GMS 520 Midterm

The Rise of China and the Fall of the 'Free Trade' Myth

"China is now bringing to a close the first phase of globalization, begun by Europe and the United States in the 19th century. In the process, it is making East Asia the new center of the world economy."

Challenges to Globalism

1. Backlash against capitalism and rekindling of nationalism 2. Increased protectionism of high-demand resources 3. Need to develop top managers with international understanding and experience 4. Increasing pressure and publicity for companies to consider the social responsibility of their actions - barriers could be an increased tax on an item or a piece of paper work 5. The backlash against globalization comes from those who feel that it benefits advanced industrial nations at the expense of many other countries and the people within them who are not sharing in those benefits 6. Some say that globalization has contributed to the risk of income inequality as so many countries around the world have limited access to affordable natural resources, services, and products 7. Large corporations are also faced with the pressures of social responsibility along with providing the best and cheapest products

Global Trends

1. Changing balance of growth towards emerging markets along with the growing number of middle-class consumers in those areas 2. Need for increased productivity and consumption in the developed countries to stimulate their economies 3. Increasing global interconnectivity in relation to technology and an electronically flattened earth 4. Increasing gap between supply and demand of natural resources and the push for environmental protection 5. Challenge for governments to develop policies for economic growth and financial stability

Steps to an Ethical Decision

1. Consult the International Code of Conduct for MNEs - Consult the company's code of ethics and established norms 2. Consult the laws of both the home and host countries 3. Weigh shareholder rights - Follow your own conscience and moral code

Typical political risks

1. Expropriation and confiscation Expropriation occurs when a local government seizes and provides inadequate compensation for the foreign-owned assets of an MNC; when no compensation is provided, it is confiscation → occurs mostly in countries that have continuous political upheaval, violence, and change 2. Nationalization Nationalization refers to the forced sale of an MNC's assets to local buyers, with some compensation to the firm, perhaps leaving a minority ownership with the MNC 3. Terrorism In many regions, terrorism poses a severe and random political risk to company personnel and assets and can, obviously, interrupt the conduct of business 4. Discriminatory treatment against foreign firms in the application of regulations or laws 5. Barriers of repatriation of funds - happens a lot to countries that don't have access to foriegn reserves; Morocco example 6. Interference in managerial decision making 7. Dishonesty by government officials, including canceling or altering contractualagreements, extortion demands, and so forth 8. Loss of technology or other intellectual property (such as patents, trademarks, or trade names)

Steps towards cultural sensitivity

1. International managers must understand their own cultures - protects against a parochial or ethnocentric attitude - Parochialism: occurs, for example, when a Frenchman expects those from or in another country to automatically fall into patterns of behaviour common in France - Ethnocentrism: describes the attitude of those who operate from the assumption that their ways of doing things are best-no-matter where or under what conditions they are applied 2. Develop cultural sensitivity - managers not only must be aware of cultural variables and their effects on behaviour in the workplace, but also must appreciate cultural diversity and understand how to build constructive working relationships anywhere in the world - Strategy → develop a cultural profile for each country or region with which the company does or is considering doing business which allows managers to spot difference and anticipate their implications for the workplace

Three Tests of Ethical Corporate Actions

1. Is it legal? - is it legal in the host country and/or country of operations? 2. Does it work in the long run? 3. Can it be talked about?

Groups of Institutions

1. Supranational → support the convergence of how international activities should be conducted Many supranational institutions frequently promote rules or laws favorable to foreign firms, others have been criticized for infringing on national sovereignty I.e., World Trade Organization (WTO), International Labor Organization (ILO) 2. National → create favorable conditions for domestic firms and may make it more difficult for foreign firms to compete in those countries I.e., the U.S. The Food and Drug Administration (FDA), the U.S. Department of Commerce's International Trade Administration (ITA)

Approaches to contract law

A contract is an agreement by the parties concerned to establish a set of rules to govern a business transaction Common law: details must be written in the contract to be enforced Civil law: assumes promises will be enforced without specifying the details In Asia the contract may be in the relationship, not on the paper

Managing Environment Interdependence and Sustainability

A generally accepted definition of sustainable development for business enterprises is that of adopting business strategies and activities that meet the needs of the enterprise and its stake- holders today, while protecting, sustaining and enhancing the human and natural resources that will be needed in the future The dilemma for corporations is that they believe they are faced with trying to meet two often contradictory requirements: - Selling at low prices - Being environmentally and socially conscious E-waste—from electronic components, computers, and cell phones, for example, all of which are full of hazardous materials—has become a major problem for developing economies, producing sickness and death for its handlers there

The European Union "EU"

A unified market over 500 million people in 28 (27) nations Stability of the euro and the debt crisis in question 2019 Global Competitiveness Index shows that Europe has 6 of the top 10 countries Two major tasks of global managers: - Strategic → firms outside of Europe must deal with the Fortress Europe which is a market giving preference to insiders - Cultural → dealing with multiple set of national cultures, traditions, and customs

Competitive advantage

Ability to do something so well that one outperforms competitors

MNCs Benefits to Host Countries

Access to outside capital Foreign-exchange earnings Access to technology Infrastructure development Creation of new jobs More humane employment standards

Under the Lens: Doing Business in Brazil

Almost everyone has a combination of European, African, and Indigenous ancestry Individual relationships are important Brazilians take time when negotiating Brazilian business is hierarchical, and meetings are required Avoid confrontations Dress well and conservatively Business cards are exchanged Having your business card printed in Portuguese on the opposite side is a good idea

Foreign Subsidiaries in the United States

Americans' resentment about different ways of doing business by foreign companies in the United States inhibits the cooperation that gave rise to the companies' presence in the first place In Japan, corporate social responsibility has traditionally meant that companies take care of their employees, whereas in the United States both the public and private sectors are expected to share responsibility for the community

