Why are ambitious young Italians more likely to leave home to work overseas?

Suggested Answer: Answers will vary. Italians are more likely to leave home to work overseas because of many factors. Italian job opportunities for young people are hampered by the prevalence of the system of "raccomandazioni," which allows only those Italians with connections through families and friends to secure a job. There is an abundance of temporary contracts that © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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promise full-time employment after probation; however, they usually do not result in a secure position in a company. Most Italians leave after they graduate to escape the raccomandazioni system, which rules the labor market, and also because they feel that there is a better chance for them to get a job abroad.

2. Why is it difficult for Italian multinationals to identify promising young Italians?

Suggested Answer: Answers will vary. Because of the higher education system and job market being undermined by the system of raccomandazioni, or familial connections, most Italians choose to study in universities based in the United States and Britain. Unlike Italy, where securing tenure can take these students a long time, employment in other countries often gives them chances to fulfill their ambitions sooner. The brain drain caused by raccomandazioni makes it very difficult for Italian multinationals to identify and recruit promising young Italians.

3. What would you recommend to a multinational hoping to enter the Italian market with regards to human resources?

Suggested Answer: Answers will vary. Some of the problems in the Italian market associated with human resources are difficulty arising out of politics, irregular labor policies, and the vast unemployment rate. Education systems on the secondary and university level are highly corrupt and are more likely to employ academic staff through recommendation. Because of the high unemployment rate, there is invariably going to be multiple applicants for a single position. A multinational hoping to enter the Italian market should have a wide choice of applicants but must be wary of Italy's confusing and restrictive employment laws.

Chapter 11: Tax Issues in Myanmar 1. This case describes the tax challenges facing multinationals as they consider sending expatriates to Myanmar.

Why are multinationals so keen on sending expatriates to Myanmar?

Suggested Answer: Answers will vary. Myanmar's current political climate is one of liberalization, drawing the attention of multinationals who are keen to gauge the potential of this emerging market. Since the framework and capabilities to market their goods are not yet established in Myanmar, multinationals will bring experienced expatriates to build these frameworks for trade and business.

2. What are some challenges facing multinationals as they consider sending expatriates to Myanmar?

Suggested Answer: Answers will vary. With Myanmar becoming an emerging market, there needs to be a consensus on the interpretation of laws based on business, investment, taxes, and related facets. Tax laws and practices are poorly drafted and amended regularly and as such are open to confusion, especially on the subject of equity based compensation received by expats. While there are relatively less problems with inbound remittances, outbound remittances are controlled by strict rules and regulations. Multinationals will need to structure and calculate employee compensation.

3. Why are the tax laws and regulations changing so frequently? What can multinationals do to prepare for such challenges?

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Suggested Answer: Answers will vary. The liberalization of Myanmar saw the influx of businesses from a lot of multinationals who are keen to test their mettle in an emerging competitive market.

As with all laws after such a revolutionary change, tax laws are amended, and clauses are added.

Multinationals need to ensure that they are aware of these laws and clauses. As some of them are open to interpretation, multinationals need to hire an individual who understands Myanmar's tax laws well.

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CHAPTER 12 HRM IN THE LOCAL CONTEXT: KNOWING WHEN AND HOW TO ADAPT Learning Objectives          

Have a basic understanding of how the national context affects HRM practices Describe how recruitment and selection practices differ in different national contexts Identify possible host adaptations in recruitment and selection practices for a multinational company Explain how training and development techniques are used in different countries Name sources of high-quality workers in different nations Understand how training must be adapted to host country workers Identify how performance evaluation and compensation practices differ in various national contexts Discuss possible host country adaptations in performance evaluation and compensation practices for a multinational company Understand how labor costs vary among nations Appreciate how the national context and historical conditions affect the relationship of management and labor in different countries

Introduction       

To avoid costly mistakes in HRM, multinational companies need to consider several key questions: How can we identify talented local employees?

How can we attract these prospective employees to apply for jobs?

Can we use out home country’s training methods with local employees?

What types of appraisal methods are customary?

What types of rewards do local people value (e.g., security, pay, benefits)?

Do any local laws affect staffing, compensation, and training decisions?

Why Do Nations Differ in HRM? 

National context – national culture and social institutions that influence how managers make decisions regarding the strategies of their organizations  Recent research shows that HRM systems that reflect local conditions are much more effective than those based on conditions prevalent in another country Exhibit 12.1 How the National Context Leads to National Differences in Local HRM Practices (Shows a model of how the national context leads to national differences in HRM policies and practices)    

Basic norms and values regarding gender, age, and family and friends influence HRM practices Because countries differ widely with regards to social institutions, multinational must select and implement HRM practices that meet the demands of a society’s social institutions Resource pool – all human and physical resources available in a country Five key factors influence the resource pool  Quality, quantity, and accessibility of raw material  Quantity, quality, and cost of personnel available

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The scientific, technical, and market-related knowledge available to firms The cost and amount of capital available to firms for operations and expansion The type, quality, and costs of supporting institutions such as the systems of communication, education, and transportation Natural-factor conditions – national resources that occur naturally, such as abundant water supply Induced-factor conditions – national resources created by a nation, such as a superior educational system Major issues that affect national differences in HRM  Education and training of the labor pool: The type and quality of labor available to companies is a key issue in HRM. A country’s educational system provides the raw human resource material for companies  Laws and cultural expectations of selection practices: The laws of a country and the people’s expectations tell managers the “right” way to find new employees  Types of jobs favored by applicants: Cultural values and norms regarding the “best” and the “right” places to work  Laws and cultural expectation regarding fair wages and promotion criteria: Values, norms, and institutional expectations influence compensation decisions and the relationship between performance appraisals and compensation  Laws and traditions regarding labor practices: The legal position and power of unions and the historical relationships between management and labor have profound influences on HRM practices in labor relations

Recruitment Exhibit 12.2 Steps in the Recruitment Process (Summarizes the major steps in recruitment)    



First, managers determine that there are vacancies Second, employers determine the types of people and skills necessary for the job Third, employers generate a pool of applicants Recruitment strategies to generate the applicant pool  Walk-ins or unsolicited applications  Advertisements placed in newspapers or on the Internet  Company Web site job postings – listing of vacant positions on the firm’s Web site  Internal job postings – company listings of vacant jobs targeted at current employees  Public and private personnel agencies  Placement services of educational institutions  Current employee recommendations National and business cultures determine the “right way” to find employees, but the norms of organizational and occupational cultures also affect recruitment

Recruitment in the United States 

U.S. companies use all types of recruiting strategies, but U.S. managers do not judge all recruitment strategies as equally effective

Exhibit 12.3 Types of Recruitment and Effectiveness (Shows the types of recruitment methods and their effectiveness)  For all types of positions, U.S. managers see newspaper advertising as one of the most effective recruitment channels  College or university recruitment was judged among the most effective only for professional/technical jobs © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Managers believe that employee referrals produce only marginal success The belief in the U.S., that open and public advertisements are the most effective recruiting strategy, reflects U.S. individualistic cultural values The U.S. recruitment practice of avoiding any form of discriminatory language in job advertisements can be seen in U.S. multinationals operating in Mexico, where these companies are less likely than Mexican firms to use discriminatory language in job advertisements.

Recruitment    

 

Recruitment in collectivist societies tends to focus on the in-group, such as the family and friends of those already in the organization Most Korean companies recruit blue collar workers by back door recruitment – prospective employees are friends or relatives of those already employed Similar to the Japanese system, Korean recruitment of managers emphasizes looking for candidates at prestigious universities, whose recent college graduates are favored over managers with experience A study of recruitment practices in Barbados showed that both large and small companies located in the Caribbean preferred informal methods of recruitment, including “word of mouth” or other existing employee referrals The International Social Survey Program (ISSP) is a cross-national collaboration dedicated to the collection of important data related to work and work orientations ISSP’s comparisons of the forms of recruitment confirm that both national culture and social institutions influence recruitment practices by encouraging people in a given society to prefer various ways to look for jobs

Exhibit 12.4 Preferred Ways to Look for a New Job: Public vs. Private Agency (Illustrates, for selected countries, whether individuals were registered with a public or a private agency in their job-seeking efforts)  

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Individuals from Sweden, Norway, Hungary and France were more likely to register with a public agency as one way to find a job Both former communist societies (e.g., Hungary, Slovenia) and socialist societies (e.g., Sweden and Spain) are heavily influenced by governmental regulation and policies and it is therefore natural that individuals from these societies rely on their governments as one of the ways to find a new job Individuals in countries where governments play a lesser role (e.g., U.S., U.K., and New Zealand) are more likely to rely on private agencies

Exhibit 12.5 Preferred Ways to Look for a New Job: Answered Advertisements vs.

Advertised in Newspaper (Shows which countries have the highest preference for advertising in newspapers or responding to newspaper advertisements) 

Individualistic countries (e.g., U.S., U.K., and New Zealand) prefer open recruitment forms which depend on open competition based on skills and qualifications

Exhibit 12.6 Preferred Ways to Look for a New Job: Direct Application vs. Asking Friends or Relatives (Shows, by country, whether individuals prefer direct applications to companies or asking friends or relatives)

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Individuals in countries that are high on individualism or femininity (e.g., Canada and Sweden) are more likely to apply directly for jobs Direct applications are also reflective of open forms of recruitment and cultural norms of individual achievement and equality Individuals in socialist societies (e.g., Italy, Poland, and Hungary) prefer to ask friends or relatives as a means to get a job

Selection Selection in the United States 

Experts on human resource management identify a series of steps in the selection process

Exhibit 12.7 Typical Steps in U.S. Personnel Selection (Shows steps in the selection process, from the initial application to the final hiring)     

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The aim of typical U.S. selection practices is to gather quality information on a candidate’s job qualifications The ideal selection then results in a match between the applicant’s skills and the job requirements Focus on a person’s achievements (e.g., education, natural ability, experience) and not on group affiliations such as the family Job qualification tests must predict job performance, and personal information collected during the interview must be relevant to the job While there are individual differences, most studies show that a large proportion of U.S. applicants tend to engage in self-presentation, whereas countries that place a higher value on modesty are likely to have lower levels of self-presentation Multinational HR managers will need to be very careful as they assess applicants through interviews in different settings, as the U.S. focus on how candidates present themselves during interviews may not necessarily function in other cultures

Selection in Collectivist Cultures     

The hiring process in a collectivist society always takes the in-group into account Preference is given to hiring relatives, first of all of the employer, but also of other persons already employed by the company In selecting employees, collectivist cultural norms value potential trustworthiness, reliability, and loyalty over performance-related background characteristics In cases when needed skills are not available inside the family, the selection process still prioritizes personal characteristics over technical characteristics In managerial selection in the collectivist Korean culture and the moderately collectivist Japanese culture, high school and university ties substitute for family membership

Implications for the Multinational: Recruitment and Selection    

Recruitment of host country work and managerial talent requires that the managers of a multinational company understand and adapt to local practices Recent research supports the impact of cultural factors on the effects of selection fairness perception on how potential employees view employers as attractive In societies that use backdoor recruitment or personal contacts for recruitment, foreign multinationals may not have access to the appropriate recruitment channels What happens when a company does not follow local norms in recruitment and selection?  First, they may not get the best potential employees

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 Second, they may offend local cultural norms or break host country laws Multinational managers must always assess the tradeoff between following home practices that get what they believe are the “right” people for the job against the costs and benefits of following local traditions Many companies are now using electronic human resources (e.HR) to manage their human resources

Training and Development    

Within any country, training and development needs vary widely The cross-national differences in training and development are most associated with institutional differences in national educational systems Cross-cultural training and development differences are also associated with the degree of emphasis placed by the national governments Cultural values regarding types of educational credentials and other personnel practices such as life time employment also influence training and development needs

Exhibit 12.8 Training Systems around the World (Gives an overview of work-related training systems in use throughout the world) Exhibit 12.9 Key Specific Training and Development Characteristics of Selected Countries (Presents some specific detail about training in a number of countries)

Training and Development in the United States 

Companies with over 100 employees invest over $60 billion in training

Exhibit 12.10 Skills Taught by U.S. Organizations (Shows the types of skills taught to employees)        

The most popular training topics are management development and computer skills In spite of the billions of dollars invested in training, training in the U.S. does not reach all workers – estimates are that training is provided to only one out of ever 14 workers Because weaknesses in U.S. secondary education, the pressure on U.S. businesses to supplement basic educational training will increase The shift in emphasis of the U.S. economy from manufacturing to services areas is predicted to be an important issue in the future The service sector tends to be very capital and skill intensive and requires that employees have not only the appropriate technical skills but also have critical thinking skills, team building skills, and learning abilities This suggests that there may be a widening gap between what companies emphasize in their training programs and the skills required for the future A further issue compounding the problem is that recent pressures to cut costs have resulted in more U.S. companies outsourcing their training needs Predictions of high needs for training have resulted in some calls from business and government for German-style apprentice programs  In such programs, the government requires industry to provide vocational training to workers in exchange for tax benefits

Training and Vocational Education in Germany  

Sophisticated and standardized national system of vocational education and training provides a major human resource for German industry Two forms of vocational education in Germany

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(1) General and specialized vocational schools and professional and technical colleges (2) Dual-system – a form of vocational education in Germany that combines in-house apprenticeship training with part time vocational school training and that leads to a skilled worker certificate o Ultimately, one can achieve the status of a Meister – in Germany, a master technician o Produces a well-trained national labor force with skills that are not company specific o Results from a collaboration of employers, unions, and the state o Recent cutbacks in German companies and high German unemployment have resulted in fewer apprenticeships

Exhibit 12.11 German’s Apprenticeship Program Under Pressure (Shows that many firms have reduced the number of apprentices to cut costs or have called for more company-specific skills)  

Besides their national system of vocational education, German companies invest heavily in training with four out of five workers receiving some in-house training There are three different types of vocational training 

The government does not play, or plays only a very minimal, role in vocational training.

