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1. Multinational Management in a Changing World

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1. Osland comments on Cullen Chapters 1-13 (some skipped) May 28, 2009

2. 1 Multinational Management in a Changing World – edited by A. Osland

3. The Globalizing Economy: 7 Key Trends Disintegrating borders Growing cross-border trade and investment The rise of global products and global customers The internet and information technology Privatizations New competitors in the world market The rise of global standards of quality and production

4. Borders disintegrating? Perhaps in the EU but elsewhere? Peace of Westphalia (1648) - several key principles: The principle of the sovereignty of states and the fundamental right of political self determination The principle of (legal) equality between states The principle of non-intervention of one state in the internal affairs of another state (wikipedia)

5. Exceptions: terrorism, humanitarian crises, failed states & impact of global warming Military intervention: Iraq and Afghanistan invaded by US, UK and others. Is Sudan or Somalia next? Humanitarian intervention: Crises in Africa will continue but desperate circumstances could appear elsewhere Failed states: Somalia and Afghanistan failed. Zimbabwe is disintegrating. North Korea starves its people. Pakistan is biggest fear. Others? Global warming could lead to all kinds of chaos.

6. Threats to cross-border trade and investment Fuel costs may make regional trade more important Credit has tightened and investors are less adventurous EU can be highly protectionist DOHA round failed

7. Global products and global customers Certainly true in IT But services are often local (e.g., security, cleaning, health care etc.) American movies have international audience but foreign films are less prominent Music is global Clothing is made abroad but preferences and style are still local

8. Privatizations – e.g., water Bolivia's famed "water war" of 200: World Bank initiative involving a Bechtel subsidiary. When the price of water tripled after privatization was introduced, thousands took to the streets until the government backed down and told the company to leave.

9. SAUR distributes the water on a for-profit basis for all of Senegal In 1996, the company was awarded the contract with a $96 million loan from the World Bank. Senegalese citizens are forced to turn to untreated water systems for their water needs. The government of South Africa, for instance, has cut off water supplies to over 10 million people in the last two years because they could not afford to pay for the newly privatized service.

10. In July 2002, Suez terminated its 30-year contract to provide services to Buenos Aires Financial meltdown of Argentina's economy meant that the company would not be able to maintain its profit margins. Suez subsidiary, Aguas Argentinas S.A., earned a 19 percent profit rate on its average net worth. Water rates, which the company said would be reduced by 27 percent, actually rose 20 percent. Fifty percent of the employees were laid off, and Aguas Argentinas reneged on its contractual obligations to build a new sewage treatment plant. As a result, over 95 percent of the city's sewerage is now dumped directly into the Rio del Plata River.

11. New competitors in the world market

12. The rise of global standards of quality and production ISO 14000 family addresses various aspects of environmental management.  Social Responsibility: guidance standard will be published in 2010 as ISO 26000 and be voluntary. GRI's mission is to create conditions for the transparent and reliable exchange of sustainability information through the development and continuous improvement of the GRI Sustainability Reporting Framework.

13. Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter. By Pankaj Ghemawat approach a global business opportunity analytically in terms of the differences between potential international partners to determine how the opportunity can add value paradigm of globalization has distorted the facts world is only partially globalized diverts the debate away from an ideological view (e.g., blindly promoting or opposing the Washington Consensus) or generalizing from case studies (e.g., Friedman, 2005).

14. Silicon Valley: exceptional case Impact of globalization is readily visible; 29% percent of the population is Asian and 24% Hispanic. Indian-born scientists and engineers made up 14% of the professionals working in Silicon Valley in 2005 and Chinese born professionals numbered 8% in 2005 (www.jointventure.org, Joint Venture Index of Silicon Valley 2007). In San Jose, the largest city in the Bay Area, 37% of its residents are foreign born and 47% speak a language other than English at home (www.zipcodestats.com ). Saxenian (2006) describes how thousands of scientists and engineers from Taiwan, China, India and Israel have come to Silicon Valley to learn and grow and later returned home to set up ventures, while often maintaining contact with Silicon Valley.