Types of political risk

An event that affects all foreign firms doing business in a country or region is called a macro political risk event An event that affects one industry or company or only a few companies is called a micro political risk event or creeping expropriation → more common

Asia

Association of SouthEast Asian Nations (ASEAN) South Asia Association of Regional Cooperation (SAARC) Japan, and the four Asian tigers (Singapore, Hong Kong, Taiwan, and South Korea) have provided most of the capital and expertise for Asia's developing countries China → India → Japan Japan had been the richest country since WWII by being protectionist but participating in exports - became a model for other countries developing their economies

Diffusion of Technology and the Dissemination of Knowledge

BBS's were the ancestors of today's browser based networks or the world wide web Today innovations in telecommunications, information technology, and computing have: - Lowered communication costs - Facilitated cross border flow of information and ideas including technical knowledge - Gives insight into the lives and cultures of people around the globe This rapid growth and adoption of this information technology has not been evenly distributed around the world - This is referred to as the digital divide - Less developed countries therefore have more difficulty advancing their businesses without the support of technology such as the Internet and other telecommunications

Examples of Ethical Behaviour Policies

Caux Round Table Principles for Business (CRT Principles) The OECD Guidelines for Multinational Enterprises (OECD Guidelines) The UN Global Compact The Interfaith Center on Corporate Responsibility's Principles for Global Corporate Responsibility (ICCR Principles) The Global Reporting Initiative (GRI)

Critical Operational Value Differences: Change

Change: control and pace of change Western people believe that an individual can exert some control over the future and can manipulate events, particularly in a business context Non-Western societies control is considered external; people generally believe in destiny or the will of their Gd - adopt a passive attitude or even feel hostility toward those introducing the evil of change

Comparative Management in Focus

China loses its allure: Until 2010, China grew at 10% for 30 years, declining to 7.3% in 2014 Growth of 6.2% for 2019 was called "a new normal" by Premier Li Keqiang China is a developing country, with differences between urban and rural areas China is the second-largest trading partner with the U.S. State firms play a significant or dominant role However: China's legal and regulatory system is arbitrary China leans toward protecting its local firms Political goals and agendas often take precedence over commercially based decisions Discrepancies of business practices make it difficult for SMEs to get started

Economic risk

Closely related political risk Determined by a country's ability or intention to meet its financial obligations Historically, most industrialized nations have posed little risk of economic instability However, the level of economic risk in Europe is of concern in the eurozone due to debt problems in Greece

Issues in managing environmental interdependence

Coca-Cola in Rajasthan BP in the Gulf of Mexico Export of pesticides Integrating goals of sustainability into strategic planning

Types of legal systems

Common law Under common law, used in the United States and 26 other countries of English origin or influence, past court decisions act as precedents to the interpretation of the law and to common custom Civil law Civil law is based on a comprehensive set of laws organized into a code Islamic law In Islamic countries, such as Saudi Arabia, the dominant legal system is Islamic law; based on religious beliefs, it dominates all aspects of life

MNCs Costs to Host Countries

Competition for capital Increased interest rates Inappropriate technology Development investment exceeds benefits Limited skills development Few managerial jobs for locals

The legal environment

Consists of the local laws and legal systems of those countries in which international company operates, and of international law, which governs relationships between sovereign countries

Advantages of the Internet and e-business

Convenience in conducting business worldwide; facilitating communication across borders, which contributes to the shift toward globalization and a global market An electronic meeting and trading place, which adds efficiency in conducting business sales A corporate intranet service, merging internal and external information for enterprisesWorldwide Power to consumers as they gain access to limitless options and price differentials A link and efficiency in distribution

Culture's Effects on Management

Convergence: the phenomenon of the shifting of individual management styles to become similar to one another Self-reference criterion: the subconscious reference point of one's own cultural values. Many people in the world understand and relate to others only in terms of their own cultures Contingency management: requires managers to adapt to the local environment and people and manage accordingly

Factors of International Business

Corruption - illegal practices that further one's business interests Corruption of Foreign Public Officials Act - makes it illegal for Canadian firms and their representatives to engage in corrupt practices overseas Bribes to foreign officials Excessive commissions Non monetary gifts

Conducting a PEST analysis: economic

Cost of raw materials and resources Availability and cost of land Wage rates Workforce productivity Market size & growth Presence of customers Local competition

Deglobalization

Countries are reverting back from globalization because of: - Political crises - Cyber theft - Protectionism - Increasing trade barriers, which, in turn, have resulted from global trade slowdown Ghemawat says we are in an unevenly globalized world and that business opportunities and threats depend on the individual perspective of country, company, and industry

Other regulatory issues

Countries often impose protectionist policies, such as tariffs and non-tariff barriers, quotas, and other import and trade restrictions, to give preference to their own companies and industries Foreign tax credits, holidays, exemptions, depreciation allowances, and taxation of corporate profits are additional considerations the foreign investor must examine before acting Many countries have signed tax treaties (or conventions) that define such terms as "income," "source," and "residency" and spell out what constitutes taxable activities Government policies, subsidies, and regulations directly affect the manager's planning process, as do other major factors in the Canadian legal environment, such as the high proportion of unionized workers

Internal management factors

Country Entry - choosing the best method for entering a foreign market Exporting and Importing Turnkey Projects Licensing Franchising Joint Venture Wholly Owned Subsidiary Strategy - develop a strategy for international operations Organization - structuring the global organization around the strategy Vertical structuring Horizontal structuring Leadership - strong corporate vision, functional excellence, industry expertise, and market savvy

Creating shared value (CSV)