This market-oriented system exists in countries such as the United Kingdom, the United States, and Japan



The institutional system, in which the government is solely in charge of vocational training, can be found in countries such as France and Italy



The dual system, in which the government works with industries to shape the vocational training system, exists in countries such as Australia, Germany, and Switzerland

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Implications for the Multinational: Training and Development     

Before setting up operations in a host foreign country, multinational managers must consider the qualities of the workers and sometimes of the managers in the host country They must also examine the feasibility of exporting their company’s training techniques to the host country Adaptation of management development practices to different national contexts depends significantly on the intended use of host country managers If host country nationals are limited to lower management levels, then multinational companies may follow local management development practices In situations where multinational companies allow and expect host country nations to rise to higher levels of management, however, the parent company’s corporate culture dominates management development policies

Performance Appraisal 

All companies at some point must deal with the human resource problems of identifying people to reward, promote, demote, develop and improve, retain, or terminate  The fundamental assumption in the West, and in particular, in the more individualistic cultures, is that performance appraisal systems provide rational and fair solutions to these human resource problems  The cultural ideal is a meritocracy, where good performers get more rewards

Performance Appraisal in the United States 

The U.S. performance appraisal system represents cultural values that espouse links among individual rights, duties, and rewards as well as a legal system that promotes equal opportunity

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 

The ideal U.S. performance appraisal system is highly rational, logical, and legal.

Four elements to the ideal U.S. system  Performance standards reflect management’s goals regarding acceptable quality and quantity of work output  Performance measures are techniques intended for objective and often comparative assessment of employees on the performance standards  Performance feedback usually occurs in a formal interview between superior and subordinate  Human resource decisions related to the performance appraisal system, in most U.S. organizations, are compensation decisions  Because of the concern in the U.S. that human resource decisions be fair and equitable for all individuals, performance appraisal systems must follow U.S. legal requirements for appraisals that ensure fairness by regulating performance evaluation practice  The following is a summary of the U.S. laws that govern performance appraisals  Performance evaluations must relate clearly to the job and performance  Performance standards must be provided in writing  Supervisors must be able to measure the behaviors they rate  Supervisors must be trained to use evaluation measures  Supervisors and subordinates must discuss appraisals openly  Appeals procedures must be in place

Performance Appraisals Around the World  

Although performance appraisals practices vary widely among countries, they are undertaken with the common purpose of devising ways to control employees so that they give maximum performance However, while appraisals are based on similar notions in many countries, there are wide variations in terms of what they are used for

Exhibit 12.12 Cross-National Differences in Purposes of Performance Appraisals: Top 5 Countries and Regions for Each Category (Shows the top five countries for each performance appraisal purpose)  In countries high on individualism, performance appraisals are seen as the most effective method to gauge how well an employee is doing and how that person’s performance can be improved  In collectivist cultures, age and in-group (usually family or social status) memberships provide a large component of the psychological contract with the organization  Human resource decisions should take into account personal background characteristics more than achievement  Managers in collectivist societies often avoid direct performance appraisal feedback  Information regarding performance is still communicated to people in collectivist cultures  Because it is important to work for the benefit of the group, members may subtly praise or punish other workers based on work performance  Preference for seniority-based promotions, rather than appraisal-based promotions, is even greater among Koreans  Because of the long term orientation of Korean culture, Korean performance appraisal systems focus on evaluating and developing the “whole man” for the long-term benefit of the company

Compensation  

Compensation includes wages and salaries, incentives such as bonuses, and benefits such as retirement contributions Wide variations in how to compensate workers, both among countries and among organizations

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Japanese workers earn over three times the wages of the workers in other east Asian countries such as Taiwan, Singapore, and Korea Although not required by law, Korean and Japanese workers expect bonuses at least twice a year In Denmark, over 80 percent of employees belong to unions and agreements between unions and employers’ associations determine minimal and normal pay In the EU, there is a statutory minimum of four weeks vacation

Compensation Practices in the United States       

Conditions external and internal to the company affect the wages and salaries of workers and managers Companies develop formal and systematic policies to determine wages and salaries To establish that their companies’ wages and salaries are competitive in the labor market, the Personnel policies Forum study showed that 94% of U.S. companies used data from comparative wage and salary surveys to determine compensation In contrast to collectivistic societies where company loyalty prevails, U.S. companies rely on competitive wages to maintain a quality workforce Most U.S. companies also develop procedures to establish that people receive equitable pay for the types of jobs they perform Although the worth of a job largely determines the base pay assigned to a certain position, raises in pay are determined mostly by merit As part of the total compensation package, benefits have grown substantially in the U.S. during the last few decades

Compensation Around the World 

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Researchers investigated cross-national variations in 9 compensation practices in 10 countries (Australia, Canada, China, Indonesia, Japan, Korea, Latin America, Mexico, Taiwan, and U.S.)  Results of the study revealed some convergence of compensation practices Managers of all countries and regions felt that it was necessary that all but 1 of the 9 compensation practices (pay incentives should be important, pay should be contingent on group/organizational performance, incentives should be a significant amount of pay, job performances should be the basis of pay raises, benefits should be important, benefits should be more generous, pay should be based on long-term results) be used more in the future These managers also felt that less emphasis should be placed on using seniority as a determinant of pay decisions All managers felt that a properly designed compensation plan is key to harnessing employee performance conducive to organizational effectiveness Despite the evidence of convergence in many areas, the study also revealed surprising results  The researchers expected that the more collectivist countries would have higher ratings for the compensation practice “pay is contingent on group or organizational performance.” However, findings show that there were no major differences among collectivistic and individualistic countries in the study  There were no significant variations among countries in terms of the compensation practice of using seniority as the basis for pay decisions

Compensation in Japan  

As with U.S. firms, Japanese companies determine base salaries to a large degree by the classification of positions Two effects of seniority on the Japanese compensation system  First, besides educational qualifications, each position has minimum age requirements

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 Second, seniority factors into pay decisions, but at a declining rate In more recent times, merit (as the Japanese interpret it) affects pay raises to a greater degree than under the traditional position/seniority system

Exhibit 12.13 The Japanese Pay Raise Formula: Changing the Balance (Shows the traditional compensation formula as it is being modified for pay raises in many Japanese companies today)    

Economic pressures on the Japanese compensation system are growing Nenpo system – new Japanese compensation system based on yearly performance evaluations that emphasize goals, although goals are not always the same as in Western companies Although seniority remains important for holding certain positions, trends in Japanese human resource practices show a convergence with practices used in the U.S. and other Western nations.

Bonus system – in Japan, employees often receive as much as 30 percent of their base salary, usually given twice a year during traditional gift-giving seasons

Implications for the Multinational: Performance Evaluation and Compensation    

As with recruitment and selection, multinational companies must match their performance evaluation system to their multinational strategies A multinational company with locations in several nations may need several different compensation systems, especially for host country nations Eastern European countries and India provide location advantages due to their relatively low cost of labor, managers, and engineers Some experts argue that competitive advantages based on wage rates are only short term

A Comparative View of Labor Relations  

The variations of labor relations arise not only from cultural differences but also from the unique national histories of unionization A major HRM issue is the popularity of unions, as indicated by what is called union membership density

Union Membership Density    

Union membership density – proportion of workers in a country who belong to unions Union membership in the U.S. has declined considerably over the last 30 years European and other industrialized countries still have quite high proportions of workers who are union members Union density is also affected by cross-cultural differences 

 

Both corporatism and business cycle have significant effects, both positive and negative, on union density levels

In major industrialized countries, union membership is declining but still averages greater than 50% In countries like South Africa, unions have more than doubled in size

Exhibit 12.14 Union Density in Selected Countries (Summarizes unionization density in various parts of the world)

Some Historical and Institutional Differences 

British unions began early in the 19th century corresponding to the rise of major factory based industries © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 

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 

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The lack of government intervention led management and workers to develop strong adversarial relationships that remain in existence in contemporary Britain Perhaps because German culture ranks high on uncertainty avoidance, labor relationships have a more orderly tradition  The government recognized the union movement in the mid 1880s  The strong role of the state served to develop more harmonious relationships between labor and management French unions began much later and developed more slowly than did British or German unions  Many small companies, which fragmented businesses, retarded union growth  Lack of legal protection of French workers and the difficulties of unionization led to highly militant unions In the U.S., before 1926, there was little legal support for union activity The Wagner Act, passed in 1935, granted federal protection of the right to organize and bargain collectively  With the decline of many traditionally unionized industries and the movement of U.S. manufacturing offshore, union strength in the U.S. has continuously weakened In Asia, unionization has taken several different paths  Formerly militant Japanese unions were absorbed in the corporate structure and now largely support management  Korean unions have devolved a more conflictual relationship with industry and government

Union Structures 

The type and structure of unions also reflect institutional pressures and historical traditions regarding unionization  Enterprise union – represents all the people in one organization, regardless of occupation or location  Craft union – represents people from one occupational group such as plumbers  Industrial union – represents all people in an industry, regardless of occupational type  Local union – represents one occupational group in one company  Ideological union – represents all types of workers based on an ideology (e.g., communism) or religious orientation  White-collar and professional union – represents an occupational group, similar to craft union

Exhibit 12.15 Popular Form of Unions in Selected Countries (Shows selected countries and the popular unions in them)     

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Enterprise unions are most associated with Japanese labor Most radical Japanese ideological and industrial unions were effectively crushed during the first half of the 20th century and replaced by enterprise unions German unions favor the industrial form of organization Works council – in Germany, employee group that shares plant level responsibility with managers regarding issues such as working conditions Codetermination -- surrender by management to workers of a share of control of the organization traditionally reserved for management and ownersMost common objective of French unions is to organize along ideological lines – thus, union structure does not necessarily follow industry, occupation, or enterprise categorization The local union remains the major structural feature of U.S. unions

Implications for the Multinational: The Search for Harmony © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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When they use local workers, multinational companies have no choice but to deal with local labor practices, traditions, and laws The impact of dealing with unions and related labor laws must be considered in any strategic decision regarding locating in another country In the Unite States, Japanese companies have avoided locations in the more union-friendly northern states, favoring instead southern locations with less union activism Like local wages and worker quality, a country’s labor relations pattern also influence location decisions

Exhibit 12.16 Key Labor Regulation Issues for Selected Countries (Provides information on key labor regulation issues for selected countries)

Summary and Conclusions         

This chapter highlighted fundamental national differences in the HRM processes of recruitment, selection, training and development, performance appraisal, compensation, and labor relations National culture, business culture, and key social institutions – education and the legal system – affect a nation’s dominant HRM practices Countries with collectivistic cultures were often compared with the U.S. to illustrate the large differences in HRM and also the variety of HRM practices in the world The chapter noted that training of entry-level workers depends largely on the institutional structure of the educational system Management-development practices are embedded in cultural expectations regarding the relationship of managers with their organizations To avoid legal ramifications of race, gender, and age biases, the discussion showed that U.S. performance-evaluation systems tend to be formal and public. In collectivist societies, in contrast, performance appraisal tends to be informal and more secret Most multinational companies are attracted to production sites in countries where the wages are low but the talent pool is strong Confronting and dealing with differences in traditions and volatility of labor relationships are unavoidable activities in running operations in overseas operations Successful multinational manager comes prepared not only with a knowledge of local culture but also with an understanding of how HRM practices evolved to become part of a host country’s business environment

Answers to In the News Questions From MindTap Chapter 12: Electronic Signatures 1. This case discusses the transition to paperless HR systems and the inherent challenges in this transition. Specifically, the case emphasizes the fact that the law has not kept pace with such changes.

Why are most multinationals transitioning to paperless HR systems worldwide? What are the benefits of such a new system?

Suggested Answer: Answers will vary. Creating, storing, and recalling documentation on paper is a cumbersome process. The documentation requires costly prerequisites of administration, recording and legal requirements to be fulfilled before it can be stored. Multinationals have increasingly started to shift to a paperless HR system.

Cloud computing and digitally secure signatures make collecting and archiving vast amount of data cost effective and help multinationals to be more eco-friendly. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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2. What are some of the major challenges when companies transition to such a paperless system?

Why have laws not kept up with such changes?

Suggested Answer: Answers will vary. One of the major challenges companies face when transitioning to a paperless system is the legal validity of paperless documentation. In many countries, paper originals, ink signatures, notarizations, and government stamps and seals are still required by law. This might be because changes in the law are slow and difficult to implement, but changes in documentation technology happen quicker and are easier to implement.

3. What can a multinational do to better prepare for such transitions?

Suggested Answer: Answers will vary. Multinationals should be aware of the different legal requirements needed for enforcing electronic signatures in different regions of the world. Choosing the right kind of electronic digital signature providers based on their needs is also important in terms of security. Some of these providers even contain third party authentication in-built to make sure that the documentation is verified. The provider's solution needs to be scalable and accessible and should work across multiple platforms and ensure privacy for all parties involved.

Chapter 12: Using Theater Training 1. This case discusses the use of theater training as a means to improving the conduct of performance appraisal. Through such training, employees learn some of their weaknesses in interacting with subordinates or supervisors and ways to address such weaknesses.

Why is theater-based training such a popular way to train employees to conduct performance appraisals? What specific aspects of performance appraisal can an employee improve through such training?

Suggested Answer: Answers will vary. Theater-based training is a popular way to train employees to conduct performance appraisals because employees can act out the methods or protocols being taught instead of reading them out of a training manual. This is much better at influencing issues such as conflict management or gender sensitivity. It also helps engage participants in a different manner, keeping their energy levels high.

2. What are some advantages of theater-based training relative to more traditional training methods?

Suggested Answer: Answers will vary. Theater-based training provides employees with a simulation of workplace conflicts. The dramatic performances raise employee awareness on topics through education and reflection. It encourages debate and exchange of ideas, with training taking on both an individual and collective action for change in the workplace. It also utilizes the employee's spatial, kinesthetic, interpersonal, and intrapersonal intelligence to reach a solution.

