Managing in a Global Business Environment - D080 UNIT 4

A company owner is considering manufacturing using a global standardization strategy to achieve economies of scale. Why is this strategy effective?

It manufactures the same product for all markets. Correct! Standardizing products globally means that regardless of the place of manufacture, the product can be sold in any market.

A country's corporate culture requires that most of the decisions be made by senior management, and entry-level positions are viewed as having much less status and respect. Which of Hofstede's cultural dimensions is being used by this country?

Power distance Correct! Power distance is high in the country described above, in which most of the authority and respect are at the upper ranks.

Acquisition Advantages

Fast entry; known, established operations

multinational corporation (MNC)

A company that operates in two or more countries Leveraging the global environment to enter new markets to increase revenue

cultural dimensions

A framework for cross-cultural communication, developed by Geert Hofstede that shows the effects of a society's culture on the values of its members, and how these values relate to behavior.

franchising

A system where a business grants an entrepreneur the right to use their products, names, and processes in exchange for a percentage of the profits

licensing

A type of contract that allows one party to use another's property as their own without paying royalties for a designated length of time

organizational chart

A visual map of the roles and relationships within an organization and how functions and responsibilities are divided

Licensing/Franchising Advantages

Fast entry, low cost, low risk

When expanding internationally to a country with a lower average income, a company made efforts to reduce the price of its product, even though it eliminated some of the benefits the product has in other markets. This allowed for greater sales in the new market. Which strategy is being used by this company?

Adaptation Correct! Product adaptation is when a product is changed to be more appealing in a specific market.

strategic alliances

An agreement between two companies to cooperate on the mutually beneficial project

specific strategic business unit (SBU)

An independent division within a large company with responsibility for specific products or activities

Exporting Advantages

Fast entry, low risk

Latin American business culture

Businesses typically are hierarchical in their structure, with decisions made from the top down. Developing trust and gaining respect in the business environment is all about forging and maintaining good relationships. This often includes quite a bit of socializing.

subsidiaries

Companies completely owned or controlled by a parent company

decentralized companies

Companies with structures that distribute the authority to make decisions to lower levels of employees who are closer to the problem

centralized companies

Companies with structures that limit decision-making to higher levels in the organizational hierarchy

guanxi

Concept in China that describes a connection based on reciprocity,connection between two or more unequal parties that includes an exchange of favors.

An employee feels empowered to make decisions to solve customer problems independent of seeking manager approval and uses flexibility to meet customer needs. Which decision-making structure is being used by this employee?

Decentralized Correct! Decentralized decision-making structure is when lower-level employees, like the one mentioned, make decisions. This type of decision-making may be inconsistent.

Centralized Organization characteristics

Decisions are made at higher levels in the organization Employees feel more secure Inefficient decision-making Consistency of processes and output

Decentralized Organization characteristics

Decisions are made at lower levels in the organization Employees feel more empowered Inconsistent decision-making Flexibility to meet local needs

Managers in an international company are arranging jobs so similar tasks are coordinated. Which activity is being completed by this company?

Departmentalization Correct! When a company divides its work based on specific tasks or jobs, it is referred to as departmentalization.

division of labor

Dividing organizational activities into smaller tasks

A company has decided that a foreign direct investment should be made during the next quarter to strengthen the organization. Which method should be used for this purpose?

Establishing a greenfield venture Correct! In a greenfield venture, a company creates a subsidiary in another nation from the beginning. International markets are commonly entered through this means, and subsidiaries are considered foreign direct investment strategies.

A company's chief executive officer (CEO) emphasizes to other executives in the foreign country's joint venture that the CEO's culture should take precedence over other cultural systems since it is superior. Which type of viewpoint is the CEO demonstrating regarding culture?

Ethnocentrism Correct! Ethnocentrism is the viewpoint that one's culture is superior to others and should be used as a measure. The CEO is demonstrating this viewpoint in the scenario.

A company wants to gain market share but does not want to establish operations in other countries nor tailor its products to the other countries. Which entry strategy should the company use to meet this goal under these conditions?

Export Correct! The scenario describes a company that is strictly domestic but wants to earn additional revenue by sending the product overseas. Normally, a company in the other country must import the product for sale.

Subsidiary

Firms may want to have a direct operating presence in a foreign country, with a company completely under their control. To achieve this, the company can establish a new, wholly-owned subsidiary from scratch (also called a Greenfield Venture)owned or controlled by a parent company.