Creating Shared Value (CSV) expands the pool of economic and social value and so leverages the unique resources and expertise of the company to create economic value by creating social value

Strategies for managing corruption

Criminalisation - prohibits the bribery of foreign officials Enforcement - includes obligation to prosecute companies suspected of bribing public officials abroad Cooperation - encourages enhanced collaboration between the law enforcement agencies signatory countries Tax deductions - bans the tax deductibility of bribes to foreign public officials Whistleblowing - recommends the established effective whistleblowing mechanisms Monitoring - the OECD carries out rigorous peer-review examinations monitoring the level of implementation of the OECD conventions and OECD recommendations

Conducting a PEST analysis: sociocultural

Cultural barriers Local business practices Poverty rates Civil society Non - profit organizations Consumer protection groups Offshoring backlash

Societal Culture

Cultural diffusion: globalization in all its forms of personal and business contacts and information crossing borders which bring about certain changes Creolization: when immigrants adopt some aspects of the local culture while keeping aspects of their culture of origin Some countries fiercely protect their culture against outside influences and insist that immigrants assimilate into their society and respect their values I.e., France societal culture > organizational culture

Culture and Its Effects on Organizations

Culture: a set of shared values, understandings, assumptions, and goals that are learned from earlier generations, imposed by present members of a society, and passed on to succeeding generations Cultural sensitivity or cultural empathy: an awareness of and an honest caring about another individual's culture Cultural intelligence or cultural quotient (CQ): a measure of how well a person can adapt and manage effectively in culturally diverse settings

Management in Action: Cybertheft

Cybertheft: hard to detect and combat In 2014, the U.S. Department of Justice charged Chinese military personnel of stealing trade secrets Digital reprisal: China targeted firms which contested its policies at the World Trade Organization Protection of intellectual property is the primary risk in China China's goal is to achieve technological superiority by importing adapting technologies

Managing political risk: Dependency and hedging

Dependency—keeping both the subsidiary and the host nation dependent on the parent corporation Firms can also minimize loss through hedging, which includes, for example, political risk insurance and local debt financing Input control What raw materials might be needed? Technology control Easier in some sectors than others Easy if the firm has the proprietary software to run in a local context I.e., car companies do you want the way you make your engine to be communicated to the local subsidiary or controlled? Expatriate position control Distribution control Political risk insurance (OPIC and FCIA) Local debt financing

Managing terrorism risk

Develop benevolent image (IBM and Exxon [oil company]) - these companies developed image with the do-gooder in the local communities Maintain a low profile and minimize publicity Using teams to monitor terrorist activities Hiring counterterrorism consultants

Ethical Behaviour Policies

Develop worldwide code of ethics Build ethical policies into strategy development Plan regular assessment of the company's ethical posture If ethical problems cannot be resolved, withdraw from the market

Recommendations

Do not intentionally harm - This includes respect for the integrity of the ecosystem and consumer safety Produce more good than harm for the host country Contribute by their activity to the host country's development Respect the human rights of their employees To the extent that local culture does not violate ethical norms, respect the local culture and work with and not against it Pay their fare share of taxes Cooperate with the local government in developing and enforcing just background institutions

Cross-Cultural Societal Ethics

Drivers of individual behaviour Economic ideology [capitalism vs. socialism] + culture [western vs eastern] mixed with macro level moderators [GDP per capita, form of government, political stability] + societal moderators [language, religion, historic traditions]

Global E-business

E-business: the integration of systems, processes, organizations, value chains, and entire markets using internet-based and related technologies and concepts E-commerce: marketing and sales process via the Internet B2B: i.e., Alibaba in China, large proportion is S M Es B2C: i.e., amazon.com

Three dimensions of sustainability

Economic Social Environmental

Implementing Sustainability Strategies

Effective implementation of sustainability strategies requires companies to have both formal and informal systems in place as well as the leadership, culture, and people to support sustainability implementation Alignment between informal and formal systems along with the organizational structure is critical for success Key to understanding the role of corporate sustainability is the relationship between managers' decisions, their impact on the society and its environment, and financial performance Because of interdependence at both the local and global level, it is not only moral but also in the best interest of MNCs to establish a single clear posture toward social and ethical responsibilities worldwide and to ensure that it is implemented

Dealing with Confusion about Cross-Cultural Dilemmas

Engaging stakeholders in a dialogue Establishing principles and procedures for addressing difficult issues such as labor standards for suppliers, environmental reporting, and human rights Adjusting reward systems to reflect the company's commitment to CSR

Managing political risk: Avoidance and adaptation

Equity sharing includes the initiation of joint ventures with nationals (individuals or those in firms, labor unions, or government) to reduce political risks Participating management requires the firm to involve nationals actively, including those in labor organizations or government, in the management of the subsidiary Localization of the operation includes the modification of the subsidiary's name, manage- ment style, and so forth, to suit local tastes. Localization seeks to transform the subsidiary from a foreign firm to a national firm Development assistance includes the firm's active involvement in infrastructure develop- ment (foreign-exchange generation, local sourcing of materials or parts, management training, technology transfer, securing external debt, and so forth)

The Chinese Model

Export oriented industrialization Reliance on cheap labor "Open on the outside/closed on the inside trade policy" Strong state with control

External environment

External factors such as economic, politics, and culture affect a company's modes of operation as well as the objectives it will be able to achieve PEST analysis examines these factors in order to gain insights about the company's environment

Factors in international business

External: Political Economic Socio-cultural Technological Management activities Strategy Structure Marketing Human resources Supply chain and operations Finance and accounting Objectives Increased sales New resources and knowledge Reduce risk

Managing the Corruption

Foreign Corrupt Practices Act (FCPA) Organization for Economic Cooperation and Development convention on bribery

Foreign Direct Investment (FDI)