Theater-based training helps weed out biases that may be deeply entrenched, providing opportunities for self-realization. Most of these cannot be achieved through traditional training methods.

Chapter 12: Trade Unions 1. This case discusses the need for multinationals to be aware of the need to let their Chinese workers unionize in the future. The article emphasizes the many pressures multinationals are facing in China with respect to trade unions.

Why have multinationals resisted the call to allow their employees to form trade unions? What tactics have such multinationals used? © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Suggested Answer: Answers will vary. Employers, such as multinationals, are wary of the potential power of trade unions. Unions play an increasingly important role during company actions such as collective dismissals. In this scenario, relevant unions must be informed and consulted before the implementation of any such plan. Failure to do so could mean that the local labor authority will not approve the plan, which will lead to friction.

Multinationals in China have tried to buy themselves time by cooperating with any requests to form unions. However, in practice they slow progress toward union establishment and collective bargaining.

2. What challenges will multinationals face once they allow their Chinese employees to form trade unions?

Suggested Answer: Answers will vary. Multinationals will have to experience trade unions' involvement in discussions about major operational decisions and employment-related rules. They will also be required to provide support to employees in cases of unilateral or collective dismissals.

In addition, they will face collective bargaining from the other associate workforce trade unions and the All China Federation of Trade Unions, which aims to support the union in the multinational companies.

3. What would you recommend to a multinational to ensure that trade unions are established smoothly in their Chinese operations?

Suggested Answer: Answers will vary. Multinationals operating in China should make sure that they allow the timely formation of employee unions and should ensure the cooperation of the All China Federation of Trade Unions. They should listen to employee input when it comes to operations and provide support to employees in case of unilateral or collective dismissals.

Maintaining a good relationship with its enterprise trade union will therefore be critical for the smooth operation of any foreign invested enterprise.

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CHAPTER 13 INTERNATIONAL NEGOTIATION AND CROSS-CULTURAL COMMUNICATION Learning Objectives  Understand the basics of verbal and nonverbal communication that may influence cross    

cultural management and negotiation Describe the basic international negotiation processes from preparation to closing the deal Explain the basic tactics of international negotiation Recognize and respond to “dirty tricks” in international negotiations Know the differences between the problem-solving and competitive approaches to international negotiation Identify the personal characteristics of the successful international negotiator

Introduction  International negotiation is the process of making business deals across national and cultural boundaries

 Without successful negotiation and the accompanying cross-cultural communication, there are 

seldom successful business transactions Developing expertise in cross-cultural communication is becoming an essential skill for multinational management

The Basics of Cross-Cultural Communication  Successful communication across cultures is a prerequisite for international negotiation  Mistakes in cross-cultural communication often go unnoticed by the communicator, but they can still damage international relationships and negotiations

Language and Culture     

The interrelationship between language and culture is so strong that some suggest that language determines the nature of culture  Whorf hypothesis – theory that language determines the nature of culture According to Whorf, all languages have limited sets of words These restricted word sets constrain the ability of users to understand or conceptualize the world Some experts argue the opposite of Whorf – that culture comes first and requires the development of concepts and words – but no one debates that there is a close relationship between language and culture Languages are critical tools that are used to engage in international trade o

Research suggests that the larger the language distance between negotiating partners, the harder they have to work if they want negotiations to succeed

o

When employees are required to collaborate globally, having the necessary languages can ensure that such cross-border interactions occur with less friction

High- and Low-Context Languages © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Low context language – one in which people state things directly and explicitly  

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The words provide most of the meaning and you do not have to understand the situation Most Northern European languages including German, English and Scandinavian languages are low context High context language – one in which people state things indirectly or implicitly  Communications have multiple meanings that can only be interpreted by reading the situation  Asian and Arabic cultures are among the most high context languages in the world

Exhibit 13.1 Country Differences in High- and Low-Context Communication (Shows a ranking of languages by their degrees of high and low context)   

Communication between high and low context individuals is a challenge When negotiations take place between high- and low-context cultures, both sides must realize that communication may have errors Steps to ensure that the multinational has the employees with the necessary language skills o

Avoid blind spots such as letting language skills overshadow other critical skills that are more important to grow in other cultures

o

Adopt a common language

o

Pay to train all nonnative speakers in the common language

o

Schedule training on the job during work hours to demonstrate the strategic importance of the new language

Basic Communication Styles

 Communication styles can also affect cross-cultural interactions and negotiations  Direct communication – communication that comes to the point and lacks ambiguity  Formal communication – communication that acknowledges rank, titles, and ceremony in prescribed social interaction

 US Americans are among the least formal in communication  Other cultures communicate, especially in business settings, with more formality Exhibit 13.2 Cultural Differences in Communication Styles (Shows a ranking of direct communication styles for several countries)

Nonverbal Communication

 Nonverbal communication – face-to-face communication that is not oral   

Body movements (called kinesics) The use of personal space (called proxemics) The senses, such as touching or haptics, eye contact (oculesics), or smell (olfactics)

Kinesics

 Kinesics – communication through body movements  It is easy to misinterpret the meanings of body movements in another culture  Facial expressions occur in every human interaction. People smile, frown, squint, sneer, and engage in a range of facial movements

 Body posture relates to the way people stand, walk, and sit. Each culture encourages and discourages different body postures depending on the situation © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 All cultures use hand gestures to embellish and add emphasis to oral communication Proxemics

 Proxemics – the use of space to communicate  Each culture has appropriate distances for various levels of communication 

The personal bubble of space around each individual may range from 9 inches (Arab and Latin American cultures) to more than 20 inches (North American cultures)

Haptics or Touching, Oculesics and Olfactics

 Haptics or touching – basic form of human interaction, including shaking hands, embracing, or

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kissing when greeting one another  Generally, Latin European and Latin American cultures accept more touching than do Germanic, Anglo, or Scandinavian cultures Oculesics – communication through eye contact or gaze  Countries like U.S. and Canada are comfortable with an expect eye contact to be maintained for a short moment during conversations  China and Japan consider eye contact very rude and disrespectful  France and the Middle East consider maintaining eye contact for long periods of time as socially acceptable Olfactics – use of smells as a means of nonverbal communication  Countries like the U.S. and U.K. find body odor offensive  Arabs are much more accepting of them and consider them natural

Practical Issues in Cross-Cultural Business Communication

 Cross-cultural negotiations and communications nearly always face a language barrier  An important preparation for any international assignment is gaining at least rudimentary skills in the local language

Using Interpreters

 Interpreter’s role – to ensure the accuracy and common understanding of written and oral agreements

 Requires specialized knowledge and vocabulary to deal with technical details of business  

transactions Use of interpreters may not always means that the intended message is always conveyed efficiently There can be a significant gap between translation and communication, and the cultural context of business communication can be a factor

 Tips to help the U.S. negotiators using interpreters       

Spend time with the interpreter so that he/she gets to know your accent and general approach to conversations Go over technical and other issues with the interpreter to make sure that they are properly understood Insist on frequent interruptions for translations rather than at the end of statements Learn about appropriate communication styles and etiquette from your interpreter Look for feedback and comprehension by watching the listener’s eyes Discuss the message beforehand with the interpreter if it is complex Request that your interpreter apologizes for your inability to speak in the local language

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 

Confirm through a concluding session with the interpreter that all key components of the message have been properly comprehended Some multinational companies use one language as the corporate language – increasingly, that is English

Communication with Nonnative Speakers

 Techniques that make communication easier and more accurate            

Use the most common words with their most common meanings Select words with few alternative meanings Strictly follow basic rules of grammar Speak with clear breaks between words Avoid “sports” words or words borrowed from literature Avoid words or expressions that are pictures Avoid slang Mimic the cultural flavor of the nonnative speaker’s language Summarize – paraphrase and repeat Test your communication success – ask if they understand When your partner doesn’t understand – repeat the basic ideas using different words Confirm important aspects in writing

International Negotiation  International negotiation is more complex than domestic negotiation  Differences in national cultures, political, legal, and economic systems often make it necessary to modify negotiation styles to fit the local country

Steps in International Negotiations  

Negotiation steps – preparation, building the relationship, exchanging information, first offer, persuasion, concessions, agreement, and post agreement Preparation is the most important step

Exhibit 13.3 Steps in International Negotiation (Shows the seven typical steps in the negotiation process)

Step 1: Preparation

 Winning international negotiation strategy includes significant preparation  Experts identify numerous essential questions and issues to consider before the negotiation  Determine if the negotiation is possible  Know exactly what your company wants from the negotiation  Be aware of what can be compromised  Know the other side  Send the proper team  Agenda  Prepare for a long negotiation  The successful international negotiator not only prepares for the substance of the negotiations but also does extensive research on the nature and negotiation styles of the foreign culture

 Anticipate certain key differences among cultures: 

Negotiation goal -signing contract or forming the relationship o Chinese and Japanese – prime objective is forming the personal relationship © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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o U.S. – considers personal relationship less important that sanctity of law/contract Formal or informal personal communication styles o Australians & U.S. - use first names and informal conversations o Nigerian, Spanish & Chinese – reject use of first names among short-term business acquaintances Direct or indirect communication styles o The rules of politeness and styles of interaction in different cultures encourage or restrict the ability of negotiators to come directly to the point Sensitivity to time—low or high o The pace of negotiation and the time given to each phase of it intertwine with the objective of the negotiation o Americans view time as money and want to get down to business and get the contract signed o Asian cultures place value on the relationship and prefer to take time to get to know the other parties better before signing a contract Forms of agreement—specific or general o Japanese prefer broad agreements, preferably based on strong personal relationships, to allow for fair adjustment if circumstances change o U.S. Americans, typically pressing for legalistic, detailed coverage of all contingencies, leads many people from other cultures to believe that their U.S. partners have little trust in the relationship

Exhibit 13.4 Cultural Differences in Preference for Broad Agreements (Shows the differences among nations in cultural preferences for a broad agreement) 

 

Team organization - a team or one leader o U.S. often have a small negotiation team and one negotiator with authority to make commitments for the company to close the deal o Russians, Japanese, and Chinese prefer large negotiation teams and rely chiefly on consensus decision making Attitude towards negotiation - win-lose or win-win o Salacuse reports that 100% of Japanese approached negotiations with a win-win mindset, while only 33% of Spanish executives surveyed had the same view High or low emotions o Latin Americans and Spanish are said to usually show their emotions through negotiations o Japanese and Germany tend to be reserved

Exhibit 13.5 Preparation: Understanding Negotiators from Other Countries (Contrasts some common U.S. negotiating characteristics with those from other national cultures) 

Negotiations styles typical in individualistic cultures seldom works well in collectivist cultures

Step 2: Building the Relationship 

  

Building a relationship – the first stage of the actual negotiation process, when negotiators concentrate on social and interpersonal matters Often takes place at a location outside then formal negotiation site Duration and importance vary widely by national culture Building a good relationship among negotiating parties provides foundation for working out eventual deal

Step 3: Exchanging Information and the First Offer © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Task-related information – actual details of the proposed agreement  First offer – first proposal by parties of what they expect from the agreement  At this stage, national and business cultures influence what information is given and requested, 

how the information is presented, and how close the initial offer is to the actually expected or hoped-for specifications in the agreement In the information presentation stage, the negotiator must properly understand the audience and adapt the presentation to the audience’s needs

Exhibit 13.6 Information Exchange and First-Offer Strategies (Shows a comparison among nations regarding information exchange and first offer strategies)

Step 4: Persuasion

 Persuasion stage – stage when each side attempts to get the other side to agree to its position  Verbal negotiation tactics -- Promises, threats, recommendations, warnings, rewards, punishments, normative appeals, commitments, self-disclosures, questions, commands, saying no (refusals), interruptions Verbal and Nonverbal Negotiation Tactics  Promise: If you do something for me, I will do something for you  Threat: If you do something I don’t like, I will do something you don’t like  Recommendation: If you do something I desire, good things will happen to you (e.g., people will buy your product)  Warning: If you do something I don’t like, bad things will happen for you (e.g., other companies will know you can not do business here)  Reward: I am going to do something beneficial for you (without conditions)  Punishment: I am going to do something you will dislike – without conditions (e.g., end the negotiations immediately)  Normative appeal: This is the way we do or do not do business here (e.g., “You must learn the Japanese way”)  Commitment: I agree to do something specific (e.g., meet a delivery date)  Self-disclosure: I will tell you something about myself or my company to show you why we need to close the deal  Question: I ask you something about your company or yourself  Command: This is an order that you must follow  Refusal: Just saying no  Interrupting: I talk when you talk Exhibit 13.7 Frequencies of Verbal Negotiating Behaviors: A Comparison of Brazilian, U.S., and Japanese Negotiators (Shows examples of cultural differences in these tactics among Japanese, U.S., and Brazilian negotiators)   

Cultural differences in nonverbal communication styles also influences negotiations Nonverbal communication through such things as body posture, facial expression, hand gestures, and the use of personal space are a natural part of any international negotiation Different comfort levels with silence – the Japanese take time to think and formulate a proper response, but U.S. negotiators are stressed by the silence

Dirty Tricks in International Negotiations  Dirty tricks – negotiation tactics that pressure opponents to accept unfair or undesirable agreements or concessions © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Some examples of common ploys in international negotiations (that some may consider dirty

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tricks) follow, with possible response tactics  Deliberate deception or bluffing: Negotiators present flagrant untruths either in the facts they present or in their intentions for the negotiation o Possible response: Point out directly what you believe is happening  Stalling: Negotiators wait to the last minute before the international negotiation team plans to go home. They then push for quick concessions to close the deal o Possible responses: Do not reveal when you plan to leave. When asked, say “as long as it takes.” Alternatively, state when you will leave with or without the deal  Escalating authority: Negotiators make an agreement then reveal that it must be approved by senior managers or the government. The objective is to put the other team under psychological pressure to make more concessions o Possible response: Clarify decision making authority early in the negotiation process  Good-guy, bad-guy routine: One negotiator acts agreeable and friendly while his or her partner makes outrageous or unreasonable demands. The good guy suggest that only a small concession will appease the unreasonable bad guy o Possible response: Do not make any concessions. Ignore the ploy and focus on mutual benefits of the potential agreement  You are wealthy, and we are poor: Often used by negotiators from developing countries, this tactic attempts to make concessions seem trivial. Smaller companies may also use this tactic when dealing with larger companies o Possible response: Ignore the ploy and focus on mutual benefits of potential agreement  Old friends: Negotiators act as if the companies and their negotiators have long enduring friendships. They feign hurt feelings if their partners disagree or do not bow to their requests o Possible response: Keep a psychological distance that reflects the true nature of the relationship General tips  Stick to your standards and don’t use dirty tricks  Point out dirty tricks or ploys when they are used  Avoid fighting back directly  Be ready to walk out of the negotiation if the other side fails to play fairly  Realize that ethical systems differ by culture

Steps 5 and 6: Concessions and Agreement

 Final agreement – signed contract, agreeable to all sides. 

