IB 200 Final Exam
How might you need to adjust your personal style or management style for these differences?
Self initiated v. waiting decision Low comfort with silence v. high
Air freight
- 34% in terms of value of products shipped internationally - highly predictable
Progression in cultural competence
- Better understanding of yourself and your nation/society - The goal of cultural competence is to move from having knowledge (a skill) to having the ability to leverage (a strategy) by using your understanding and appreciation - You might find third ways of accomplishing goals - Avoid misunderstandings and conflict - Richer, more meaningful interactions and relationships - Profit (or fewer costly mistakes) - Note: cultures change over time so it is important to let new information in and to keep up to date
How Americans see the French and how the French see Americans are opposite
- But actually the cultures have a lot in common in the overlapping middle sections, as according to the graphs from lecture - When people are asked to describe each other, they tend to focus on the differences rather than the similarities
Misunderstandings, mistakes and awkward situations: example with Coca Cola and Pen company
- Coca Cola when expanding to China tried to come up characters that sounded like Coca Cola but then they chose weird ones that said something weird, so they have to redo it to make sure it sounded like Coca Cola but also had a better meaning so now it's better - A pen company in Latin America had a slogan that said "It won't leak in your pocket and make you pregnant!"
Adding transportation costs
- Cost of loading and unloading ships - Cost of using ports, and canals - The ship traffic going through the panama canal gives them a lot of money, but ships are too big to fit through now so they then made it bigger - Just to get your ship through the canal it's about one million dollars
Barriers to standardized communication
- cultural differences matter! - here too, economic and technological development can impact promotion strategies - often times, global standardized promotion strategy execution more difficult or not possible (culture, laws, other issues) ex: your biggest competitor in one market (whom you compare yourself to) doesn't exist in other markets, where you have other competitors
Security and export compliance
- exporters must check potential exports against several lists: denied persons lists, unverified list, entity list, specially designated nationals list, debarred list, nonproliferation sanctions - exporters must know: whether a license is needed, what is being exported, to where the items will be exported, who will receive the item and for what purpose items will be used
Strategies for intercultural communication: meetings
- prepare participants in advance - draw out infrequent contributors; ask others to speak to lessen impact of dominant speakers - summarize and clarify action steps - follow up informally
Benefits of franchising to the franchisee
- proven model - available support - training and systems
Licensee typically gives the licensor:
- quality assurance rights - strategic brand control as licensee sells to consumers using the licensor's brand name **benefits include limited capital and financial requirements
What's an example of a good that is forbidden or you need a license for?
- the flu vaccine - bolts that hold metal together because countries could use it for military use - supercomputers
According to lecture, what are ways the product of a washing machine is adapted for Indian markets?
- they have really small ones for cheap, and they are really small - make it out of plastic instead of metal - they don't have too many electronic controls, just mostly manual controls just in case the electricity goes off, it will just continue where it left off instead of starting over
More notes from in class related to INCOTERMS not directly on the slides
- they make it easy for firms to kinda get a sense for what the price entails; this is essentially a standard language - this is a way to compare "apples to apples" - INCOTERMS go into a contract but they themselves are not a contract, they are just a shorthand for things that ultimately get added to a contract - they don't convey title meaning, you can possess the thing but you don't have a title to a thing. ex: you can own your car that you drive but it's not in your title, it's in title of the bank
Some ports have invested in technology to drive productivity and to lower costs
- video on the impressive technology; and automated technology - REFI E- chips on the guys finger which is used for security reasons - US homeland security has office in India to check security of facilities
Make sure you understand what motivates employees in each culture/subculture. You need an understanding of cultural differences and then a strategy, what are some factors that vary in importance?
- work task variety - stability - pay - flexibility in hours - autonomy - advancement opps. **realize that these may change over time
Looking at the car accident example, what right does your friend have in regards to expecting them to lie for you?