Foreign direct investment (FDI) occurs when an investment allows an investor to have a significant voice in the management of an enterprise operating outside of their own country - Significant voice refers to the ownership of 10% of the ordinary shares or voting power - Result of the entity in the other country making a capital investment or completing a merger or acquisition in the host country Outbound FDI is when Canada makes an investment in a foreign country Inbound FDI is when foreign firms making an investment in Canada

GLOBE Research Project Dimensions

GLOBE (Global Leadership and Organizational Behavior Effectiveness) - a wide variety of managers from a variety of industries and sizes of organizations from every corner of the globe Assertiveness: Low → Sweden, Japan, Switzerland High → Greece, Austria, Germany Future orientation: Low → Russia, Argentina, Italy High → Netherlands, Switzerland, Singapore Performance orientation: Low → Russia, Argentina, Italy High → U.S., Hong Kong, Singapore Humane orientation: Low → Germany, Spain, France High → Malaysia, Ireland, Philippines Gender differentiation Uncertainty avoidance Power distance Institutional collectivism vs individualism In-group collectivism

Effects of Globalization on Corporations

Global companies are becoming less tied to specific locations Companies that desire to remain competitive will have to develop a cabre of experienced international managers Small companies are also affected by and in turn affect globalism Surviving in a global environment ensures that the managerial team has experience with abroad business and knows how to work with other cultures Stateless multinational occurs when work is sourced wherever it is most efficient; the result of this firms that are seamlessly integrated across time zones and cultures

Global Consensus of Regional Variation

Global corporate culture: An integration of the business environments in which firms currently operate The U.S. and Europe adopt strikingly different positions that can be traced largely to history and culture

The Global Manager's Role

Global managers must pay attention to different aspects of companies around the world: Its political and economic agenda Its technological status and level of development Its regulatory environment Its comparative and competitive advantages, Its cultural norms The business practices and expectations of varying sets of suppliers, partners, customers, and local managers

Globality and Emerging Markets

Global trade is increasingly including those developing nations judged to have significant growth potential I.e., Mexico, Indonesia, Nigeria, and Turkey While the United States experiences a decline in traditional industries "the rest" of the world increases "The rest" refers to Brazil, Mexico, South Korea, Taiwan, India, China, and Russia Evidence that globalization is no longer just another word for Americanization is the increase in the number of emerging-market companies acquiring established large businesses and brands from so-called developed countries

Globalization of markets: key terms

Globalization: the evolution of an integrated and interdependent world economy Sovereign nations: countries that govern themselves rather than being controlled by a foreign power A market: is a virtual or physical setting where people exchange goods and services A globalized market: is a large market created by combining separate national markets Global convergence: is the spread of common preferences across borders Presumption: 10% of activity is conducted globally, with 90% being domestic

Companies

Google They perfected search engine Web crawlers Decided to sell things based on that tech (i.e., google maps, gmail, etc) Facebook One of the first social media platform to do it well - everyone was on it Privacy settings Originally it was based on exclusivity and was invite only BMO (Bank of Montreal) It's a big hassle to change banks They get you young Loyalty Mercedes-Benz Prestige Selling luxury Status symbol Kia Motors Affordable Netflix First streaming service Similar to Facebook - everyone has it Relatively cheap Original programming Roots Supporting Canadian brands Selling Canada

Minimize the Risk

Having a global compliance system which shows that employees have understood, and signed off on, the legal obligations regarding bribery and corruption in the countries where they do business Making employees aware of the penalties and ramifications for lone actions, such as criminal sanctions Having a system in place to investigate any foreign agents and overseas partners who will be negotiating contracts Keeping an effective whistle-blowing system in place

Political risk assessment

Helps companies manage exposure to risk and minimize financial loss Two forms: 1. Consultation with experts familiar with the country or region under consideration 2. Development of internal staff capabilities by having staff assigned to foreign subsidiaries, by having affiliates monitor local political activities, or by hiring people with expertise in the political and economic conditions in regions critical to the firm's operations (increasingly common)

MNC Stakeholders

Home Country Owners Customers Employees Unions Suppliers Distributors Strategic allies Community Economy Government Host Country Economy Employees Community Host Government Consumers Strategic allies Suppliers Distributors

MNC Responsibility toward Human Rights

Human rights is clouded by the perceptions and priorities of people in different countries → the best action is to take a unified stance against unethical labor and working conditions Universal standards for global labor standards: Do not use child or forced labor Provide a safe working environment Respect workers' rights to unionize Do not regularly require more than 48-hour workweeks Pay wages sufficient to meet workers' basic needs

Benefits of CSR

Improved access to capital Secured license to operate Revenue increase and cost and risk reduction Improved brand value and reputation with customer attraction and retention Improved employee recruitment, motivation, and retention

Migration or movement of people around the globe

In 1971 Canada was the first country in the world to adopt multiculturalism as a national policy Canada's diversity is a national asset and has helped in international communication

Asia - Countries

India is constantly on the cusp of being a leader in the global economy - always right behind China - India has become known for its world service suppliers - It leads in outsourcing back-office services and high-tech services - India's rise is largely fuelled by family firms that often maintain pyramid structures and grow vertically - A common comparison between China and India notes that China's economy grows because of its government, whereas India's economy grows in spite of it South Asia - The South Asia Association of Regional Cooperation (SAARC) a free trade pact among seven South Asian nations → Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka and Afghanistan has since been added Australia - Very rich country from its mining industry - Much of their exports goes to East Asia

Critical Operational Value Differences: Individualism

Individualism: "me/I" vs "we" Americans tend to work and conduct their private lives independently, valuing individual achievement, accomplishments, promotions, and wealth above any group goals In contrast, China values conformity and cooperation over individual achievement - "we all rise or fall together"