Safest contracts are legally binding in the legal systems of all the signers

 Concession making – process requiring each side relax some of its demands to meet the



 

party’s needs  Usually means giving in on the points of less importance to you to achieve major objectives Sequential approach – each side reciprocates concessions made by the other side  Often used by North Americans, who have a norm of reciprocity Holistic approach – each side makes very few, if any, concessions until the end of the negotiation  More common in Asia Note to Instructor: See Chapter text for a study on concession-making styles of executives from 21 regions around the world

Basic Negotiation Strategies © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Competitive negotiation – each side tries to give as little as possible and tries to win for its

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side  Begin with high and often unreasonable demands  Make concessions only grudgingly  Use dirty tricks and any plot that leads to their advantage  Despite the negativity associated with competitive negotiation, accepting that the other party will engage in it can prevent misunderstanding and better prepare the negotiators for what to expect Problem solving negotiation – negotiators seek mutually satisfactory ground that is beneficial to both companies  Defending their company’s position is not he major goal  Avoid dirty tricks and use objective information whenever possible  Seek out mutually satisfactory ground that is beneficial to both companies

Exhibit 13.8 Competitive and Problem-Solving Negotiation (Summarizes and contrasts how the competitive negotiator and the problem-solving negotiator differ in their approaches) 

Three important points regarding the use of competitive or problem-solving approaches  First, in cross-cultural bargaining, the ease of misreading the other side’s negotiation strategy increases dramatically  Second, cultural norms and values may predispose some negotiators to one of the approaches

Exhibit 13.9 Cultural Differences in Preference for a Problem-Solving Negotiation Strategy (Shows some recent evidence from a cross-national study on cultural differences in the preference for a problem-solving negotiation style) 

Third, most experts on international bargaining recommend a problem-solving negotiation strategy

Step 7: Post Agreement   

Post agreement – consists of an evaluation of the success of a completed negotiation The post agreement stage can be very beneficial as it allows garnering of valuable insights into the strengths and weaknesses of the approach that was used during the negotiation Beyond information critical to learning, post agreement analysis can also enable members of a negotiating team to develop a closer relationship with their counterpart

The Successful International Negotiator: Personal Characteristics  Personal success characteristics – tolerance of ambiguous situations, flexibility, creativity,    

humor, stamina, empathy, curiosity, and knowledge of a foreign language Tolerance of ambiguity  Even if they are familiar with the culture of their counterpart, an international negotiator is still a cultural bridge between national cultures and organizational cultures Flexibility and creativity  The international negotiator must expect the unexpected Humor  Situations arise in intercultural exchanges that are sometimes embarrassing or humorous Stamina

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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   

Long travel, jet lag, different foods, different climates, hotel living, and culture shock stress the physical stamina of even experienced international negotiators Empathy  Empathy means putting yourself in the place of your foreign colleagues – understanding the world from their perspective Curiosity  Managers with a genuine curiosity and respect concerning other cultures often discover subtitles that a more task oriented negotiator misses Bilingualism  Knowing the partner’s language is an asset. However, sometimes linguistic ability alone is not enough Cultural intelligence 

a person with high cultural intelligence has the necessary skills to learn aspects of a new culture, is willing to challenge his or her own assumptions about the new culture, and ultimately behave differently based on new mental frameworks appropriate for the new culture

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Summary and Conclusions  The negotiating process involves preparation, building relationships with counterparts,     

persuading others to accept your reasonable goals through verbal and nonverbal negotiating tactics, making concessions, and finally reaching an agreement Successful negotiators prepare well, understand the steps in the negotiation processes, and avoid the use of dirty tricks and competitive negotiating strategies Successful negotiators are bilingual and have good cross-cultural communication skills Oral cross-cultural communication demands that one learn the language or use interpreters Nonverbal communications through body movements, proxemics, and touching vary widely for different cultural groups Avoiding attribution errors is a key to cross-cultural communication

Answers to In the News Questions From MindTap Chapter 13: Communication Strategies 1. This article describes the critical importance of cross-cultural communication in today's global world. The article emphasizes the need for multinationals to implement deliberate communication strategies to facilitate communication worldwide.

Why is cross-cultural communication so critical for any multinational today?

Suggested Answer: Answers will vary. As organizations invest in collaboration efforts, there will be more demand for specific knowledge and skills in effectively collaborating across borders and cultures—specific knowledge and skills that many professional communicators already have.

Indeed, open and collaborative organizational cultures are hallmarks of high-performing organizations. Additionally, cross-cultural collaboration is essential for organizations seeking to accelerate innovation and market responsiveness.

2. What are some essential ingredients of an effective cross-cultural communication system? © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Suggested Answer: Answers will vary. The key elements of an effective cross-cultural communication system should include an open environment where global and local team members can share their ideas and knowledge concerning local market opportunities. A common vision and objectives need to be set by the project leader and the team to create understanding and support for this communication system. This is furthered by having a system that incorporates dedicated tools for communication.

Collaborative space: A knowledge-sharing system that incorporates dedicated tools and workspaces for communication and collaboration can facilitate open dialogue among teams. Many noted the use of team workspaces combined with wikis or video/Web conference calls as an effective solution.

3. How can companies use technology to facilitate communication worldwide?

Suggested Answer: Answers will vary. Many companies have noted the use of team workspaces combined with wikis and video/Web conference calls as an effective solution to facilitate communication worldwide. Alcatel-Lucent and Motorola use video sharing through internal platforms that allow more visual knowledge and information exchange across regions. Amazon and Cisco, among others, have increased the use of streaming videoconferences and telepresence technologies to bridge geographic distances through visual interaction. In general, companies must grow to understand that technology can be the best platform for promoting cross-cultural collaboration worldwide.

Chapter 13: Cross-cultural Pitfalls 1. This article discusses common pitfalls in cross-cultural communication. The author provides five important suggestions to avoid such pitfalls.

Why is it so easy to commit pitfalls when communicating internationally?

Suggested Answer: Answers will vary. Even something as simple as a grasshopper can mean different things in different cultures—it is seen as a pest in the United States and as a pet or an appetizer in China and Thailand. This example taken from an HSBC global bank advertisement at Heathrow airport is one of the many reasons why accurate cross-cultural communications is important. The differences in behavioral tendencies, nonverbal communication, and language clarity can make it easy to commit pitfalls when communicating internationally.

2. Discuss the various steps the article suggests to avoid such cross-cultural pitfalls.

Suggested Answer: Answers will vary. The article suggests that you should define the meanings of terms that are used in cross-cultural communication. When in doubt, it is best to paraphrase what you hear and ask the other person to explain what you say in their words. In addition, it is a great help if you can understand the other person's language as it can help foster understanding. You should also pay attention to nonverbal communication such as gesticulation or space between communicators. Similarly, care should be taken in knowing who you are talking to because cultural perceptions around the world change with the use of certain phrases. Furthermore, it helps if you are aware of the difference in time zone if you are on a phone or Web-based call.

3. Are any of the steps more difficult than others? Why? Suggested Answer: Answers will vary. Knowing who you are talking to and negotiating the differences in behavioral tendencies seem to be the most difficult steps in cross-cultural communication. People in different continents and countries tend to act and react in manners that are vastly distinct from each other. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Buchner-Howard outlined how people from different countries tend to fall into a spectrum of behavioral tendencies.

Germany, Switzerland, the United Kingdom, the United States, and Sweden are Linear-Active countries that tend to be fast, efficient, and fact oriented. Contract and negotiations carry an attitude of "Truth before diplomacy."

Countries such as Argentina, Brazil, Chile, Mexico, Hispanic America, Italy, Portugal, Spain, and Sub-Saharan Africa tend to have a "no problem, it'll happen soon, don't worry about it" attitude paired with a lot of verbal and nonverbal communication. Contract and negotiations carry the attitude of "Feelings before facts--truth is flexible."

Reactive countries like Japan, Vietnam, Taiwan, Hong Kong, China, Korea, and Thailand tend to keep emotions under wraps, listen more than talk, and be very non-confrontational. One can expect a lot of difficulty in getting tasks accomplished quickly because there tends to be a lot of bureaucracy and coordination involved. Contract and negotiations carry the attitude of "Diplomacy over truth."

Chapter 13: Freelancers 1. This case discusses the opportunities offered to freelancers as a result of globalization. It also emphasizes the challenges inherent in cross-cultural communication and offers some suggestions for better cross-cultural communication.

What are some of the factors making it easier for freelancers to work internationally today?

Suggested Answer: Answers will vary. The Internet is the single most important reason that it has become easier to work online as a freelancer for international clients. There are online tools such as Trello.com and Harvest.com that allow one to keep track of one's work and show progress to a client. Getting paid for a freelance job is easier with services such as Paypal.com and Transferwise.com. Lastly, communicating internationally has been made easier because of software applications such as Skype that allow free calls between countries through the Internet.

2. Why is communication with international clients more difficult than local clients?

Suggested Answer: Answers will vary. Communication with international clients is more difficult than with local clients because of a lot of factors. One of them is the language barrier between the client and the freelancer. Secondly, time zones are important to keep track of because they can affect the time submissions are made as well as arranging meetings virtually or over the phone. In addition, different cultures think and act differently in terms of protocol and practices. Likewise, a careful eye must be kept on legality when it comes to international clients.

3. What can a freelancer do to better prepare for cross-cultural communication?

Suggested Answer: Answers will vary. Freelancers need to be aware of cultural difference when talking to people from different countries. Some clients will want to be addressed formally, while others prefer a friendlier approach. One way this can be discerned is by paying attention to the way clients write. Freelancers should also research if there are other cultural differences in terms of work culture and commonly practiced business behaviors.

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 14 MOTIVATION IN MULTINATIONAL COMPANIES Learning Objectives     

Recognize how people from different nations perceive the basic functions of working Explain how people from different nations view the importance of working Understand how the national context affects the basic processes of work motivation Apply common theories of work motivation in different national contexts Design jobs for high motivational potential in different national cultures

Introduction  

All managers must motivate their subordinates to accomplish organizational goals Multinational companies need to constantly be aware of what workers seek in their work environments and adjust rapidly to satisfy those needs

Work Values and the Meaning of Work  

Before we can motivate or lead people from different cultures, we must understand what work means to people from different societies Two basic questions to answer  How important is work in people’s lives?  What do people value in work?

How Important is Work in People’s Lives?  

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To answer this question, several major international research projects studied thousands of workers from different occupations and from several countries One survey question surrounds Work centrality – overall value of work in a person’s life (when compared to other activities such as leisure, family, community, and religion)  Five social institutions have negative effects on work centrality (namely the extent of socialism, the degree of industrialization, the degree of union strength, the accessibility of education, and extent of social inequality)  Uncertainty avoidance and masculinity had negative effects on work centrality  The cultural dimension of individualism had positive effects on work centrality  Survey that attachment to work typical of most industrialized societies is reaching its limit  In post-industrialized societies, people are now more concerned with qualify-of-life issues and individual self-expression  Higher levels of work centrality are closely correlated with average number of hours worked per week in the country  In general, high levels of work centrality may lead to dedicated workers and effective organizations Work obligation norms – degree to which work is seen as an obligation or duty to society  In general, societies that have high work obligation norms expect their citizens to view work as an obligation or a duty

Exhibit 14.1 Work Obligations Norms for Selected Countries (Shows the levels of work obligations in various societies surveyed by the World Values Survey) 

Many of the emerging economies, such as India, Turkey, Poland, and Bulgaria, show very high levels of work obligation norms

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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More developed economies such as the Netherlands, the U.S., and Germany have much lower work obligation norms It has been suggested that other factors can lead to lower work obligation norms, as in the case of Cuba, where generous social programs have resulted in a negative effect on work centrality in citizens’ lives

What Do People Value in Work? 