Different countries have different opinions on which is the correct choice - U.S. values Universalism, meaning they think the same rules should apply to everyone to be fair - The opposite value of this is Particularism
Expatriate issues
Expatriate pay issues: base pay, cost of living adjustments, various allowances, foreign service or hardship premiums, double taxation, medical/pension benefits, home leave and more More issues: - insurance issues - how are relationships, networks, and trust established where you will be? - it's harder to maintain a credit rating while one is abroad - U.S. has this global tax rule where after you make 80,000 USD overseas you then get taxed in the local country and the U.S. country
What helps expat have more effective assignments when they come back from their foreign country and stay with the company?
Expats who receive clear information about their post-assignment positions are more likely to stay in the company and have more effective assignments
U.S. EXIM Bank
Export Import Bank of the United States is a federally owned government corporation for "U.S. companies for U.S. products" - average transaction size processed is between $50-$100k which is one container of products for small or medium business - products/services - other countries have their own EXIM banks
Expats should not only prepare for their departure, but also for their....
return!
Exporting issues
1) Cost - exporting from home country may be expensive due to transport costs - or due to tariffs your overseas customers will have to pay 2) Trust - why payments and documentation are so important - can also be an issue with agents and distributors - exports require volumes of specialized paperwork (or online work) and knowledge!
Since much of this is so technical, here are some helpful places people go to regarding this
1) Govt information sources - Department of Commerce or similar entity in other nations - Commercial sections of embassies and consulates 2) Export management companies - Act as the export department of firms - Experienced specialists - Not exclusive 3) Freight forwarders and customs brokers 4) Banks
Hofstede: Uncertainty avoidance
Degree of perceived needs to avoid uncertainty about the future; also degree of preference for structured v. unstructured situations. Should we try to control the future or let it happen? What can we do to help protect against future uncertainty? High: - formal, rigid relationships and patterns (lots of social rules to follow) Low: - change and risk is okay (let the future happen)
The dimensions of cultural difference that may be tested:
1) Context/Communication across cultures 2) Normative/Pragmatic 3) Intercultural Perceptions of Time
What are the different "external" or "arms-length" modes of entry?
1. Exporting 2. Turnkey projects 3. Licensing 4. Franchising 5. Alliances
What is a draft or bill of exchange?
Instructions to bank to pay at a certain time based on certain documentation
The ocean voyage is not the only cost though, as we discussed in the context of INCOTERMS what else do we have to think about?
Tariffs, fees, insurance, etc.
Exporting
- For small and medium-sized firms, exporting is a cheap and flexible way to develop foreign markets and learn about customer needs - Some products, by nature, are ideal for exports: Dijon mustard, Parma cheese, Wisconsin ginseng - New technology (internet) allows for relatively easy and cost effective mechanisms for promotion and sales - However, there are issues related to taxation, communications and privacy laws and payment involved with E-commerce that are still evolving
Ex: branding Huggies in United States versus in China (this relates to push v. pull strategy)
- In China, they normally have 4 adults in the household at all times so kids actually get to the potty right away and also kids get potty trained right away between ages of 1-2 years old so it's hard for Kimberly-Clark to advertise diapers in China - Kimberly-Clark in China instead works with hospitals to give diapers to new parents to get them familiar with the product
Activia and how promotion can change the product sometimes
- In the U.S. and U.K. they really focus on the idea of its probiotic benefits; the benefits is the basis of the promotion - In Spain, it is seen more like rewarding yourself on a sensory basis and chilling and indulging in yogurt at home, not necessarily on the go - You could make the case that they are two different products if you wanted
Additional comments Sachin said in class regarding expatriate success predictors
- It's hard to train empathy in people and you can't teach someone empathy, but you can be provided exposure to what is out there - You can't really teach any of things above, but you can have exposure - He suggests exploring other countries other than the UK and Spain to achieve that cultural toughness and really see other emerging markets
Ocean freight
- Over 90% of international trade by weight - Prior to 1950s it was labor intensive and ships often spent weeks in port - BUT then Malcolm McLean comes along and invents containerization; specialization intermodal idea took off - Costs low because of standardization, better logistics, technology, growing size of ships, fewer crew members
Ignoring the importance of culture can be costly
- Over half of global mergers and acquisitions fail, many due to cultural issues - 90% of top executives from 68 countries named "cross-cultural leadership" as their top management challenge
Mistake with the Daimler Chrysler merger that was between Germany and U.S. companies
- The merger lost $30 billion from the mistake - Chrysler and Daimler differed in multiple areas including the ones listed in the left-hand column, and then the differences are listed on the right two columns - It's expensive to get people to see the similarities between cultures, but definitely not as expensive as the $30 billion they lost
Example of what a Consular Invoice looks like in Argentina (picture in the slides)
- This helps to certify that the product was made in the U.S. so you can prove that you don't have to pay certain tariffs - So for example if you are going to export solar panels from California to Argentina, you go to the San Jose chamber of commerce and you take the form to be notarized to say that you exist and then you go to Cali chamber of commerce to get them to signed off too to have someone stamp the form and approve the form - You then send the form in with the export, otherwise the export gets rejected and sent back if it doesn't have this form
Why should you look at culture and intercultural communication like an "iceberg" or "onion"?