15. Globalization could be tempered Unforeseen consequences of climate change, a pandemic such as the Influenza Pandemic of 1918 further “clashes of civilizations” (Huntington, 1993) populist political sentiment capitalizing on perceived job loss to erect trade barriers, strong anti-immigration sentiment (in the United States, Japan and EU), global financial crises, food shortages (due to diversion to fuel, crop failures because of excessive heat or a lack of water, or protectionism) and the possibility of regional wars in the Middle East could prove to be significant constraints on globalization.

16. 2009 US export deficit Exports increased to $126.8 billion in February from $124.7 billion in January. Goods were $84.7 billion in February, up from $82.2 billion in January, and services were $42.1 billion in February, down from $42.5 billion in January. Imports decreased to $152.7 billion in February from $160.9 billion in January. Goods were $121.5 billion in February, down from $129.2 billion in January, and services were $31.2 billion in February, down from $31.8 billion in January. For goods, the deficit was $36.9 billion in February, down from $46.9 billion in January. For services, the surplus was $10.9 billion in February, up from $10.7 billion in January.

17. 2009 Goods by Category The January to February change in exports of goods reflected increases in consumer goods ($1.3 billion); automotive vehicles, parts, and engines ($0.5 billion); foods, feeds, and beverages ($0.3 billion); other goods ($0.2 billion); capital goods ($0.2 billion); and industrial supplies and materials ($0.1 billion). The January to February change in imports of goods reflected decreases in industrial supplies and materials ($3.6 billion); capital goods ($1.9 billion); consumer goods ($1.4 billion); automotive vehicles, parts, and engines ($0.9 billion); and foods, feeds, and beverages ($0.1 billion). An increase occurred in other goods ($0.4 billion).

18. 2009 Services by Category The January to February change in exports of services reflected decreases in travel ($0.2 billion); passenger fares ($0.2 billion); and other private services ($0.1 billion), which includes items such as business, professional, and technical services, insurance services, and financial services. An increase in transfers under U.S. military sales contracts ($0.1 billion) was partly offsetting. Changes in other categories of services exports were small. The January to February change in imports of services reflected decreases in other transportation ($0.3 billion), which includes freight and port services; passenger fares ($0.2 billion); and travel ($0.1 billion). Changes in other categories of services imports were small.

19. 2009 Services by Category The January to February change in exports of services reflected decreases in travel ($0.2 billion); passenger fares ($0.2 billion); and other private services ($0.1 billion), which includes items such as business, professional, and technical services, insurance services, and financial services. An increase in transfers under U.S. military sales contracts ($0.1 billion) was partly offsetting. Changes in other categories of services exports were small. The January to February change in imports of services reflected decreases in other transportation ($0.3 billion), which includes freight and port services; passenger fares ($0.2 billion); and travel ($0.1 billion). Changes in other categories of services imports were small.

20. Goods by Geographic Area (Not Seasonally Adjusted) The goods deficit with Canada decreased from $2.5 billion in January to $1.8 billion in February. Exports increased $0.9 billion (primarily automobiles, parts, and accessories) to $15.6 billion, while imports increased $0.1 billion (primarily automobiles, parts, and accessories) to $17.4 billion. The goods deficit with China decreased from $20.6 billion in January to $14.2 billion in February. Exports increased $0.5 billion (primarily soybeans) to $4.7 billion, while imports decreased $5.9 billion (primarily toys, games, and sporting goods; furniture; and apparel) to $18.9 billion. The goods deficit with Japan decreased from $4.3 billion in January to $2.2 billion in February. Exports increased $0.2 billion (primarily military aircraft) to $4.2 billion, while imports decreased $1.9 billion (primarily passenger cars) to $6.4 billion. This and more information is provided in the Bureau of the Census and Bureau of Economic Analysis press release:U.S.International Trade in Goods and Services: February 2009 .