Subsidiary (Greenfield Venture) Advantages

Gain local market knowledge; can be seen as insider who employs locals; maximum control

departmentalization

Grouping a business's people, tasks, and resources into units

Subsidiary (Greenfield Venture) Disadvantages

High cost, high risk due to unknowns, slow entry due to setup time

Acquisition Disadvantages

High cost, integration issues with home office

International Joint Venture Disadvantages

Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures

An international company wants to establish links between the people at the same level of the organization to form committees. What is the name for this type of link in a company?

Horizontal Correct! Horizontal links are links between people at the same level in an organization to accomplish tasks, such as forming committees.

A U.S. employee believes that each individual is responsible for one's own success and finds it challenging to work in cultures that emphasize collaborative approaches to decision-making. Which aspect of Hofstede's cultural dimensions is exemplified by this employee?

Individualism Correct! Individualism describes the extent to which individuals take responsibility for their own destinies and choose their own goals over a company's goals. The U.S. employee believes that each individual is responsible for personal success, which represents individualism.

A country that values spontaneity and freedom to satisfy human desires provides its citizens business opportunities to prosper in these areas. Which of Hofstede's cultural dimensions is the country exhibiting?

Indulgence Correct! This dimension seeks to emphasize pleasure and spontaneity. Because the culture focuses on self-enjoyment, people become entrepreneurial in how to achieve pleasure. The United States rates high on this dimension.

Long-term orientation

It resulted from the effort to understand the difference in thinking between the East and the West. Certain values are associated with each orientation. The long-term orientation values persistence, perseverance, thriftiness, and having a sense of shame. These are evident in traditional Eastern cultures. Based on these values, it is easy to see why a Japanese chief executive officer (CEO) is likely to apologize or take the blame for a faulty product or process.

conglomerates

Large corporations made up of several combined companies, often formed through mergers and takeovers

Licensing and Franchising Disadvantages

Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound

vertical and horizontal linkages

Lines on an organizational chart showing the relationships within an organization

A fast food company seeks to expand internationally and changes its menu to appeal to the new country's food tastes. Which action is being sought by the company by making this change?

Local responsiveness Correct! The company is responsive to its local environment when it adapts it products and services to local consumer tastes.

Exporting Disadvantages

Low control, low local knowledge, potential negative environmental impact of transportation

An individual is considering entering the global market via a franchise. Which outcome should be expected by the individual if this approach is used?

Majority of financial risk Correct! In opening a new location, the franchisee typically takes most of the financial risk.

A company decides to focus on economies of scale to decrease production costs and increase revenues. Why is this strategy effective?

Manufacturing in large quantities keeps costs low. Correct! Manufacturing in large quantities means more work can be done efficiently and at a savings. This reduces productions costs and increasing revenues.

unity of command

One employee should only report to one person

An international company has created a diagram to show the division of labor between departments. What is the name of this diagram?

Organizational chart Correct! Companies use an organizational chart to depict the division of labor in the organization.

flat structures

Organizational structures with few layers involve a larger number of employees reporting to each manager. In such a structure, managers will be relatively unable to provide close supervision, leading to greater levels of freedom of action for each employee

tall structures

Organizational structures with many levels the number of employees reporting to each manager tends to be smaller, resulting in greater opportunities for managers to supervise and monitor employee activities.

Geographic departmentalization

Organizing a company's people, tasks, and resources based on a geographic region

Functional departmentalization

Organizing a company's people, tasks, and resources based on business functions such as marketing, production, and sales

Product departmentalization

Organizing a company's people, tasks, and resources based on goods or services. employees are divided into departments based on product areas, markets, and/or geographic regions. This type of structure is commonly used in large, international corporations

Market departmentalization

Organizing a company's people, tasks, and resources based on the type of customer served. Based on the primary type of customer served by the organizational unit (such as wholesale or retail purchasers).

Managers at an international business are deciding the method by which it will be organized. The business is highly diversified, manufacturing a number of different components and parts for its industrialized customers. Which departmentalization structure should be used by this company?

Product Correct! When an organization is built around the products or services it sells, it is using a product departmentalization structure.

John is the president of a company that is based in Atlanta. This company, which manufactures office items that stick to walls, furniture, and other items, has been very successful in its first five years, so John decides that he would like to expand the business globally and has chosen to start in the Philippines. What is one of the first things he should do?

Research the history and politics of the Philippines Correct! It is critical to understand the culture, history, and politics of the Philippines before opening a business there.

exporting

Sending goods to another country to sell the way companies first move into international commerce. You work with a distributor or an export management company to handle much of the bureaucracy, but it still carries the risk that someone will start making a similar product locally and price you out of the market.