- When we're talking about cultural differences, if you want to win the hearts and minds of your consumers or employees etc., you have to think about the things that are unobservable and abstract - The "explicit" part may change over time but the "implicit" part might not
Strategies for intercultural communication: e-mail
- begin the conversation with a greeting or expression of appreciation - avoid long or complex sentences, especially when you are trying to convey multiple ideas - avoid idioms, slang, and jargon - be specific with requests and timelines - close the message with a tone of respect, appreciation and sincerity
LVMH perfume article from homework
- climate change affects the scents that the flower gives off - climate change affects a lot of these products in global trade, but global trade is something that significantly contributes to climate change
Other issues with security and export compliance
- compliance with Automated Export System - packaging (ex: heat treating wood for sanitation) - plus many compliance issues for importation
Issues in franchising
- control: possible use of master franchiser in markets where that could work well - alternatively, dilute ownership with franchiser retaining ownership in a certain number or percentage of foreign units
Some strategies for better intercultural experiences
1) Intercultural communication generally involves a greater investment of time - most of that additional time should be spent listening - allow for pauses and silence - avoid interjecting during pauses - recognize speaker may be having difficulty expressing their thoughts with fluency 2) Keep context and non-verbals in mind - e-mail is difficult, try another method of communication 3) Avoid yes or no questions - in some cultures, yes may mean "we will try" and you may never get an obvious "no" response - phrase questions so that the person has to give a response that conveys meaning 4) Restate key messages using different words and phrases - over communicate!!
What makes for a good joint venture?
1) Knowing what the vision and goal is for the long-term 2) Have someone be a partner who has complementary skills rather than just overlapping skills; stronger with them and weaker without them
Scale of entry
1) Level of resources - how much needed to commit for success? - what level can firm afford to commit? - small scale entry allows learning at low risk - entry in small or large potential market may require the same level of initial resources 2) A strategic commitment is difficult to reverse - those same resources cannot be used elsewhere and you can only do so many things at once
Some ways to manage the risk
1) New advances in manufacturing technology are allowing for faster "turnover" of production processes - allows for more flexibility in production 2) Supplier diversity and "+1 strategies" - have a backup for who you have for your supplier 3) Contract manufacturers - firms that step in for you if something were to go wrong
What are the advantages for first-movers in a foreign market?
1) Preempt rivals; establish strong brand name; capture demand 2) Create switching costs; tie customers to first mover's products - ex: loyalty programs, critical mass of users creating a de facto standard 3) Establish social ties ahead of following foreign competitors - ex: develop govt. relations, develop connections to universities and communities, etc.
Push v. pull strategies
1) Push strategy: personal selling emphasis - industrial products; complex new products, or new to consumers (or just new consumers) - short distribution channels - few print or electronic media outlets 2) Pull strategy: mass media advertising emphasis - consumers goods - long distribution channels - marketing message may be carried via print/electronic media
Expatriate success predictors
1) Self-orientation - self-esteem, self-confidence, mental well-being - adaptability to food, music, sport, outside interests - superior technical competency, and managerial and admin skills 2) Others-orientation - enhance ability to interact effectively with host nationals - relationship development, willingness to communicate 3) Perceptual ability - understand why people in other countries behave the way they do - non-judgemental, non-evaluative in interpreting others' behavior 4) Cultural toughness - how tough is host culture to adjust to? 5) Other issues - language ability - family situation
Hofstede: Normative v. Pragmatic
1) Short term - Normative - absolute truth - great respect for traditions - quick results - small propensity to save for the future 2) Long term - Pragmatic - truth depends on situation, context, and time - ability to adapt traditions to change conditions - strong propensity to save and invest - perseverance **The U.S. is normative!!