Subcultures

Integrating within an organizational culture 1. Rejection of the organization's imposed norms and culture: rebellion 2. Selective adoption of certain values and norms: creative individualism 3. Full acceptance of the new culture: conformity Management cultures 1. Operator culture: local cultures within operating units 2. Engineering culture: technicians and experts seeking optimal technical solutions, mistrustful of the soft roles of people in driving the right answers 3. Executive culture: managers focused on financially-driven metrics

Subsidiary-host-country Interdependence

Interdependence rather than independence, and cooperation rather than confrontation are at the heart of that accommodation ... the journey from independence to interdependence managed badly leads to dependence, and that is an unacceptable destination Require managers to go beyond issues of CSR to deal with specific concerns of MNC and host-country relationship MNCs must learn to accommodate the needs of other organizations and countries

Ethics in Global Management

International business ethics: the business conduct or morals of MNCs in their relationship with individual entities Ethics vary based on the cultural value system in country or society Those norms are based on broadly accepted guidelines from religion, philosophy, professional organizations, and the legal system EXAMPLE: - The American approach to reconciling ethics of host and home countries is to treat everyone the same by making moral judgments based on general rules - The Japanese and European approach is based on making decisions based on shared values, social ties, and their perceptions of their obligations

International Trade

International trade is the process of importing and exporting which enable countries to exchange goods and services with other countries 2004 - Canada had a balanced trade of 5 billion for both imports and exports

Comparative Management in Focus

Japan "Wa" - peace and harmony A mix of authoritarian and humanism in the workplace Emphasis on participative management, consensus, and duty Open expression and conflict discouraged Germany Preference for rules and order, privacy Dislike of inefficiency and tardiness Assertive, but not aggressive Organizations are centralized but still favor consensus decisions making Latin America Not homogenous, but common similarities "Being-oriented" compared with "doing-oriented" Work and private lives are more closely integrated Very important to maintain harmony and save face

Cultural Subsystem

Kinship Education system Economic system Political system Health system Recreation Religion

Categories of economic risk

Loss of profitability due to abrupt changes in monetary and fiscal policies Loss of profitability due to changes in foreign investment policies Risk of currency exchange rate volatility results in currency translation exposure

Common criticism of MNC subsidiary activities

MNCs locally raise their needed capital, contributing to the rise in interest rates in host countries - The majority of the stock of subsidiaries is owned by the patent company - Host-country people have little control over the operations within their borders MNCs reserve the key managerial and technical positions for expatriates, instead of developing host-country personnel MNCs do not adapt technology to the conditions in host countries MNCs concentrate research and development activities at home, restricting technology transfer and know-how to host countries MNCs create a demand for luxury goods in host countries at the expense of consumer goods MNCs start foreign operations by purchasing existing firms, not by developing new facilities in host countries MNCs dominate major industrial sectors, contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees MNCs are not accountable to host nations but only respond to home-country governments; they are not concerned with host-country plans for development

The global role of information technology

Making geographic barriers less relevant Both cause and effect of globalization Lowering cultural barriers Encouraging convergence of consumers' tastes and preferences I.e., China still monitors and limits electronic information flows

Developing Cultural Profiles

Managers can gather considerable information on cultural variables from current research, personal observation, and discussion with people Managers can develop cultural profiles of various countries Managers can use these profiles to anticipate drastic differences that may be encouraged in a given country It is difficult to pull together descriptive cultural profiles in other countries unless one has lived there and been intricately involved with those people

SWOT analysis of organization and environment: strengths

Manufacturing efficiency? Skilled workforce? Good market share? Strong financing? Superior reputation?

Critical Operational Value Differences: Material Factors

Materials factors: physical goods and status symbols versus aesthetics and the spiritual realism Americans often value physical goods and status symbols Non-Westerners value aesthetic and spiritual realm

General Guidelines for Code of Morality and Ethics in Individual Countries

Moral Universalism Addressing the need for a moral standard that is accepted by all cultures Ethnocentric Approach Applying the morality used in home country regardless of the host country's system of ethics Ethical Relativism Adopting the local moral code of whatever country in which a firm is operating

Regional Trading Blocs

Much of today's world trade is grouped around three dominant currencies/trading blocs: - Western Europe = Euro - Asia = Yen - The Americas = The dollar These trade blocs are continually expanding their borders to include neighbouring countries

Types of global firms

Multinational corporations (MNCs) or multinational enterprises (MNEs) are firms that have investment, operations, or marketing activities in several countries Small and Medium-sized enterprises (SMEs) play a vital role in contributing to their national economies through employment, new job creation, development of new products and services, and international operations (exporting)

The risks of interdependence

Nationalism: public opinion is rallied in favor of national goals and against foreign influences Protectionism: the host institutes a partial or complete closing of borders to withstand competitive foreign products, using tariff and nontariff barriers such as those Japan uses Governmentalism: the government uses its policy-setting role to favor national interests rather than relying on market forces

SWOT analysis of organization and environment: threats

New competitors? Shortage of resources? Changing market tastes? New regulations? Substitute products?