21. Exhibit 1.6 – Leading Exporting and Importing Countries

22. Foreign Direct Investors’ Outlays to Acquire or Establish  U.S. Businesses Increased in 2007 Outlays by foreign direct investors to acquire or to establish U.S. businesses increased sharply in 2007 after also increasing strongly in 2006. Outlays reached $276.8 billion in 2007, the second largest recorded and the highest since 2000, when new investment outlays peaked at $335.6 billion.

23. Outlays for New Investment in the United States  by Foreign Direct Investors, 1980-2007

24. 2007 FDI inflows   US$ bn 74.8 but - Source: Ministry of Commerce of the People's Republic of China. http://www.chinability.com/FDI.htm

25. FDI India In fiscal year 2007–08, about US$ 32.4 billion as foreign investment had poured into India. The country posted a 45 per cent growth in foreign direct investment (FDI) with US$ 23.3 billion between April-December 2008, over the same period last year. The FDI inflows between April-November 2008 stood at US$ 19.79 billion. http://www.ibef.org/economy/fdi.aspx

26. Two Types of Risks Economic risk: inflation, deflation, strikes, and what others? Political risk: restrictive currency laws, restrictive labor laws, expropriation, changing laws after major commitment made and what others?

27. Exhibit 1.9: Top 25 Emerging Market Economies

28. Next Generation of Multinational Managers: Characteristics Global mindset Ability to work with people from diverse backgrounds Long-range perspective Ability to manage change and transition Ability to create systems for learning and changing organizations

29. Next Generation of Multinational Managers: Characteristics Talent to motivate all employees to achieve excellence Accomplished negotiation skills Willingness to seek overseas assignments Understanding of national cultures

30. 2 Culture and Multinational Management

31. What is Culture? Pervasive and shared beliefs, norms, values, and symbols that guide everyday life. Cultural norms: both prescribe and proscribe behaviors What we should do and what we cannot do. Cultural values: what is good/beautiful/holy beautiful, and what are legitimate goals for life. It’s simply how we do things

32. Culture: Front Stage & Back Stage Front stage of culture: easily observable aspect of culture. Give example. Back stage of culture: only insiders or members of the culture understand other aspects of culture. Give example.

33. Company culture can cross borders Strong corporate cultures can cross borders. Global accounting firms influence expatriates. Examples?

34. Hofstede’s Model of National Culture Five dimensions of basic values Power distance Uncertainty avoidance Individualism Masculinity Long-term orientation

35. Power Distance – very important in some countries! In high power distance settings subordinates accept that superiors will have vastly better benefits, perquisites, and power. In low power distances differences are challenged by subordinates through custom, government regulation, unions and so forth.

36. Implications for Power Distance – too simplistic

37. Uncertainty Avoidance – few managers understand concept However, people understand specific examples: Conflict should be avoided in high uncertainty avoidance Deviant people and ideas should not be tolerated Laws are very important and should be followed Experts and authorities are usually correct Consensus is important

38. Implications of Uncertainty Avoidance – again too simplistic

39. Individualism/Collectivism – very useful but puzzling too The US is strongly individualistic yet people give a great deal to charities. China is high in collectivism yet individual educational achievement and personal wealth generation are valued. People blame others for failure and credit themselves with success – see annual reports. It’s not individualism per se. People tend to be emotionally dependent on social networks but there are fewer rules with individualism.

40. Implications of Individualism/Collectivism – too simplistic

41. Masculinity – often offensive discussion and less true of US and EU now than before Gender roles are not so clearly distinguished Both men and women can be assertive Machismo/exaggerated maleness in men is primitive amongst educated people People should be decisive in leadership roles Work takes priority over other duties for some but not for all Advancement, success, and money are important for most educated poeple

42. Long-Term (Confucian) Orientation – highly situational Oil companies make long-term plans for investments Stock market can exaggerate short term thinking but Jack Welch showed that GE could be both short term in managing earnings and long term in its planning. Skills are crucial when people start working and people need to keep developing. The half life for formal education is short.