What are the disadvantages for first-movers in a foreign market?
1) Time spent to learn the do's and don'ts may benefit competitors who can learn from first mover 2) First mover who starts a new industry builds the infrastructure 3) First mover "trains" customers for followers - ex: mobile phone industry has the phenomenon of "churn" 4) Breaks through host country's adjust to "foreignness" issues - regulations may change due to first mover's entry - followers benefit from first mover's effort/costs ****Ex: In lecture he was talking about how he used to work for a cell phone company and how he had some challenges with trying to introduce the company to other foreign markets; relates to how 25% of Indians don't have bank accounts even
Where do expats earn the highest salary? (In U.S. dollars)
1. Mumbai, India 2. San Francisco, Cali 3. Zurich, Switzerland 4. Shanghai, China
What are the different components of international marketing mix?
1. Product 2. Promotion 3. Place/distribution 4. Pricing
Two examples of managing uncertainty with delivery issues from class
1. UPS article talking about how they only make right-hand turns because they save a lot of money on fuel and time with waiting for the drivers; it saves them 50 million dollars a year 2. Article talking about how they fly 5 empty planes towards Nashville frequently to compensate just in case some uncertain event happens like for weather; this is how they prepare
Different modes of transportation have different stresses, prices, etc. What are some things to think about?
1. Value to volume and/or value to weight ratio (cost) 2. Perishability 3. Stresses of mode - Trains: they have fixed paths so you can only travel where there are tracks and if your tracks don't connect to a certain city you might have to move it from train to train - Airplanes: super cold - Boats: super humid
According to the World Shipping Council, how many containers fall off ships or are lost per year?
2,000 - 10,000
How many containers can these ships carry up to now?
22,000 boxes! Only issue with this is not the ships themselves, it's the ports around the world, sometimes they can't handle these big ships; they water surrounding the port has to be deep enough
Supertanker from London can reach Singapore in _______ days
28
If shipping were a country it'd be the _____ largest CO2 emitter
6th
Turnkey projects
A firm sets up production and plant facilities then local firm takes over - "exporting firm" builds a facility overseas, starts it up, turns it over to host country owner, then departs - ex: oil firms. architects/construction firms and manufacturers - minimal risk, but also minimal potential for future related profits
What is meant by culture?
A system for living life in a society, including its shared values and norms - values: abstract ideas about good, the right, and the desirable; ex: how is success in the workplace defined? - social rules and laws: what is a reasonable number of hours to work in a week? when, legally, is a firm required to pay overtime?
International marketing mix: product
Attributes need to be adapted to a greater or lesser extent to satisfy: 1) Consumer preferences/tastes due to culture ex: Abbot Labs found Indians purchased more of its PediaSure product in India after it localized tastes to include saffron and almond flavors 2) Economic development levels that affect consumer behavior 3) National product/technical standards that are state mandated ex: kinder egg from Germany or in the car industry the national standard for how cars are tested vary from country
Export/import financing
Assurers: - exporter of payment - importer of product Banks offer financing intermediary service: - letters of credit: - draft or bill of exchange Carriers provide to the exporter: - bill of lading
What are letters of credit?