Two important work values are extrinsic work values and intrinsic work values  Extrinsic work values – preference for the security aspects of jobs, such as income and job security  Intrinsic work values – preference for openness-to-change job aspects, such as autonomy, being able to take initiative and be creative

Exhibit 14.2 Preference for Extrinsic Work Values (For selected countries in the World Values Survey) Exhibit 14.3 Preference for Intrinsic Work Values (For selected countries in the World Values Survey) 

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The most important finding is that people from different nations did not express the same preference for extrinsic and intrinsic work values  Most of the emerging economies rate extrinsic work values very high  Many of the developed societies rate extrinsic work values much lower Many of the countries that rated extrinsic work values highly also rated intrinsic work values highly When crafting their motivational strategies from a local workforce, multinational managers must not assume that people from different nations express the same preference for work values

Exhibit 14.4 Importance Rankings of Work Characteristics in Nine Countries (Shows the priorities given to different job characteristics vary by country)  

 

In spite of pay being a dominant function of work for many of the transitions and developing nations, no country rated pay as the most important work characteristic Conclusions from Meaning of Work Study and more Current WVS/EVS Study  In some societies, work is very central and absorbs much of a person’s life  All people hope to receive certain benefits from work and money alone is not enough  Societies differ in the degree to which they regard work as an obligation to society  Many of the emerging economies that value extrinsic work values such as income and job security also place high value on intrinsic work values  The first key to successful motivational strategies in multinational companies is understanding the differences among countries in the functions of work, work centrality, and the priorities given to different job characteristics Multinational mangers must understand that people from different countries often have different reasons for working and different priorities regarding the important attributes of their jobs To use the knowledge of national differences in work attitudes for motivational purposes, a multinational manager also needs to understand how basic motivational principles work in the multinational environment

Work Motivation and the National Context The Basic Work Motivation Process © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Motivation concerns all managers - managers want their subordinates motivated to achieve organizational goals Towards this end, managers choose incentives (e.g., pay, promotion, recognition), punishments (e.g., salary reduction) and chose work designs (e.g., simple or complex tasks) Managers usually respond positively to people (e.g., with raises) who help the organization achieve its goals and negatively (e.g., with bad evaluations) to employees who fail to help the organization achieve its goals

Exhibit 14.5 The Basic Work Motivation Process and the National Context (Presents a picture summarizing the psychological process that most experts use to explain work motivation)        

Motivation – a psychological process resulting in goal-directed behavior that satisfies human needs Need – a feeling of deficit or lacking that all people experience at some time Goal-directed behavior – one that people use with the intention of satisfying a need People use the work setting to satisfy many needs - e.g. to provide food and shelter Many motivation theories assume that people will work harder if more of their needs can be satisfied on the job When we do things that affect others, people react positively or negatively Reinforcement – reactions to a person’s behavior that encourage the person to continue the behavior Punishment – consequences of a person’s behavior that discourage the behavior

National Context and Work Motivation: A Brief Introduction     

National context influences all steps of the motivational process (see Exhibit 14.5) Cultural values, norms, and supporting institutions influence the priority people attach to work in general and the types of needs that people hope to satisfy at work National context helps to define the behaviors that provide legitimate ways to satisfy needs National context also influences reactions to goal-directed behaviors at work National culture and social institutions influence the levels of satisfaction workers expect to receive in an organization and how committed they are to their organization and its goals

Theories of Work Motivation in the Multinational Context  

Work motivation theories attempt to show how the basic motivational process apply to a work setting Two basic types of motivation theories:  Need theories  Process theories

The Need Theory of Motivation  

Need theory – of motivation, assumes that people can satisfy basic human needs in the work setting Four popular need theories 1. Maslow’s hierarchy of needs 2. ERG theory 3. Motivator-hygiene theory 4. Achievement motivation theory

Exhibit 14.6 Need Theories of Motivation (Gives a summary and comparison of these four theories and also shows the characteristics of jobs that can satisfy the types of needs identified by them) © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Maslow’s Hierarchy of Needs     

Hierarchy of needs theory – statues that people have five basic types of needs: physiological, security, affiliation, esteem, and self-actualization Basic five needs follow a hierarchy from lower levels to higher levels Once one need is satisfied, it no longer motivates us Current opinion on Maslow’s approach suggests that the need hierarchy does not work in sequence – nor do all available jobs in a country provide activities required to meet all levels of needs Research does not support Maslow’s prediction that individuals (and nations) can expend effort to satisfy only one level at a time

Exhibit 14.7 Maslow’s Hierarchy of Needs and Country-Level Measures (Shows the various measures used for each of Maslow’s five needs)

Alderfer’s ERG Theory   

ERG theory – simplified hierarchy of needs, growth needs, relatedness needs, and existence needs (see Exhibit 14.6 for a comparison with Maslow’s theory) In ERG theory, frustration of a need motivates behavior to satisfy the need If a person who cannot satisfy higher-level needs will seek to satisfy lower-level needs

Motivator-Hygiene Theory  

   

Motivator-hygiene theory – assumption that a job has two basic characteristics: motivators and hygiene factors Assumes that a job has two basic characteristics: motivators and hygiene factors  Motivators include the characteristics of jobs that allow people to fulfill higher-level needs  Hygiene factors include those characteristics that fulfill lower-level needs Motivating factors arise from the context or the actual tasks that people perform on the job Hygiene factors focus on the context or setting in which the job takes place Hygiene factors bring people to neutral state of motivation Only the opportunity to satisfy higher level needs (motivators) bring motivation

Achievement-Motivation Theory    

Three key needs as the basis of motivation: needs for achievement, affiliation, and power Achievement-motivation theory – suggestion that only some people have the need to win in competitive situations or to exceed a standard of excellence High achievement people have the need to win, set their own goals, and seek challenging situations It is assumed that achievement motivation is fixed in early childhood and that difference cultures have different levels of achievement motivation

Needs and the National Context 

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There are both similarities and divergence in the needs that people from different nations seek to satisfy from working  Similarities of needs across cultures occur because people tend to group needs into similar clusters or categories  Regardless of national background, people see their work-related needs grouped in ways that match the broad groups proposed by need theories of motivation National groups vary in two ways on how people see needs being satisfied at work  People from different countries do not give same priorities to needs

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Even if they have the same needs, people may not give the same level of importance to satisfying these needs

Exhibit 14.8 Rankings of the Importance of Job-Related Sources of Need Satisfaction for Seven Countries (Illustrates some of the differences in the priorities given to job-related sources of need satisfaction by people from a group of nations)  

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Can multinational managers use need satisfaction as a motivational tool?  Yes, if multinational managers take into account the needs that people seek to satisfy in the work setting What differences in need satisfaction might multinational managers expect to find in different countries?  As exhibit 14.7 shows, people from different nations do not necessarily assign the priorities as suggested by needs theories  Although most need theories suggest that higher-levels of needs (self-actualization) should be most important, many sources of satisfying self-actualization needs had only moderate importance How can a multinational anticipate needs differences in countries on which there is little information?  Anticipate needs based on cultural norms and values and institutional conditions

Exhibit 14.9 Hofstede’s Dimensions of National Culture and Motivators at Work (Shows some of the motivators at work, as identified by Hofstede, for different types of national cultures)

Applying Need Theories in Multinational Settings 

Points to consider in adapting needs theories to the international context:  Identify the basic functions of work in the national or local culture  Identify the needs considered most important by workers in the national or local culture  Sources of need fulfillment may differ for the same needs  Understand the limitations of available jobs to satisfy needs

Process and Reinforcement Theories of Motivation   

Three major process theories of motivation: expectancy theory, equity theory, and goal setting theory Process theories – of motivation, arising from needs and values combined with an individual’s beliefs regarding the work environment These theories receive fewer applications in the international setting than do needs theories

Expectancy Theory     

Expectancy theory – assumption that motivation includes people’s desire to satisfy their needs and their beliefs regarding how much their efforts at work will eventually satisfy their needs Work motivation is a function not only of an individual’s needs or values but also of an individual’s beliefs regarding what happens if you work hard Assumes that part of motivation is an individual’s desire to satisfy his or her needs Level of motivation also depends on people’s beliefs regarding how much, or if, their efforts at work will eventually satisfy their needs The three factors that make up expectancy theory: expectancy, valence, and instrumentality  Motivation = Expectancy x Valence x Instrumentality  Expectancy is an individual’s belief that his or her effort will lead to some result  Valence is the value you attach to the outcome of your efforts

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Instrumentality refers to the links between early and later results of the work effort

Applying Expectancy Theory in Multinational Settings  Key issues in applying expectancy theory in the multinational company  Identify which outcomes people value in a particular national or local cultural setting  Find culturally appropriate ways of convincing employees that their efforts will lead to desirable ends  Engage in more frequent performance appraisals aimed at making employees more accountable for their actions

Equity Theory 

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Equity theory – proposal that people perceive the fairness of their rewards vis-à-vis their inputs based on how they compare themselves to others  People have no absolute standards for fairness in the input/output (effort/reward) equation  Workers who believe that they are under rewarded reduce their contribution to the company (e.g., take longer breaks)  Over rewarded workers increased their work input, at least in the short run Research suggests that culture has an impact on how people from different societies view the various elements of equity theory 

People from more individualistic societies, such as the U.S., are likely to emphasize achievement-oriented input (performance)

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People from more collectivistic societies will emphasize ascription-oriented inputs, such as seniority

Applying Equity Theory in Multinational Settings  The first issue to consider is the importance of equity norms in a society  Three principles of allocating rewards that vary in different cultural settings: the principle of equity (based on contributions), the principle of equality (based on equal division of rewards), and the principle of need (based on individual needs)  A review of cross-national reports on the three principles of reward allocation suggests the following  Equity norms prevail in individualistic cultures  Equality norms prevail over equity norms in collectivist cultures  The principle of need may prevail over equity in certain conditions Exhibit 14.10 Rewards from Peers for Contributions to a Student Group Project (Shows an example of how the fairness of equity or equality rewards can affect even students’ responses to grades relative to contributions)  

Final issue to consider in applying equity theory is the cultural differences in beliefs regarding the sources of a person’s contributions to work In some cultures, age, social status, and family membership may be more important inputs to work than the actual effort and performance on the job

Goal-Setting Theory   

Goal setting theory – assumption that the mere existence of a goal is motivating When they meet or exceed goal, people feel competent and satisfied Principles of goal-setting  Set clear and specific goals  Assign difficult but achievable goals

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Increase employee acceptance of goals Provide incentives to achieve goals Give feedback on goal attainment

Applying Goal-Setting Theory in Multinational Settings  Some experts believe that goal setting works to some degree regardless of location  Setting goals does affect behavior in a positive direction  Cultural expectations vary  Should subordinate participate with managers in setting the goals?  Is it better to set goals for groups or for individuals?  In more individualistic cultures, such as in the U.S., setting individual goals may prove more effective than setting goals for a work group  Workers in collectivist cultures may respond better to higher levels of participation in goal setting than people from more individualistic cultures  In cultures high on power distance, worker participation in setting goals may not produce positive effects Exhibit 14.11 Cultural Effects on Performance by the Degree of Participation in Goal Setting (Demonstrates some of the outcomes that can occur when people from different cultures have varying degrees of participation in the goal-setting process)

Reinforcement Theory  

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Most managerial applications of reinforcement theory focus on operant conditioning Operant conditioning – model proposes that, if a pleasurable consequence follows a behavior, the behavior will continue, whereas if an unpleasant consequence follows a behavior, the behavior will stop  Represents the basic way people learn  Focuses on the observable behavior and not on the psychological processes that affect people’s motivation Three steps  Antecedent comes first and stimulates behavior  Behavior follows antecedent  Pleasant or unpleasant consequences follow the behavior

Exhibit 14.12 Management Example of Operant Conditioning Process and Types of Consequences (Shows the three steps in the operant conditioning process)      

Positive reinforcement occurs when management responds with a rewarding consequence Negative reinforcement increases desired behavior by eliminating some negative consequence Punishment occurs when something unpleasant occurs after a behavior Extinction occurs when a manager ignores a behavior Most management applications of reinforcement theory use positive reinforcement to encourage behaviors desired by management To reinforce behaviors, managers have an array of organizational rewards (e.g., material rewards like pay, benefit rewards like company car, status rewards like prestige office, and social rewards like praise)

Applying Reinforcement Theory in Multinational Settings  The evidence from most U.S. studies suggests that positive reinforcement works

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The challenge for the multinational manager is to understand not only how work values influence potential rewards but also to identify the organizational rewards available in a national setting National cultures and social institutions define acceptable and legitimate rewards When multinational managers can find culturally and institutionally appropriate reinforcers, reinforcement theory does work

Key Points in the Multinational Application of Process and Reinforcement Theories    

Expectancy theory: The major key is identifying the appropriate work rewards that have positive valence for employees in a national setting Equity theory: The multinational manager must assess the importance and meaning of the principle of equity in a national context.