International Joint Venture Advantages

Shared costs reduce investment needed, reduced risk, seen as local entity

Strategic Alliance Advantages

Shared resources to gain more market share.

ethnocentrism

The belief that one's own culture is most important

Global integration

The degree to which a company is able to use the same products and methods in multiple countries

Local responsiveness

The degree to which a company must customize its products and methods to meet the conditions in other countries

centralization

The degree to which decision-making authority is concentrated at higher levels in an organization and business functions controlled in a central location

organizational structure

The formal way a company divides labor, groups employees, and assigns responsibilities

value chain

The process by which a company adds value to product, such as production, marketing, and service

glocalization

The process of adapting to local markets while maintaining a global identity. helps create economies of scale which increases profits.

product adaptation

The process of changing a product in some way so it is more acceptable or desirable in a particular market. Sometimes changing the packaging or product is a critical step in adaptation.

standardization

The process of making everything conform to expectations and guidelines for consistency

A chief executive officer (CEO) of a Scandinavian company sought to expand operations in Japan through a joint venture. When the CEO asked the Japanese business owner whether she was committed to the venture, the business owner responded with a flat-toned "yes." The outcome the CEO expected did not happen, and the joint venture failed. What was the CEO's misinterpretation in this communication?

The response indicated agreement. Correct! In Japan, the word "yes" can mean things other than agreement, including "maybe" or "I understand you."

Which Latin American phrase (translated into English) typifies how time is viewed, which can make conducting business frustrating to Northern European companies seeking to expand in Latin America?

Time is space. Correct! Latin America views time as being subordinate to relationships and situations. Individuals in Latin America will be late to a meeting if an earlier meeting requires time for relationship development or connections need to be made.

A car company wants to expand internationally but encounters much international competition to reduce cost while responding to local needs. Which strategy should the company use to meet this goal under these conditions?

Transnational Correct! This strategy is one in which a company must be nimble to respond to cost pressures while customizing products to local markets. Transnational strategies have to deal with the problems of standardization (cost) and multidomestic strategies (local responsiveness).

Strategic Alliance Disadvantages

Very vulnerable relationship - because any one entity could exit at any time

A company's chief executive officer (CEO) wants to expand the company into China and is reviewing the Chinese word guanxi, the basis of all business in that country. Which English meaning must the CEO understand in regards to this Chinese concept?

You owe me one. Correct! Guanxi is based on relationship building, which can be good or bad. The Western equivalent is "You owe me one."

Joint Venture

a business agreement in which parties agree to develop a new entity and new assets by contributing equally. They exercise control over the enterprise and consequently share revenues, expenses, and assets.

matrix structure

a combination of different types of structures. Firms that engage in projects of limited duration often use a matrix structure where employees can be put on different teams to maximize creativity and idea flow. This type of structure is common in high-tech and engineering firms. Due to the complexities of international businesses, many large multinational organizations mix different types of departmentalization to form a matrix structure.(Procter & Gamble (P&G),)

Licensing and franchising both provide

a way for a person or an entity to pay for the right to profit from someone else's idea or business model. Licensing and franchising are low-risk, fast ways to enter a market, but they can mean a loss of control and a lower return on investment

Strategic Alliance

collaboration of two or more companies in which they share resources but not assets.

transnational strategy

combines a standardization strategy and a multidomestic strategy. It is used when a company encounters significant cost pressure from international competitors but must also offer products that meet local customer needs. A transnational strategy is very difficult to maintain because the company needs to achieve economies of scale through standardization but also be flexible to respond to local conditions.

multidomestic strategy

customizes products or processes to the specific conditions in each country. Retailers often use multidomestic strategies because they must meet local customer tastes. Companies sacrifice scale efficiencies for responsiveness to local conditions. Companies benefit from a multidomestic strategy because country managers understand local laws, customs, and tastes, and they can decide how to best meet them. This strategy might cost more money, as customization is expensive.

(Global integration and Local responsiveness)The two dimensions result in four basic global business strategies:

export, standardization, multidomestic, and transnational.