The Americas

North American Free Trade Agreement (NAFTA) Between the US, Canada, and Mexico The goal of this agreement was to bring faster growth, more jobs, better working conditions, and a cleaner environment for all as a result of the increased exports and trade Brazil Brazil receives high demand from China and elsewhere for its raw materials, by strong domestic demand, and by a growing middle class Brazil is faced with poor infrastructure, and drastic inequality among its people MERCOSUR Comprised of Brazil, Argentina, Paraguay, Uruguay, and now Venezuela The EU is Mercosur's first trading partner Central American Free Trade Agreement (CAFTA-DR) The Dominincan Republic-Central America FTA (CAFTA-DR) is the first free-trade agreement between the United STates and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic

Theories: Culture's Effects on Management

Oded Shenkar - We should focus on the concept of friction rather than distance when considering how relevant people and organizational processes would interact and what the effects would be on the relative success of the international business venture Nardon and Steer - there are several combinations of factors that complicate global encounters: - The broad cultural and institutional context based on local geography or the firm's industry - The organizational culture which may or may not conflict with the culture and business practices in the locale of interaction - The situational context which includes physical setting, types of positions within a firm, individuals' characteristics/cross-cultural preparation, and the method of interaction

Sustainable competitive advantage

One that is difficult or costly for competitors to imitate I.e., electricity - expensive to set up that infrastructure

Organizational Culture

Organizational culture: represents those expectations, norms, and goals held in common by members of that group 1. Exists within and interacts with societal culture 2. Varies a great deal from one organization, company, institution, or group to another 3. Represents those expectations, norms, and goals held in common by members of that group

SWOT analysis of organization and environment: weaknesses

Outdated facilities? Inadequate research and development? Obsolete technologies Weak management? Past planning failures?

The Internet and Culture

Over 92% of Korean homes have high speed Internet service Sweden requires all databases of personal information to be registered with Data Inspection Board, their federal regulatory agency About 75% of the world's Internet market lives outside the United States: websites must reflect local markets, customs, languages, and currencies Although Americans collect data about consumers' backgrounds and what they buy, often trading that information with other internal and external contacts are astounded that this is done, especially without governmental insight Information privacy: the right to control information about oneself

Political risk

Political risk is any governmental action or politically motivated event that could adversely affect the long-term profitability or value of a firm Examples: Argentina announced plans nationalize Reposal plans to nationalize Repsol YPF, the Spanish oil co., taking 51% In Russia, the Kremlin exploited the financial crisis to take control of energy companies Political risk survey report 2018 The most frequently reported political risk related loss was exchange transfer which impacted nearly 60% of those experiencing losses Political violence (48%) Import/export embargoes (40%)

PEST factors

Political: external factors including labor laws, property rights, and patent processes Economic: external factors including the strength or weakness of markets, stability of trade cycles, specific industry conditions, customer preferences, and government's economic policies Sociocultural: External factors including method and style of communications, religions, values and ideologies, education standards, and social structure; host country - a country in which an international business operates Technological: external factors pertaining to the technological infrastructure in a country, including intellectual infrastructure and investments, information systems, manufacturing equipment, and consumer access to technology; integrated technology platforms - common operating systems that can be used across multiple computers connected through Internet

Opening Profile: Challenges Managers Face

Politics Cultural differences Global competition Terrorism Technology Sustainability Social obligations

SWOT analysis of organization and environment: opportunities

Possible new markets? Strong economy? Weak market rivals? Emerging technologies? Growth of an emerging market?

Hofstede's Value Dimensions

Power distance: the level of acceptance by society of the unequal distribution of power in institutions Uncertainty avoidance: the extent to which people in a society feel threatened by ambiguous situations Individualism: the tendency of people to look after themselves and their immediate families only and to neglect the needs of society In countries with low individualism collectivism predominates - there is more emphasis on group achievements and harmony and the importance of the extended family or group Masculinity: the degree to which traditionally masculine values prevail In highly masculine societies, women are generally expected to stay home and raise a family The fifth: short-term/long-term → The fifth dimension that was later developed The extent to which a culture programs its members to accept delayed gratification of their material, social, and emotional needs

Managing the economic risk

Quantitative approach Qualitative approach Checklist approach Combination of the methods

Bribes

Questionable payments: business payments that arise significant questions of appropriate moral behaviour either in the host nation or in other nations To help them distinguish [between bribes and harmless practices], the Foreign Corrupt Practices Act (FCPA) of 1977 was established, which prohibits U.S. companies from making illegal payments, other gifts, or political contributions to foreign government officials for the purpose of influencing them in business transactions EXAMPLES: Paying mail carriers in Mexico to prevent them from "losing" mail Paying $100 to get a computer picked up from a rainy dock Gift-giving to bond social ties

Under the Lens: Rolls-Royce Accused of Bribery

Rolls-royce has been accused of a multibillion-dollar bribery/kick-back scheme at Brazil's state-controlled oil producer The British engineering company, which makes gas turbines for oil platforms, paid bribes in exchange for a $100m contract Rolls-royce is the latest foreign company alleged to be involved in the scandal, which threatens Brazil's government

The global manager's role

Rules of the game for the global manager are set by each country: - Its political and economic agenda - Its technological status and level of development The operating environment, with its regulations Its cultural norms Social responsibility Ethics

Under the Lens: Religion and the Workplace

Since the basis of a religion is shared beliefs, values, and institutions, it is closely aligned with societal culture Religion and culture are inextricably linked Religion underlies moral and economic norms and influences everyday business transactions and on-the-job behaviours Foreign managers must be sensitive to the local religious context and the expectations and workplace norms Failure to do so will minimize or negated the goals of the firm in that location

Developing Management Styles and Ways of Doing Business: Chinese Family Businesses

Small, family businesses predominate "Guanxi" connections - the network of relationships the Chinese cultivate through friendship and affection People are put ahead of businesses - human centered management style Globalization has resulted in more competitive management styles: the new generation manager is more individualistic, more independent and takes more risks Philosophies of Chinese business: Paternalism, Hierarchy Mutual obligation, Responsibility Familialism Personalism, Connections Autocratic leadership is the norm - relationships > efficiency