Goal setting theory: Depending on cultural norms, goal setting may be more effective when assigned to groups rather than individuals Reinforcement theory: The rewards people value at work may influence the types of reinforcers useful to managers in different cultural contexts

Motivation and Job Design: U.S. and European Perspectives   

Job design attempts to make work more motivating by changing the nature of jobs Early theories focused primarily on making a job as fast and efficient as possible Contemporary views take into account the psychological effects of tasks on workers

A U.S. Approach: The Job Characteristics Model  

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Job characteristics model – suggests that work is more motivating when managers enrich core job characteristics such as by increasing the number of skills a job requires The job characteristics model sees three critical psychological states as motivating  First, a person must believe that his/her job is meaningful (important or valuable)  Second, a person must believe that he/she is responsible or accountable for the outcome of the work  Third, a person must understand how well he/she has performed Core characteristics of a job that lead to the motivating psychological states include  Skill variety  Task identity  Task significance  Autonomy  Feedback Not all people respond positively to jobs with enriched job characteristics The model suggests that jobs with high motivational potential work best for people who have a strong need for personal growth and who have the appropriate knowledge and skills to perform the job well Research shows that the job characteristics model is clearly culture dependent and needs to be adapted to fit cultural predispositions A major criticism of the job characteristics model is that it is U.S. based and thus works only for societies that display similar cultural attributes

Exhibit 14.13 A Motivating Job in the Job Characteristics Model (Gives a picture of how the model works when a job has a high potential for motivating workers)

A European Approach: Sociotechnical Systems 

Sociotechnical systems (STS) approach – focuses on designing motivating jobs by blending the social system (i.e., organizational structure, culture) with technologies © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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The STS approach focuses on the autonomous work group  Autonomous work group – team or unit that has nearly complete responsibility for a task The STS approach builds into a job many of the same US motivational job characteristics  However, in a crucial difference with the U.S. approach, the team’s tasks rather than the individual worker’s tasks become the focus job enrichment

Choosing Job Enrichment Techniques in Multinational Settings  

Distinction between individualistic and collectivist cultures determines the choice of job enrichment techniques One explanation of why team-based job enrichment may not work well in individualistic cultures is that people in individualistic cultures just do not work as well in groups (see Exhibit 14.13 for an example of this phenomenon)

Exhibit 14.13 Comparing the Performance of Chinese, U.S., and Israeli Managers Working Alone and in Groups (Shows that team-based job enrichment may not work well in individualistic countries) 

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Why does performance drop off with the use of teamwork in more individualistic cultures?  Social loafing – people put out less effort when they work in groups  Why? o First, working in groups, people do not feel responsible for group outcomes and feel less pressure to perform o Second, workers in groups often believe that the group will make up any slack in their personal efforts o Third, people give their own work and interests priority over the group’s  However, in individualistic cultures, social loafing has less of a detrimental effect on a group’s performance when individuals (vs. groups) are held accountable for performance Many multinationals have embraced telecommuting as a means to reduce costs while giving employees improved flexibility and other positive incentives Challenges of telecommuting 

assessing worker productivity

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maintaining ties with company culture

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motivating telecommuting workers

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Companies’ perceptions of telecommuting are influenced by the respective culture of the society

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Research has shown that the level of management support for teleworking enhances worker motivation

Summary and Conclusions  

Motivating workers in diverse settings is a constant challenge for multinational managers As a guide to developing motivational techniques in multinational settings, this chapter addressed several key issues  First, this chapter showed some of the available information on international differences in work centrality and the importance of work in several different nations  Second, the chapter reviewed the basic processes of work motivation and how these processes are influenced by the national context  Third, the chapter reviewed classic theories of motivation and the multinational applications of each approach

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Fourth, the chapter considered both U.S. and European approaches to designing jobs with high motivational potential Most views of motivation in this chapter were “made in the U.S.A.” Many of the psychological theories that underline common U.S. approaches to motivation have culture-free assumptions and research support; that is, they attempt to explain human behavior independently of cultural setting Each job situation requires an understanding of unique organizational, regional, and occupational cultures as well as individual differences of each employee

Answers to In the News Questions From MindTap Chapter 14: Motivation Strategy 1. This article discusses some of the challenges companies are facing to motivate employees. The article also provides some suggestions as to what can work where.

Why is it so difficult for multinationals to adopt a one-for-all motivation strategy?

Suggested Answer: Answers will vary. A one-for-all-motivational strategy is difficult to adopt for multinationals as most of them have a global workforce. People from different countries require different approaches to motivation strategy. This is because employees from different cultures have different needs.

2. Why do competition-based techniques work well in Russia but not in Sweden?

Suggested Answer: Answers will vary. There are huge country-based differences on how people are motivated; for example, Russia has competition-based motivation techniques, but in Sweden, these are one of the least-effective tools. Russian managers are motivated by their salaries as they use that to meet their basic needs. Swedish managers, on the other hand, are better motivated by a stable and enjoyable work environment because their basic needs, according to Maslow's theory of needs, are met.

3. What recommendations would you suggest for a multinational embarking on a motivation strategy?

Suggested Answer: Answers will vary. It is recommended that multinationals take an active role in motivation. Putting all the responsibility on employees to motivate themselves is likely to fail.

Companies need to understand that motivation is not a one-size-fits-all process. Factors determining motivation change from country to country. They need to incorporate a range of techniques that cater to the specific needs of the countries their employees hail from.

Chapter 14: Retaining Employees 1. This case discusses some of the steps any company can take to inspire and motivate employees and to lower turnover.

What are some of the suggestions a multinational can use to motivate and retain its employees?

Suggested Answer: Answers will vary. A multinational needs to create an environment where people want to work if it wants to motivate its employees. An employee who is respected for his or her ideas, feelings, and personal life will be motivated to work in the company. Employees should be involved in decision making to help them feel valued. Their individual successes should be celebrated as much as their contribution in the company's overall success. Handing out awards and gifts for their service will help employees feel valued. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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2. Do you think all of the suggestions would apply in all countries? Why or why not?

Suggested Answer: Answers will vary. Certain facets of motivation strategy apply to all countries.

The respect for an employee's personal life, privacy, ideas and feelings are universally motivating.

However, other factors such as salaries, competition-based techniques, and other rewards may not have the same effect in all countries.

3. Which of the suggestions would work best for a collectivistic country? Why? Suggested Answer: Answers will vary. In a collectivistic country, employees benefit from having a common theme with little variation in terms of status and rank. They should be consulted for any projects and work that are about to happen. They should be able to connect with the success of the country on an individual level. In the case that they are leaving their positions of work, it is important to treat them with respect and acknowledge their hard work.

Chapter 14: Unilever 1. This article discusses the HRM strategies at Unilever and the use of HRM system to keep track of motivation.

What are some of the critical elements/aspects of Unilever's HRM system? What are some of the issues they track regularly?

Suggested Answer: Answers will vary. Unilever conducts self-assessments and external audits to learn about employee's perspective on Unilever's compliance toward their human rights. Unilever has also undertaken campaigns that focus on gathering employee feedback on their happiness, motivation, and job satisfaction regularly. In addition to these campaigns, Unilever launched a 'Social Impact Hub' with the aim of introducing employees to social activities.

2. Why is motivation of employees so critical for Unilever?

Suggested Answer: In the age of highly competitive business environments, it has become a challenge for companies such as Unilever to retain valuable employees. In order to retain employees, Unilever is focused on keeping them motivated through a highly effective human resource management program focused on their human rights. This results in high job satisfaction and helps Unilever in retaining its valuable employees.

3. What are some lessons you learn from the example of Unilever with regards to motivation?

Suggested Answer: Answers will vary. Unilever measured motivation, sometimes on a daily basis, allowing the human resources department to gain valuable insight on areas that would strengthen loyalty to the company. Continuous and meaningful dialogue with its employees helps motivate employees and enables a company to retain them. Unilever succeeded in this by focusing on the human rights of its employees and ensuring that they are met. From this example, we can learn that no matter the size of the company, such steps can help ensure job satisfaction and workforce retention.

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CHAPTER 15 LEADERSHIP AND MANAGEMENT BEHAVIOR IN MULTINATIONAL COMPANIES Learning Objectives          

Know the characteristics of global business leadership Describe traditional North American models of leadership including trait theory, behavioral approaches, and contingency theory Explain the Japanese performance maintenance model Apply the cultural contingency model of leadership Develop sensitivity to national cultural differences in preferred leadership traits and effective leadership behaviors Discuss how national culture affects the choice of leader influence tactics Discuss how national culture influences subordinates’ expectations regarding appropriate behaviors and the traits of leaders Explain the role of transformational leadership in multinational settings Understand how the national culture affects a leader’s attributions regarding subordinates’ behaviors Diagnose cultural situations and suggest appropriate leadership styles to fit them

Introduction  

Leadership – ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members This chapter shows that successful multinational leaders choose effective leadership styles based on an understanding of how national culture and a country’s social institutions affect leadership

Global Leadership: The New Breed   

The rise of transnational companies and the dependence of even the smallest companies creates a need for a new type of leader Global leader – one who has the skills and abilities to interact with and manage people from diverse cultural backgrounds A successful global leader is:  Cosmopolitan: sufficiently flexible to operate comfortably in pluralistic cultural environments  Skilled at intercultural communication: knows at least one foreign language and understands the complexities of interaction with people from other cultures  Culturally sensitive: has experience in different national, regional, and organizational cultures needed to build relationships with culturally different people  Capable of rapid acculturation: rapidly acculturated or adjusted to strange or different cultural settings  A facilitator of subordinate intercultural performance: has a deep understanding of cultural differences in work and living and able to prepare subordinates for successful overseas experiences  A user of cultural synergy: takes advantage of cultural differences by finding a synergy that combines the strengths of each cultural group

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A promoter and user of the growing world culture: understands, uses, and takes advantage of the growth international advances in media, transportation, and travel that support the globalization of international business Emotionally intelligent: accurately perceives his or her emotions and uses them to solve problems and relate to others

Three Classic Models: A Vocabulary of Leadership 

Models include leadership traits, leader behavior, and contingency leadership

Leadership Traits    

Trait models of leadership evolved from the debate regarding whether leaders are born or made Great person theory – leaders are born with unique characteristics that make them quite different from ordinary people At least in the U.S. successful leader traits are: high intelligence and self-confidence; great initiative; assertiveness and persistence; a great desire for responsibility and the opportunity to influence others; and a high awareness of the needs of others Contemporary views of leadership suggest aspiring leaders can achieve these traits through training and experience

Leadership Behaviors U.S. Perspectives on Leadership Behaviors  

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North American studies of leadership traits have concluded that traits alone do not make a leader – behaviors leaders use to manage their employees may be more important Researches identified two major types of leadership behaviors of North American managers  Task-centered leader – one who gives subordinates specific standards, schedules, and tasks  Person-centered leader – one who focuses on meeting employees’ social and emotional needs o Showing a concern for subordinates’ feelings and taking subordinates’ ideas into account The distinction between person-centered and task-centered leader behaviors also applies to how leaders make decisions  Autocratic leadership – leaders make all major decisions themselves  Democratic leadership – leader includes subordinates in decision making  Consultative or participative leadership – leader’s style falls midway between autocratic and democratic styles Management and leadership theorist, Rensis Likert, identified four styles of management that also reflect a similar distinction between the task and the person: exploitative/authoritative, benevolent/authoritative, consultative, and participative (See Figure 15.1)

Exhibit 15.1 Likert’s Four Styles of Management (Shows how each management style relates to a general leadership orientation, preferred motivational techniques, communication style, decision-making style, and controlling style)  

Based on early studies of U.S. workers, it can be concluded that leaders choose behaviors that focus on initiating structure for task completion or on meeting the social and emotional needs of workers Recent research indicates that appropriate adaptation by a leader through the use of cultural synergy can help to ensure the success of mergers and acquisitions

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Japanese Perspectives on Leader Behaviors  

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Performance-maintenance (PM) theory – Japanese perspective on balancing tasks and personcentered leader behaviors Has two dimensions 1. The performance function (P) is similar to task-centered leadership - manager guides and pressures subordinates to achieve higher levels of group performance  The performance (P) side of PM leadership has two components o First, the leader works for or with subordinates to develop work procedures, called the planning component o Second, the leader then pressures employees to put forth more effort and to do good work, called the pressure component 2. The maintenance function (M) is similar to person-centered leadership The Japanese PM leader focuses on influencing groups while US approach focuses on influencing individuals PM theory suggests that groups perform best when both P and M are present

Contingency Theories   

Early models of leadership tended to look for leadership universals After years of study, experts concluded that there is no one best leadership style for all situations Contingency theory – assumption that different styles and leaders are appropriate for various situations

Fiedler on Leadership Effectiveness 

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Fiedler’s theory of leadership – proposal that success of task- or person-centered leader depends on relationships between the leader and subordinates, the degree that subordinates’ tasks are easily and clearly defined, and the officially granted organizational power of the leader As with all contingency theories, effective leadership occurs when the leadership style matches the situation Task-centered works best when the work situation includes a positive relationship between the leader and subordinates, highly structured tasks, and higher levels of organizational power, and in just the opposite conditions, such as when the job requirements are unclear Person-centered leadership is required in mixed conditions, such as when a leader has low formal power but has good relationships with subordinates

Exhibit 15.2 Predictions of Leader Effectiveness under Different Conditions (Shows the predicted effectiveness of task- and person-centered leadership in different conditions)  

The theory’s logic suggests that task-centered leadership works best in situations that are favorable or unfavorable for a leader In mixed situations, employee commitment and satisfaction become more important and a successful leader must focus more time on people rather than on just getting tasks done

Path-Goal Theory 

Path-goal theory – four types of leadership styles that a manager might choose depending on the situation  Directive style: give subordinates specific goals, schedules, and procedures  Supportive style: show a concern for satisfying subordinate’s needs and establishing good relationships  Participative style: consult with subordinates; ask for suggestions; encourage participation in decision making

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 Achievement-oriented style: set goals; reward goal accomplishment In path-goal theory, the key contingency or situational factors that determine the choice of the best leadership styles are the nature of the subordinates and the characteristics of the subordinates’ tasks

Exhibit 15.3 A Simplified Overview of Path-Goal Theory (Presents a simplified overview of path-goal theory) 

Key leadership suggestions based on path-goal theory  When subordinates have high achievement needs, successful leaders adopt the achievement-oriented style  Subordinates with high social needs respond best to the supportive leadership style  When the subordinate’s job is unstructured, the theory suggests using a directive style (the leader details very specific job tasks and requirements) or an achievement-oriented style (the leader gives the subordinate responsibility to discover solutions)

Traits, Behaviors, and Contingencies   

No one leadership trait or behavior that works in all situations The contingency theory of leadership suggests that successful leaders must diagnosis the situation and pick the behaviors or develop the leadership traits that fit best Akio Toyoda’s leadership at Toyota in response to a series of internal and external crises is an example of a CEO taking a contingent approach to his usual leadership style

National Context as a Contingency for Leadership Behaviors 

Most experts on leadership in multinational companies argue that a contingency perspective is required  The first step in understanding how to adjust one’s leadership to a multinational situation comes from understanding what local managers do to lead successfully in their own countries  The second step is using this knowledge to modify your leadership style appropriately

The National-Context Contingency Model of Leadership: An Overview 

National-context contingency model of leadership – shows how culture and related social institutions affect leadership practices (summarized in Exhibit 15.4)

Figure 15.4 A National-Context Contingency Model of Leadership (Summarizes the national-context contingency model of leadership) 