Bank guarantee of payment to exporter "bought" by the corresponding importer The bank takes on the risk that the importer doesn't pay in the end
Just in Time (JIT) benefits and issues
Benefits - reduce holding and warehousing costs - better manage transportation costs as demand can be used to inform shipment locations and levels - reduce depreciation of products with short life cycles (e.g., high-tech products) Issues - rests on management of uncertainty - ex: FedEx, UPS
International marketing mix: promotion
Communicating the product attributes/benefits to customers
Issues in licensing
Control and security, especially for licensed technology; can be harder to coordinate strategic moves across countries
Rail
Currently not ideal for international trade - public and private ownership/investment issues - different gauges - slow and hard to reroute
International joint ventures (an "internal" mode of entry)
Firms owned jointly by two or more otherwise independent firms; most international joint ventures exist between only two firms - one (or more) parent firms are non-resident in the host market - foreign participation varies from majority owned, to 50% owned, to minority owned
Franchising
Franchiser grants franchisee use of intangibles under the condition that franchisee follow strict rules of operating the business; similarities to licensing - mode of operation is part of the brand image and value - can ease burden of financial international expansion
Pressures for local responsiveness: IKEA and their issues with the American market
Generally strong success globally in selling "typically Swedish" product range, issues arose with North American sales 1) Sizes - Americans have bigger homes and more spread out so they wanted bigger furniture, not dollhouse furniture 2) Measurements - We use the imperial system, most other people use the metric system 3) Colors - Americans want everything to match, like sets, so all furniture in master bedroom to all be a dark maple wood, so all colors to match not just separate pieces being different 4) Exchange rates
Increased ____________ is driving demand for expat assignments
Globalization - but also larger in-country talent pools and more varied overseas assignments (not full-time positions overseas) - for ex: there were big gaps in leadership in a lot of foreign countries because of lack of universities, so they couldn't get good management but now there are more colleges so this isn't an issue anymore really
Scheduling scale: diff between linear time v. flexible time?
How people perceive time around the world is very different and not universal 1) Linear time: - project steps are approached in a sequential fashion, completing one task before beginning the next - one thing at a time - no interruptions - the focus is on the deadline and sticking to the schedule - emphasis on promptness and good organization over flexibility - US, Germany, Japan 2) Flexible time: - project steps are approached in a fluid manner, changing tasks as opportunities arise - many hirings are dealt with at once an interruptions accepted - the focus in on adaptability and flexibility is valued over organization - India, Kenya, Nigeria, Saudi Arabia
Ex. of international joint venture with Starbucks in India
India doesn't drink coffee, mostly just milk tea instead; Starbucks then partnered with the company "Tata" which is a popular hotel company in India while also considering cultural preferences
Looking at transportation costs, what's more expensive: transporting something from China to the U.S. or something from Cali to New York?
Inland transportation costs are MORE expensive than shipping from China to U.S. interestingly; this is because when you ship across seas, it's a bigger shipment so it's cheaper
What are other forms important with exports besides the Consular Invoice?
Insurance, shipping contracts, etc.
Alliances
International strategic alliances - cooperative agreements between competitors from different countries - ex: airline industry alliances (Star Alliance, SkyTeam)
How does a small business deal with all these liabilities and risk?
It's difficult! Most business is small businesses, how can they keep track of it all? They don't and can't!
Licensing
Licensor typically grants the licensee rights to intangible property such as: - intangible property use: patents, inventions, formulas, processes, designs, copyrights, trademarks - ex: UW athletic wear and other insignia items - specified period of time - specified compensation
World map showing "Time required to comply with all procedures to export goods by country"
Light green means good and fast (6-14 days), and dark green means slow (24+ days) The countries with the dark green are a lot of Africa and middle-eastern countries and the light green countries are north/south america, europe, and australia
World map showing "Cost associated with all procedures required to export goods by country"
Light yellow means lower price of preparing items to be exported ($435 - $1500), and dark brown means higher costs ($3001) The countries with the dark brown are middle of africa and middle of the middle eastern countries, and the light yellow countries are U.S., China, India, Australia, Europe
Stages of adjustment U-curve/W-curve
Line curve chart that further exemplifies complications of firms sending workers overseas for multiple years on end
What are major forms of franchising?
Manufacturer-retailer (car dealerships), manufacturer-wholesaler (soft drinks), service-firm retailer (lodging, fast food, Stanley Steemer, etc.)
International marketing communications is composed of what two big categories?