Opening profile: Saudi Arabia

Social media bring changes to Saudi Arabian culture - As of 2014, social media penetration in Saudi Arabia included: 88% on facebook 81% on twitter 78% on google 70% of Saudis are under 30 and own smartphones Many use Twitter and YouTube out of boredom with the lack of entertainment Twitter represents an escape from the lack of social freedom Saudi Arabian Culture Social media used in all sectors of Saudi society Government officials Royalty Sheikhs Industry Saudi government, an absolute monarchy, reviews online activity to gather intelligence and monitor public opinion Social media Force for modernity in Saudi Arabia Powerful interactions with cultural mores

Social Media and the contributions to the interconnected world

Social media has affected business strategy - Businesses attempt to establish a competitive advantage by identifying and developing opportunities that are the result of the rapid adoption of online social networks Social media have helped accelerate technological integration among the nations of the world - This allows business to identify and target specific groups of consumers - This is revolutionary as it allows producers and consumers to interact directly without any intermediaries

The Social Responsibility of MNCs

Social responsibility center on poverty and lack of equal opportunity around the world, the environment, consumer concerns, and employee safety and welfare International social responsibility includes the expectations that MNCs concern themselves with the social and economic effects of their decisions CSR dilemma Profit is MNC's only goal vs. MNCs should anticipate and solve social needs Socially reactive describes companies that respond to some degree of currently prevailing social expectations and to the environmental and social costs of their actions There is an increased complexity for social responsibility and ethical behaviour for international firms because of additional stakeholders and legal and regulatory requirements and expectations

Cultural Clusters

South Asia Anglo Arab Germanic Europe Latin Europe Eastern Europe Confucian Asia Latin America Sub-Saharan Africa Nordic Europe

Consequence or Cause?

Steel and Taras: Cultures are determined by a set of individual country level factors and are likely to change in response to a change in the culture-determining factors Factors: wealth, freedom, age, gender, education, socioeconomic status We should not rely on national averages to draw conclusions about individuals Meuthel and Hoegl: We extend the traditional view of culture as an exclusive country-level determinant to a more comprehensive view that integrates social institutions such as the education system, economic freedom, and civil liberties

Influences on National Culture

Subcultures: many countries comprise diverse subcultures whose constituents conform only in varying degrees to the national character I.e., Canada Stereotyping: a cultural profile that tends to develop some tentative expectations-some cultural context-as a backdrop to managing in a specific international setting

The political and economic agenda

Sustainability Economic, political, social, and environmental-has become a significant worldwide issue Ethnicity A driving force behind political instability around the world Religion Religious disputes lie at the heart of regional instabilities I.e., former Yugoslavia, Northern Island, the Middle East The overall risks were reported by 960 companies; the number one risk reported was economic slowdown The risk of economic slowdown is the first concern across all regions, whereas subsequent risks vary across those regions

Examples of corrupt practices

Sweatshops - business operations that employ workers at low wages for long hours and in poor working conditions Child labor - the full-time employment of children for work otherwise done by adults Conflict minerals - sourced in the Democratic Republic of Congo and surrounding the region and whose sale finances armed groups that perpetuate violence

Conducting a PEST analysis: political

Taxes Tariffs Government efficiency and corruption IP laws Industrial policies FDI policies Political risk

Conducting a PEST analysis: technological

Technological platforms ISO standards Internet connectivity Social media Advancement of infrastructure Innovation space

Sources of competitive advantage

Technology Walmart got really good at logistics I.e., knowing how many trucks to send if there is a storm in Florida Cost and quality Go to specific places for a lower price or higher quality Knowledge and speed Microsoft launching their own video game console Being able to acquire companies Buying knowledge and being able to speak on it Barriers to entry HydroOne there's no way it's a protected industry where someone can come in a just create an energy system High tariffs - i.e., Korean or Japanese cars when they first started inserting themselves in the international car industries Financial resources If you have the money to do it, you do it Amazon and Google are just buying out their competitors

Other Regions in the World

The Russian Federation New land, legal, and labor codes have encouraged forgien firms to take advantage of opportunities in that immense area Corruption and government interference persist along with excessive regulations, lack of rule of law, and infrastructure problems Middle East The changing geopolitical landscape due to the revolutions across the region have made investors wary but looking for opportunities United Arab Emirates is the most competitive economy in the Arab world The African Union - AU Comprises the 53 African countries and was formed from the original Organization of African Unity (OAU) to deal with political issues Africa receives little interest from the world's investors but receives investment in companies in South Africa But trade between China and Africa has increased South Africa Rich in diverse cultures, people, and natural resources Remarkable macroeconomic stability and pro-business environment Growth of consumer demand along with increasing tourism and forgein business investment Less developed countries - LDCs Low Gross National Product (GNP) Low Gross Domestic Product (GDP) Large, relatively unskilled workforce High international debt

International Codes of Conduct

The Sweatshop Code of Conduct The Electronic Industry Code of Conduct (EICC) Social Accountability 8000 (SA 8000) Guidelines for MNCs developed by: International Chamber of Commerce Organization for Economic Cooperation and Development International Labor Organization United Nations Commission on Transnational Corporations

2019 FDI Confidence Index Top 25 Targets for FDI

The United States tops the Index for the seventh year in a row followed by Germany, Canada, United Kingdom, and France - countries will want to invest into the US; the US dollar is a world reserve currency used in world trade Investor optimism about the global economy remains strong but is waning - more likely for company investments The age of multi-localism is driving FDI decisions - trying to have many different local branches; still going global but catering to a local audience