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To be successful, leaders must modify their behaviors or develop particular leadership traits depending on two key contingencies  The characteristics of their subordinates  The nature of their work setting In the multinational setting, the basic components of the contingency leadership model (leader behavior and traits, subordinate characteristics, and the work setting) are affected by the national context How leadership behaviors, traits, and contingencies are affected by the national context:  Leader behaviors and traits: national culture, business culture, and social institutions define the array of preferred and acceptable leader behaviors and traits for managers  Subordinate characteristics: national and business cultures influence workers’ needs and levels of achievement motivation  Work setting: culture and social institutions affect the choices managers make in designing organizations and subunits

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Leadership Traits and Behaviors in the National Context   

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Different cultures have different images of what distinguishes successful leaders There is also evidence that some leader behaviors and traits are cultural universals Leadership has different evaluation connotations from one society to another  The U.S. places a very important premium on leadership  In Japan, CEOs attribute organizational success to their subordinates  In Germany, the engineer, rather than the manager, is the cultural hero  In France, the distinction between management and worker reflects social class  In the Netherlands, a desired leadership trait is modesty  In the Chinese family business, the leader is the patriarch, the oldest male head of the family Latest research on cross-national research in leadership is called GLOBE (Global Leadership and Organizational Behavior Effectiveness) (reference GLOBE study in Chapter 2) The GLOBE team found that most people, regardless of cultural background, believe that some traits and behaviors lead to outstanding leadership, while other traits and behaviors prevent managers from leading successfully

Exhibit 15.5 Culture-Free Positively and Negatively Regarded Leadership Traits and Behaviors from 60 Countries (Shows a list of universally acceptable or disliked behaviors and traits identified by the GLOBE study) 

The GLOBE research also identified leadership styles that are relevant to leadership in crosscultural settings: team-oriented, self-protective, participative, humane, and autonomous  The team-oriented style characterizes a leader who is an integrator, diplomatic, benevolent, and works collaboratively with the team  The self-protective leader is self-centered, status conscious, procedural, and a face saver  The participative leader is a delegator and encourages subordinate participation in decisions  The humane style characterizes leaders who have modesty and a compassionate orientation  The autonomous leader is individualistic, independent and unique, and is expected to act in self-interested fashion

Exhibit 15.6 GLOBE’s Study Clusters and Countries Included in Each (Shows the country clusters in the GLOBE study) Exhibit 15.7 Culturally Contingent Beliefs Regarding Effective Leadership Styles (Shows how leadership behavior styles vary across clusters representing a large sample of nations representing Asia, Africa, Europe, the Middle East, and North America) 

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There are differences in the various leadership styles based on cultural differences  Team-oriented leaders are preferred in Latin European, East European, and Southern Asian societies  Anglo, Nordic European, and Germanic Europeans have the highest score on participative leadership  Southern Asian countries scored the highest on the humane oriented leadership  The clusters with the highest score on autonomy are the Germanic and Eastern European clusters  All country clusters felt that self-protective leadership hindered effective leadership Leadership characteristics and behaviors vary because the national context produces differences in the repertoire of behaviors and traits available to managers

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Recent research examining leadership competencies that managers perceive as most important to lead multinationals found that the following three are viewed as universally important and were not affected by cultural values  Resourcefulness (ability to adapt the use of limited resources to an ever-changing environment  Change management (ability to manage change)  Building and mending relationships (ability to build and maintain relationships with both internal and external entities)

National Context and Preferred Leader Influence Tactics 

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US managers favor seven major influence tactics – tactical behaviors leaders use to influence subordinates  Assertiveness: being forceful, directive, and demanding  Friendliness: being friendly, humble, and receptive  Reasoning: using logical arguments, providing reasons, and using plans  Bargaining: offering favors and exchanges  Sanctioning: using threats, rewards, and punishments  Appeals to a higher authority: appeals for help to higher authorities and sending problems to higher authorities  Coalitions: building support for ideas by networking and using friendships Research study found that most mangers, regardless of cultural background, use the same general types of influence tactics but different nationalities favor some over others

Exhibit 15.8 Preferred Leader Influence Tactics in Four Countries (Shows the favored tactics of Taiwanese, Japanese, Australian, and British managers)

National Context and Subordinates’ Expectations    

Subordinates’ expectations – expectations regarding what leaders should do and what they may or may not do Subordinates accept or reject certain leader behaviors as legitimate prerogatives of leadership The cultural and institutional setting provide a framework for people to interpret leader behaviors Power distance has profound effects on subordinates’ expectations regarding leaders

Exhibit 15.9 Subordinates’ Expectations under Three Levels of Power Distance (Shows Hofstede’s ideas on how subordinates from countries with three different levels of power distance respond to leadership issues)    

In countries with high power distance, such as in Latin and Asian countries, subordinates expect autocratic leadership In low power-distance countries, such as Sweden and Norway, subordinates expect the leader to be more like them Strong uncertainty-avoidance norms may cause subordinates to expect the leader to provide more detail in directions The classic contingency view of leadership and the national-context contingency model of leadership can provide multinational managers a guide as to when and how to adapt leadership styles to different national context

Contemporary Leadership Perspectives: Multinational Implications Transformational Leadership © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Most experts agree that to achieve a great organization, managers must adopt a higher-form of leadership Transformational leadership – managers go beyond transactional leadership by articulating a vision, breaking from the status quo, providing goals and a plan, giving meaning of a purpose to goals, taking risks, being motivated to lead, building a power base, and demonstrating high ethical and moral standards The transformational leader:  Articulates a vision  Breaks from the status quo  Provides goals and a plan  Gives meaning or a purpose to goals  Takes risks  Is motivated to lead  Builds a power Base  Demonstrates high ethical and moral standards Transformational leaders succeed because subordinates respond to the leader with high levels of performance, personal devotion, reverence, excitement regarding the leader’s ideas, and a willingness to sacrifice for the good of the company They seem to arise when organizations need change or face a crises Although transformational leaders exist in all countries, the same leadership traits and behaviors may not lead to successful transformational leadership in all countries Research shows that the personal values people hold may also affect how they perceive the effects of transformational leadership  Collectivists tend to respond more strongly toward transformational attributes of their supervisors and therefore become more involved with their work.  Personal values of uncertainty avoidance weakened the effects of transformational leadership GLOBE project found that charismatic leadership attributes, such as encouraging, trustworthy, positive, confidence builder, and motivational were all perceived as universal attributes  The charismatic leader is decisive, performance oriented, visionary, inspiring for subordinates, and willing to sacrifice for the organization

Attributions and Leadership 

Attribution approach to leadership – emphasis on what leaders believe causes subordinates’ behaviors  The most important attribution for leaders is that of responsibility for work performance  In determining how to respond to subordinates’ behaviors, leaders make two key distinctions in attributions: the external attribution and the internal attribution  The external attribution explains a person’s behavior based on factors outside the person and beyond the person’s control (e.g., natural disasters, illness, faulty equipment, etc)  The internal attribution explains a person’s behavior based on the characteristics of the person (e.g., personality, motivation, low ability, etc)  In making an attribution decision, the leader responds to the subordinate based on that assumption  If the subordinate’s behavior is based on an internal attribution, the manager tends to correct or reward the worker  If the attribution is external, the leader modifies the work environment  Successful leadership requires making the correct attributions regarding subordinate behavior  Fundamental attribution error – assumption by managers that people behave in certain ways because of internal motivations rather than outside factors  Very strong assumption in Western culture  Challenge for the multinational leader is to understand the cultures of subordinates sufficiently well to avoid serious attribution errors © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Getting Results: Should You Do What Works At Home? 

What happens if leaders do not adapt to local conditions?  One study suggested that home-based leadership styles do not work very well in other cultural settings

Exhibit 15.10 Leadership Behaviors and Job Performance of U.S. Managers in the Unties States and in Hong Kong (Shows the correlation between managerial performance and leadership behaviors for two groups of U.S. managers, one working in the United States and one working as expatriates in Hong Kong) 

One potential reason what many managers (especially from the U.S.) fail in international assignments may rest on their inability to modify their behavior and adopt leadership styles congruent with the cultural setting

The Cultural Context and Suggested Leadership Styles   

No simple formula identifying how to lead in every national context Some recent writings suggest some general recommendations The dimensions of national culture suggested by Hofstede seems to be very relevant

Exhibit 15.11 National Cultures and Recommended Leadership Styles (Shows experts Hofstede and Rodrigues’ recommended leadership styles for different cultural settings)    

Power distance is important for leadership because it affects both subordinate and superior expectations regarding the leader’s degree of directiveness or task orientation The uncertainty avoidance norm also affects the range of acceptable leadership styles Ultimately, each multinational manager must diagnose the institutional, organizational, and cultural situations that may affect the success of their leadership style Successful global leaders remain flexible and highly sensitive to the national context

Summary and Conclusions      

All managers who work for multinational companies should strive to become global leaders, unconstrained by national or cultural limitations and able to adjust to any national context Traditional leadership theories can provide the base to understand leadership: trait theories, leadership behaviors, and contingency theory The national context contingency model of leadership extended traditional contingency theories to show how culture and social institutions affect the leadership process The national context also affects leadership contingencies indirectly The chapter reviewed the international implications of contemporary views of leadership, focusing on the transformational leader and leadership attributions Although it is impossible to identify all cultural and situational factors that affect the choice of leadership style, this chapter sensitizes the multinational manager to the array of complex cultural issues facing today’s global leader

Answers to In the News Questions From MindTap Chapter 15: Organizational Climate 1. This case discusses cultural agility and its importance to all leaders today. The authors emphasize the need for multinationals to develop climates that show cultural agility. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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What is cultural agility? Why is cultural agility so critical in any leader today?

Suggested Answer: Answers will vary. Cultural agility is the ability to work comfortably in different cultures and with people from different cultures, while being efficient and effective.

Leaders who are culturally agile are able to accurately read context across cultures and act appropriately. This allows culturally agile leaders to integrate, adapt, and even override their organization's standards with the unique cultural aspect or ethic of different nations to create a new approach.

2. How does cultural agility help multinationals have better leaders?

Suggested Answer: Answers will vary. Multinationals work across geographical borders. In order for them to function in a manner that promotes their particular way of working, they need to have a culturally agile workforce. Not only does this bring uniformity in the multinational's functions across the globe, but also make them function in a uniform manner. Individuals with a high degree of cultural agility become leaders in such organizations and promote a feeling of connectedness and uniformity in action with due care and consideration toward different cultures.

3. How can multinationals develop cultural agility?

Suggested Answer: Answers will vary. Multinationals can develop cultural agility by creating an inclusive and diverse environment that allows all of their employees to be sensitive toward issues relating to different cultures. Employees who follow the correct set of culturally agile behaviors should be given positive reinforcement to encourage them to keep doing so. There should be a strategy in place for monitoring and guiding this environment, which includes appointing individuals with high cultural agility as leaders and managers. Lastly, there should be ample resources such as training, workshops, and seminars to help employees be more aware.

Chapter 15: Indian Talent in China 1. This case describes how multinationals are increasingly looking for Indian top executives to run operations in China.

Why are multinationals increasingly looking to Indians to hire to work in China?

Suggested Answer: Answers will vary. Multinationals are looking for Indians to fill in roles for their Chinese markets as Indians can think outside the box when looking for solutions to problems.

Companies in China appreciate people who can challenge the status quo and strengthen the service sector there. Most of these are senior management roles is an ideal environment for cultivating future leaders.

2. Why does the Indian environment foster the development of leadership talent?

Suggested Answer: Answers will vary. Indians grow up in a highly competitive and complex market that provides many Indians with a unique insight into what people's requirements. This is especially true in emerging markets like India. Many Indians use English as their primary language, providing them an added advantage of communicating with people. Also, Indians specialize in roles that require innovation and consumer insights.

3. Do you think that Indian leadership abilities will adapt well to China? Why or why not?

Suggested Answer: Answers will vary. Recently in the past few years, hiring Indians for Chinese multinationals has been on the rise. A multitude of Indians are employed in senior positions in © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chinese branches of companies such as Whirlpool, PepsiCo, Colgate Palmolive, and Philips. As per the emerging trend, Indians working with global companies are often placed in senior roles in China in preparation for prospective leadership roles.

Chapter 15: Women in Multinational Companies 1. This case describes the advantages women offer as leaders of multinationals.

Why are women seen as better leaders of multinationals than men?

Suggested Answer: Answers will vary. Women are better leaders of multinationals than men because they try to collaborate and encourage their workforce. Women leaders provide regular feedback, follow organizational rules, and offer tasks suited to the employees. In effect, they work toward knowing their employees better, which in turn makes employees feel valued and engaged.

2. What specific advantages do women have in their role as leaders?

Suggested Answer: Answers will vary. Women as leaders are nurturers. They prefer critical thinking rather than impulsive choices when it comes to problem solving. They usually define their goals early and are capable of adapting to varied challenges. In a career, women tend to be more career driven compared to their male counterparts. In addition, women are capable of integrating simultaneous responsibilities that range from their career and progression to their personal life.