Several strategies are available to companies considering foreign investment as a way of growing their business. International expansion is achieved through;

exporting, licensing, franchising, strategic alliances, international joint ventures, acquisitions, and establishing new, wholly owned subsidiaries, also known as greenfield ventures

collectivist societies

group goals take precedence over individuals' goals. Basically, individual members render loyalty to the group, and the group takes care of its individual members. Rather than giving priority to "me," the "us" identity predominates. Of paramount importance is pursuing the common goals, beliefs, and values of the group as a whole—so much so, in some cases, that it is nearly impossible for outsiders to enter the group

Masculinity versus femininity

how a society views traits that are considered masculine or feminine, respectively. This value dimension refers to how a culture ranks on traditionally perceived "masculine" values: assertiveness, materialism, and less concern for others. In masculine-oriented cultures, gender roles are usually crisply defined.feminine cultures are thought to emphasize "feminine" values: concern for all, an emphasis on the quality of life, and an emphasis on relationships. In feminine-oriented cultures, both genders swap roles, with the focus on quality of life, service, and independence.

Uncertainty avoidance

how much uncertainty a society or culture is willing to accept. It can also be considered an indication of the risk propensity of people from a specific culture.

Power distance

how openly a society or culture accepts or does not accept differences between people, as in hierarchies in the workplace, in politics, and so on. For example, high power distance cultures openly accept that a boss is "higher" and, as such, deserves more formal respect and authority.

Understanding the culture of the people with whom you are dealing is important to successful business interactions and to accomplishing business objectives. For example, you will need to understand the following:

how people communicate how culture affects how people view time and deadlines how people are likely to ask questions or highlight problems how people respond to management and authority how people perceive verbal and physical communications how people make decisions

export strategy

is used when a company is primarily focused on its domestic operations. It does not intend to expand globally but does export some products to take advantage of international opportunities. Additionally, , it does not attempt to customize its products for international markets and is not interested in either responding to unique conditions in other countries or creating an integrated global strategy.

standardization strategy

is used when a company treats the whole world as one market with little meaningful variation. The assumption is that one product can meet the needs of people everywhere. Many business-to-business companies can use a standardization strategy. Machine tools and equipment or information technologies are universal and need little customization for local conditions

A team structure

made up of people with complementary skills working together for a common purpose. This structure is less hierarchical, with shared leadership and objectives.

acquisition

occurs when one company purchases most or all of another existing company in a specific target market or country.

Joint ventures, strategic partnerships, and alliances are sometimes the best or

only way to get a foothold in a market. It is critical to partner with someone in country who has the same goals and compatible work styles

low uncertainty avoidance

people are more willing to take on risks, companies may appear less formal and structured, and "thinking outside the box" is valued.

Individualistic

people's tendency to take care of themselves and their immediate circle of family and friends, perhaps at the expense of the overall society. In individualistic cultures, what counts most is self-realization. Initiating alone, sweating alone, and achieving alone—not necessarily collective efforts—are what win applause. In individualistic cultures, competition is the fuel of success.

Culture affects many things in business, including the following:

the pace of business business protocol—how to physically and verbally meet and interact decision-making and negotiating managing employees and projects propensity for risk-taking marketing, sales, and distribution

high uncertainty avoidance

prefer to avoid conflict and competition. They tend to appreciate very clear instructions. At the office, sharply defined rules and rituals are used to get tasks completed.

Indulgence versus restraint

refers to the degree of freedom that societal norms give to citizens in fulfilling their human desires. Indulgence is defined as "a society that allows relatively free gratification of basic and natural human desires related to enjoying life and having fun." Its counterpart is defined as "a society that controls gratification of needs and regulates it by means of strict social norms."

Horizontal linkages

relationships between equals in an organization. Operationally, such linkages take the form of committees, task forces, and teams, and in fact, are where the majority of organizational decisions are first considered for their cross-departmental or overall impact. Horizontal linkages are also important when close coordination is needed across different segments of an organization.

Acquisition and wholly owned subsidiaries are the most

risky but they also carry the most rewards and they allow you to have total control over the business operations.

Global marketers commonly use one or more of these three marketing strategies:

standardization, adaptation, and glocalization.

cultural agility

the ability to understand multiple local contexts and work within them to obtain consistent business results.

Vertical linkages

tie supervisors and subordinates together. These linkages show the lines of responsibility through which a supervisor delegates authority to subordinates, oversees their activities, evaluates their performance, and guides them toward improvement when necessary.

short-term orientation

values tradition only to the extent of fulfilling social obligations or providing gifts or favors. These cultures are more likely to be focused on the immediate or short-term effect of an issue. Not surprisingly, the United Kingdom and the United States rank low on the long-term orientation.3

International joint ventures and strategic alliances call for

working with other people or businesses in the target country for a common goal.