The technological environment

The appropriability of technology: the ability of the innovating firm to profit from its own technology by protecting it from competitors The International Convention for the Protection of Industrial Property (the Paris Union) Inappropriate use of technology by JVs, franchisees, licenses [permission to use a brand on a particular product, i.e., tommy hilfiger at the bay], and employees The risks of technology transfer and pirating are considerable and costly The most common methods of protecting proprietary technology are the use of patents, trademarks, trade names, copyrights, and trade secrets Appropriateness of technology for the local environment By studying the possible cultural consequences of the transfer of technology, managers must assess whether the local people are ready and willing to change their values, expectations, and behaviors on the job to use new technological methods, whether applied to production, research, marketing, finance, or some other aspect of the business Now that we are in a global information society, it is clear that corporations must incorporate into their strategic planning and their everyday operations the accelerating macro-environmental phenomenon of techno globalism, in which the rapid developments in information and communication technologies (ICTs) are propelling globalization and vice versa

Governing Principles

The aspects that all the ethical behaviour policies had in common: The Fiduciary Principle: legal relationship of confidence or trust between two or more parties The Property Principle The Reliability Principle The Transparency Principle The Dignity Principle The Fairness Principle The Citizenship Principle The Responsiveness Principle

Comparative Management in Focus - Human Rights

The attraction of doing business in China: Cheap labor cost An expanding market A growing economy with growth in higher skilled jobs and services Continuing concerns Uncertain legal environment Protecting IP Human rights and freedom of information challenges Potentially rampant violation of workers' rights Repression of free speech Difficulty monitoring and correcting human rights violations Human rights and freedom of information issues in China Wal-Mart Government limits on media and internet freedoms Google Microsoft Yahoo

What is International Management?

The process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage

Globalization of Information Technology

The speed and accuracy of information transmission are changing the nature of international manager's jobs Cultural barriers are being lowered gradually Technology gets dispersed around the world by MNEs Explosive growth of information technology is both a cause and effect of globalism

Opening Profile: The Bangladesh Disaster

The strategic problem for retailers is finding low-wage countries to produce, label, and ship goods on time With low wages and terrible working conditions, to what extent does factory oversight belong to multinationals or to local governments? Since the 2013 fire, 90 European firms and some U.S. retailers have pledged to oversee improvements in Bangladesh and correct safety problems Suppliers often subcontract manufacturing, further removing production oversight How should retailers balance their profitability against their responsibilities in overseas contracting?

How has globalization been propelled forward?

This concept has been propelled by an increasingly borderless world as a result of technological advancements and the emergence of rising markets such as China and India This may be referred to as leveling the playing field or flattening of the world This is made possible largely by advances in: Communication Transportation Infrastructure

Critical Operational Value Differences: Time

Time: differences in temporal values Americans - time is a valuable and limited resource; it is to be saved, scheduled, and spent with precision → if someone misses a meeting that is insulting Other parts of the world view time based on religious beliefs - important things take time and can therefore not be rushed

Management Focus

Tips for doing business in China: Connections are important Negotiations will be different from the U.S. and difficult Communication must be clear, honest, and fully prepared for culture matters

Opening Profile: Assessing Risks in Russia

Top two risks: - Sanctions-based retaliatory measures - Decline in business activity Other issues: - Threat of backlash in Russia against Western products - Continued standoff between Russia and Ukraine - Global outcry after Malaysia Airlines Flight 17 shot down Globalization has compounded the types and levels of business risks

Developing Management Styles and Ways of Doing Business: Saudi Arabia

Tribalism → paternalism, nepotism Close friendships → person-oriented, Theory Y management (treat workers with freedom and respect) Honor, shame → conflict avoidance, positive reinforcement Modern middle east requires an understanding of Arab culture → Muslim → influence of Islam Employees may spend more than two hours a day in prayer as part of the life pattern that intertwines work with religion, politics, and social life The communication style of Middle Eastern societies is high context and their use of time is polychronic - many activities can take place at the same time

Trompenaar's Dimensions

Universalism vs particularism Focus is on the emotional orientation of relationships Universalistic: applies rules and systems objectively, without consideration for individual circumstances Particularistic: puts the obligation towards relationships first and is more subjective Neutral vs affective Specific oriented: separate work and personal issues and relationships Diffuse oriented: there is spillover from the work into the personal relationships, and vice-versa Achievement vs ascription What is the source of power and status in society? Achievement society: the source of status and influence is based on individual achievement - i.e., job performance, education level, experience Ascription society: people ascribe status based on class, age, gender, and so on; one is more likely to be born into a position of influence

Cultural Value Dimensions

Values: are a society's idea about what is good or bad, right or wrong Determine how individuals will probably respond in any given circumstances Help managers anticipate likely cultural effects Allow for contingency management Can vary across subcultures

Ethical Use of Technology

Varied expectations about the use of technology devices/programs as they intersect with people's private lives Examples: EU Directive on Data Protection → Google mapping service Sony Playstation Network

The Globalization of Human Capital

While firms still offshore manufacturing jobs some are reshoring jobs to lower shipping costs Firms are outsourcing white-collar jobs to India, China, Mexico, and the Philippines For global firms, winning the war for talent is a pressing issue = high turnover rates An increasing number of firms are realizing that their cost advantage of producing abroad is disappearing: - Wages and other manufacturing costs are going up - Transportation costs are increasing - The risks involved in complex supply chains are becoming more apparent - There is continuing pressure to supply jobs at home

What is the sixth factor that drives globalization?

YOU

What is Globalization?

definitions: - The removal of barriers to free trade and the closer integration of national economies - Reductions in barriers to transworld contacts. People become more able - physically, legally, culturally, and psychologically - to engage with each other in 'one world' - A process that opens nation states to many influences that originate beyond their borders. These changes are likely to decrease the primacy of national economic, political, and social institutions, thereby affecting the everyday context in which children grow up and interact with the rest of society - Global competition is characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy → TRSM DEFINITION

Corporate Sustainability Model - Marc Epstein

graph in notes - don't need to know in detail

The Effect of Culture on Organizational Process

table in notes