Media v. Marketing
The culture map
Most tools, plot cultures along continuums of cultural difference dimensions, but this lets you see how you compare to the culture you self-identify as being most centric to your perspective This tool emphasizes that cultures are ultimately made up of individuals - which is important in a global economy increasingly drive by individuals
Did all of these external modes of entry involve FDI?
No, that's internal; we will talk about that next
What are the origins of culture? What are the consequences of differences?
Origins: - geography - history - technology - political economy - etc. Consequences: - management style - consumption decisions and behaviors
What is a bill of lading?
Receipt, contract and document of title
Article called "Americans Are Renouncing Citizenship as a Record Pace"
Related to his story about how his friend went abroad and enjoyed it and then she got married to Australian dude and then stayed abroad permanently and moved
Despite the Turmoil, Pakistan Wants Soap
Sachin talked about how in small rural cities like in Pakistan, they have many differences in selling their products so when they sell Coca-Cola to these rural shops, they know that they can't afford to take so much inventory so they'll give them like 6 bottles, but then they don't get paid until every 6 months, so essentially Coca-Cola is losing on profits here BUT they think it's worth it because now kids are growing up knowing Coca-Cola and they are getting their brand out there
What is an expat?
Someone who moves from their home country to do an assignment overseas
Hofstede: Individualism v. Collectivism
This looks at the degree to which people in a country prefer to place emphasis on themselves as individuals (I or me) or as a member of a group (we) - United States is super high on the Individualism!! ex: bumper stickers - It's about getting your voice heard - What brings success in your culture might be different than how other cultures who value collectivism value success; ex: collectivist might think that success is defined by people who are great at listening to working to help the group reach a consensus, which is opposite of someone's value of individualism
Market segmentation
The process of identifying groups of consumers whose purchasing behavior is unique in important ways - is based on demography, geography, social-cultural factors, psychological factors - allows firms to adjust marketing mix to meet the needs of separate market segments - there are a lot of shared parts between companies like Audi, VW, Bentley, etc. but obviously they all have their own products despite having parts being similar
INCOTERMS
These are the Official International Chamber of Commerce rules for interpretation of trade terms; basically terms for international shipping - first created in 1936 - reference to INCOTERMS in sales contracts defines obligations of each party, and reduces risk of legal complications - you need to specify "Incoterms 2010"
"Internal" modes of entry
These involve FDI Wholly owned subsidiaries; firms owned 100% by a company in a foreign country 1) Greenfield - pros: develop from the ground up, down "your way" - cons: costs, risks, and length of time and what your competitors are doing with that time 2) Acquisitions - pros: buying something that already works, potential for synergies, gaining of valuable know-how and cost reductions - cons: getting a fair price, still risky
What do INCOTERMS do and what do they NOT do?
They do: - divide costs, risks and responsibilities between seller and buyer - provide useful shorthand for doing so - serve as checklist for seller and buyer - reduce potential for misunderstandings They do NOT: - convey title - sales contract must stipulate this - eliminate all problems in international trade
Article that I read for homework talking about spouses hating working abroad
This article shows that this way of doing it used to have really high failure rates, so now how they try to do international work is that companies will just pay for people to commute back and forth between home country and host country even though it will be more expensive than just having a person move out to wherever they would need to do the project
Communicating scale: diff between low context v. high context?
This scale measures the degree to which a culture prefers low or high context communication, a metric developed by Edward Hall 1) Low context: - good communication is precise, simple, and clear. - messages are expressed and understood at face value - repetition is appreciated if it helps clarify the communication - US, Canada, Germany 2) High context: - good communication is sophisticated, nuanced, and layered - messages are both spoken and read between the lines - messages are often implies but not plainly expressed - Japan, China, Arabia
So how does IKEA maneuver to appeal to America and benefit from it?
What's their number one input? Wood, so luckily for them North America has a lot of forests and wood so they can get a lot of that here - customized products for North American market - boosted sourcing in U.S. to mitigate foreign exchange exposure
Can exported information be "sensitive"?
Yes! A diverse range of products and services could constitute an export like software or technology, blue prints, design plans, etc.
With managing uncertainty, though there is pressure for economies of scale, there are many recent examples of...
great disruption of tight supply chains