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CHAPTER 16 TEAMS AND KNOWLEDGE MANAGEMENT IN MULTINATIONAL CORPORATIONS Learning Objectives       

Understand the difference between groups and teams Know the basic types of teams used by multinationals Appreciate the challenges faced by global teams Understand the unique challenges presented by virtual teams Learn about the stages of team development and what steps multinationals can implement at these stages to address global team challenges Know the unique suggestions to address virtual team challenges Understand the need for knowledge management systems within organizations

Introduction     

Multinational corporations are increasingly relying on teams to deal with the challenges inherent in operating in a dynamic and rapidly changing environment A team-based approach enables these companies to meet both local and global customer needs by integrating design and development expertise from around the world Using globally dispersed teams allows companies to mine the talents of local scientists and experts Organizations relying on global teams can tackle projects too complex and challenging for a single individual or work group Multinational management students can benefit from learning about successful teams and how they work

The Nature of Global Teams  

Group – two or more individuals interacting to influence and be influenced by each other Companies use different types of groups  Formal group – created by a company to achieve some specific work objectives  Informal group – emerge as a result of organizational members' interests  Teams – a small number of people with complementary skills o committed to a common performance goal and approach o hold themselves mutually accountable  Global team – geographically dispersed o members differ both in nationality and culture  Global co-located team – occasionally meet in person; common organizational goals  Global virtual team – work together by using information and communication technologies o intranets, Web meetings, WIKIs, e-mail, instant messaging

Exhibit 16.1 Definition of Groups and Teams and Examples (Shows some definitions of groups and teams and examples of the various types)

Global Team Challenges 

Individuals are from different locations and different nationalities, making collaboration more difficult

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 Increased distance  Different time zones Cultural differences  Different norms on appropriate behavior  USA and Britain – value individual initiative  Japan – emphasis on team players  can lead to miscommunication Differences in problem solving  France – favors understanding why problem occurred; longer time to resolution  USA and Britain – tends to quick identification and solution to problem Language differences  Can affect the level of trust among team members  Mistakenly attribute inappropriate use of language to the speaker’s personal motives or actions  Lack of proficiency in the official language may increase anxiety and apprehension Power differentials  Natural tendency for team members to categorize themselves based on similar versus dissimilar characteristics and behaviors  Majority members versus minority members can increase tension and lack of cooperation  Contributing factors include o Nationality o Geography o Culture o Language o Religion o Location o Socio-economic status Global virtual teams lack face-to-face interaction  Can slow down communication  Unable to read non-verbal cues and facial expression  Reluctant to share critical information  Miscommunication inhibits trust and team cohesion  Transmission of inaccurate messages inhibiting collaboration  Particularly prone to social loafing; not everyone contributing their fair share

Exhibit 16.2 Spatial and Temporal Group Possibilities (Shows the various possibilities with examples, with quadrants showing a combination of each of the two forms of space)

Building the Global Team  

Understanding the stages of team development can help the multinational address the problematic issues associated with teams and prepare for the potential issues encountered at each stage Team development stages – the predictable stages characterized by particular aspects that teams go through as they develop  Forming stage – team members becoming familiar with each other and assess the tasks that need to get done  Storming stage – emergence of intra-group conflicts occurs as team members try to get a better understanding of what needs to get done  Norming stage – team members are familiar with appropriate team behaviors and focus on achieving team goals

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Performing stage – team is highly functional and team members operate without conflict Adjourning stage – team members disband as team goals are achieved

Exhibit 16.3 Team Development Stages and Related Activities ((Shows the various stages and the typical relationships among team members as well as the typical emphasis on task activities) Steps to Address Team Development Stages Specific Challenges    

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Multinational corporations can and must take steps to ensure that their global teams collaborate to function effectively At the forming and storming stages, care should be taken to ensure that the right team members, with the ability to adapt to and manage the differences inherent in global teams, are chosen Where possible, Human Resources Management should be involved in team member selection Human Resources looks for three sources of capital to ensure teams function successfully  Human capital – the various skills and abilities that can be used by team members to develop better collaboration  Cultural intelligence – a key attribute of human capital; components include o Cognitive – self-awareness and the use of cultural knowledge when faced with cross-cultural situations o Motivational – the desire to continuously learn and adapt to new aspects of cultures and their differences o Behavioral – the ability to exhibit the appropriate forms of verbal and non-verbal behaviors in new cultural settings  Social capital – an asset that is engendered via social relations that can be employed to facilitate action—in other words, the ability to function effectively as team members o Associability – the ability to emphasize collective goals and to minimize individual goals o Trust – the ability to have confidence in other team members  Political capital – refers to the leadership ability of team members to remove team barriers and to ensure that team members have a shared perspective Prized attributes of team leaders  High levels of cultural intelligence  Transformational leadership abilities  Servant leadership abilities Training is critical to the success of global teams  Cultural competency  Languages  Communication with nonnative speakers  Sensitivity to different communication styles  Active listening  Sensitivity to important issues Encouraging global team members to get to know each other and build trust is a key to success in the early stages of team building (forming and storming) Face-to-face meetings, conference calls, or video meetings can allow members to learn about each other and set project goals and roles A communication specialist can facilitate the planning and management of information flow and communication across teams Strategies for addessing norming stage issues to complete projects on time and within budget include:  Devoting significant resources to planning

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 Clearly communicating goals and time lines  Communicating key issues and how they relate to strategic objectives  Holding regular team meetings to update members on progress  Implementing corrective actions as needed Vigilance and leadership at the performing stage can ensure that a smoothly functioning team continues to perform well Leadership is a critical element of success at the performing stage Successful leadership attributes  Being open to suggestions, especially those from underrepresented managers with local know-how  Listening skills In countries where high power distance is the norm, cultural training for both leaders and subordinates can ensure that constructive criticisms can be shared more effectively without loss of face to either party The adjourning stage provides an opportunity for multinationals to understand how the team experience was for the team members and what can be learned for future teams Three critical aspects of team success—energy, engagement, and exploration—relate to communications  Energy – both the degree to which team members interact with each other through frequency of exchange of messages as well as the nature of the messages  Engagement – the degree to which team members are communicating with each other and are thus engaged in the team  Exploration – the degree to which team members interact externally with other teams According to a recent study, successful teams had high energy and engagement while also reflecting balanced exploration Teams whose members are poorly matched for energy and engagement can experience uneven communication and dysfunction; training can address these issues Multinationals can and should review the level of energy and engagement to decide whether better processes can be implemented for subsequent teams (adjourning stage) Teams that are involved in innovation and other creative activities can benefit from exploring connections with other teams as a way to bolster creative output Assess how successful the team has been and to ensure that team members sustain some degree of familiarity with each other for future projects (adjourning stage) Shared meaning – deliberate effort by the organization and team leaders to develop some common ground, which provides the basis for team goal achievement  Choose team members who have strong social skills  Provide opportunities for virtual teams to occassionally meet face-to-face

Benefits of Using Global Teams    

Inherent diversity in multinational global teams—in nationality, gender, and experience—is seen as a benefit to team performance Global teams benefit companies both internally and externally in terms of innovation and new product development Provide a mechanism through which complex projects can be undertaken Critical to organizational learning, an important factor in the competitive advantage necessary to the success of multinational corporations  Choose team members who have strong social skills

Knowledge Management 

Knowledge Management – systems, mechanisms, and other design elements of an organization that ensure that the right form of knowledge is available to the right individual at the right time © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Two basic issues to consider when managing knowledge use for the multinational  The nature of knowledge o Explicit knowledge – knowledge that is codified and transferable by a common process or language o Tacit knowlede – knowledge that cannot be easily codified or written down. It must be learned through experience (by doing) and in context  Location of knowledge and its creation o Historically home-based/hub-based, then distributed to subsidiaries (tacit knowledge) o Explicit knowledge can be dispersed more easily The challenge for multinationals now is to alter the use of knowledge so that innovation based on either kind—tacit or explicit—can flow from both dispersed or co-located sources Recommendations for multinationals to maximize use of knowledge  Optimize innovation footprint to tap optional knowledge sources worldwide  Improve communication and knowledge sharing in a dispersed network of locations  Collaborate with both external and internal knowledge sources

Exhibit 16.4 Moving Beyond the Knowledge Dispersion/Complexity Trade-Off: Knowledge Management for the Multinational Company (Shows the trade-off between knowledge complexity and the degree of dispersion of the company’s innovation footprint)  First step in developing an effective knowledge management system is to identify potential barriers to knowledge sharing within the organization  Barriers can exist at many levels within the organization, and cross-cultural and distancerelated challenges are also factors Exhibit 16.4 Moving Beyond the Knowledge Dispersion/Complexity Trade-Off: Knowledge Management for the Multinational Company (Summarizes some of the most important individual, organizational, and cross-cultural problems in developing a knowledge management system)     

Multinationals must assess the extent of barriers and initiate actions to reduce their impact Strategies and a reward mechanism should be put in place to motivate and encourage employees to capture and share appropriate information with others in the organization.

Organizational structure should be aligned to encourage the flow of knowledge Computer and web-based technologies allow companies to create data repositories of explicit knowledge while enabling them to use tacit knowledge through networking, collaborative commerce, and decision support system tools Strategies for developing a knowledge management system that accesses and manages the tacit and complex knowledge in its dispersed locations  Start small: Use only a few dispersed teams in two or three sites to develop a collaborative culture and competencies  Provide a stable organizational context: The solution to an occasionally unstable environment is to protect teams from disruptions and create an atmosphere of stability  Assign oversight to a senior manager and use rigorous project management: Assign a senior executive team member to monitor the project and take responsibility for major decisions and meeting strategic objectives.  Appoint a lead site: To eliminate the distractions and competing objectives, designate one site as the lead to insure prompt decision-making and to deliver the project on time and on budget.  Invest time defining the innovation: Co-locate team members initially for short periods to define upfront issues such as the process flows, time lines, and knowledge requirements  Allocate resources on the basis of capability, not availability: Seek out the locations that can provide the best capabilities to contribute to building innovation-producing teams

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Build enough knowledge overlap for collaboration: Choose a location the ensures there is some degree of knowledge overlap among sites Limit the number of subcontractors and partners: Avoid the additional time and energy required to manage external partners by limiting external subcontractors and partners to those most trusted and familiar; use partners close to distributed locations to facilitate face-to-face communication and offset cross-cultural misunderstandings Do not rely solely on technology for communication: Use a general travel budget for faceto-face project team meetings and temporary transfer of people to other locations to facilitate discussion of complex ideas and informal problem solving

Summary and Conclusions      

Multinational corporations are increasingly relying on teams to integrate the expertise of individuals located in geographically dispersed subsidiaries Team work is growing in importance in the goal of developing and releasing new products This chapter examines the nature of groups, the difference between groups and teams and their various types, and draw a distinction between traditional co-located global teams and virtual global teams The demands of managing global teams featuring members who represent a diversity of nationalities, geography, culture, and languages are well documented This chapter also examines the virtual global team, which brings its own unique challenges to the organization Research suggests that a number of actions, framed within the various stages teams go through as they develop, can ensure that they function effectively

Answers to In the News Questions From MindTap Chapter 16: Gender Diversity 1. This case describes the discrimination facing women in Africa as they try to climb the organizational ladder.

Why have women generally faced discriminatory business environment in some African nations?

Suggested Answer: Answers will vary. Gender is often the basis of discrimination against women at home and in the workplace. Although Nigeria has a large percentage of female graduates, females do not feature prominently in decision-making positions. The stereotype of men being better than women at making business decisions is part of the work culture in Nigeria. A lot of this discrimination comes from widespread cultural beliefs and the enforcement of gender stereotypes.

2. Why does the author believe that having women on teams is advantageous? What particular advantages do women bring to teams?

Suggested Answer: Answers will vary. Across the world, women have continued to attain high rankings in key leadership traits such as ambition and decisiveness. Women usually place a high value on intelligence and honesty, which positions them as team assets with essential leadership traits. Women also tend to nurture their subordinates and team members. They offer regular feedback and motivate the employees who work under them. Female managers know that their success depends highly on a motivated and loyal team.

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Chapter 16: Multi-ethnic Teams 1. This case provides some suggestions as to what team leaders need to do to be able to deal with multiethnic teams.

Why are multinationals increasingly relying on cross-cultural teams? What advantages do such teams bring?

Suggested Answer: Answers will vary. Multinationals are relying on cross-cultural teams as their business take on and adapt to international markets. Multinationals can always benefit from a team with high cultural intelligence, which is a person's cultural knowledge acquired through education and personal experiences. This cultural intelligence is an advantage that multinationals obtain from having cross-cultural teams.

2. Discuss each of the five suggestions. How do these suggestions relate to material discussed in the chapter?

Suggested Answer: Answers will vary. The five suggestions for a good cross-cultural team are to respect each member of the team and listen to what he or she is saying, to trust in the advantages of the various multicultural knowledge presented by the team, to communicate ideas clearly, to break out of their comfort zone and gain cultural experiences by socializing more, and to know when to take the lead.

The chapter discusses how teams across cultures should be formed through three types of capital: human capital, social capital, and political capital. Human capital includes the various skills and abilities that team members possess that can be used to develop better collaboration in teams.

Social capital measures various social skills and abilities that team members possess that can be used to develop better collaboration in teams. Political capital is the leadership ability of team members to remove team barriers and to ensure that team members have a shared perspective.

These types of capital are essential when it comes to forming teams.

Chapter 16: Global Virtual Teams 1. This case discusses the increased use of virtual teams in multinationals and some key requirements for virtual teams to work well.

Why are virtual teams very popular with multinationals?

Suggested Answer: Answers will vary. Multinationals favor virtual teams because they possess strong analytical reasoning. Virtual teams bring about the best results in situations that need quick and tactical responses. Virtual teams benefit companies both internally and externally and help in innovation and new product development. Through the integration of expertise and experience, virtual teams allow companies to develop new products much faster and at lower costs.

2. Which factors had the biggest impact on the effectiveness of virtual teams?

Suggested Answer: Answers will vary. The level of trust between team members has the most impact on the effectiveness of virtual teams. Since most members of a virtual team operate far from each other, they must be confident that the other members of the team will complete their part of work diligently and on time. Lack of this trust can prevent the individuals within the teams from completing the task and can possibly cause trust to deteriorate between the members.

3. What would you recommend to multinationals as they design teams?

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Chapter 16/Teams and Knowledge Management in Multinational Corporations

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Suggested Answer: Answers will vary. When forming a team, multinationals should pay attention to aptitude scores of tests that rank high in testing perceptual and analytical skills of team members, such as the GRE/GMAT. High scores in these tests are positively related with the analytical reasoning ability of an individual. Companies should also look at other attributes of the members such as work experience, age, and qualitative and verbal skills, which can provide the team access to alternative skillsets. They should also ensure that the members of the virtual team meet each other in person so that intra-team trust is fostered.

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