43. Long-Term (Confucian) Orientation Eastern cultures rank highest on long-term orientation Value synthesis in organizational decisions Belief in substantial savings Willingness to invest Acceptance of slow results Persistence to achieve goals Sensitivity to social relationships Pragmatic adaptation

44. 7d Cultural Dimensions Model Dimensions that deal with relationships include: Universalism vs. Particularism Collectivism vs. Individualism Neutral vs. Affective Diffuse vs. Specific Achievement vs. Ascription

45. 7d Cultural Dimension Model (cont.) Dimensions dealing with how a culture manages time and how it deals with nature Sequential vs. Synchronic Internal vs. External control

46. Universalism vs. Particularism Pertain to how people treat each other based on rules or personal relationships Universalistic Right way is based on abstract principles such as rules, law, religion Particularistic Each judgment represents unique situation that can be dealt with based on relationships

47. Neutral vs. Affective Concerns acceptability of expressing emotions Neutral Interactions are objective and detached Focus is on tasks rather than relationships Affective Emotions are appropriate in all situations

48. Specific vs. Diffuse Extent to which an individual’s life is involved in work Specific Business segregated from other parts of life Contracts often delineate relationships Diffuse Business relationships encompassing/involving Private and segregated space is small

49. Achievement vs. Ascription Manner in which society gives status Achievement People earn status based on performance and accomplishments Ascription Characteristics or associations define status E.g., status based on schools or universities

50. Internal vs. External Control Concerned with beliefs regarding control of one’s fate Best reflected with how people interact with the environment Does nature dominate us or do we dominate nature? In societies where people believe nature dominates them, managers are more fatalistic.

51. Exhibit 2.20: Trust in Different Societies

52. Caveats and Cautions Stereotyping: assumes that all people within one culture behave, believe, feel, and act the same. Ethnocentrism: occurs when people from one culture believe that theirs are the only correct norms, values, and beliefs. Cultural relativism: all cultures, no matter how different, are correct and moral for the people of those cultures.

53. 3 The Institutional Context of Multinational Management

54. Institutional Context – what does this mean? US has strong courts that value contracts and case law. This appears to be less true in Russia. Context obviously varies tremendously. In Peru I spoke to the lawyer daily. In Senegal and Burkina Faso I never dealt with lawyers but constantly with civil servants.

55. Cluster Development http://www.isc.hbs.edu/econ-clusters.htm Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field that are present in a nation or region. Clusters arise because they increase the productivity with which companies can compete. The development and upgrading of clusters is an important agenda for governments, companies, and other institutions.

56. High tech clusters develop where … One finds a world class university for innovation A large anchor company exists, such as Adobe or other large firm Services (accountants & lawyers) are available Skilled work force is available Venture capital and angel investors are available Anything else?

57. Silicon Valley’s context http://www.jointventure.org/publicatons/index/2009Index/2009Index.pdf Epicenter of the development of clean technology. Just since 2005, the number of jobs in businesses providing green products and services increased 23%. Employment in Information Products and Services grew more than 4% from Q2 2007 to Q2 2008 (the latest figures available). Life sciences also grew more than 3% during this period. While venture capital investment is down for the first time since 2005 in the region and nationally, the Valley maintained its 29% national share of venture capital in 2008. The Valley actually increased its contributing share of California and U.S. patents. Valley incomes have grown much faster (14%) than the national average (9%) over the past five years.

58. Silicon Valley – VC investments Even though total venture capital investment is down 7.7%, investment in clean technology increased 94% in the region between 2007 and 2008, reaching almost $1.9 billion. Silicon Valley now accounts for 31% of total U.S. cleantech VC investment. • IT services, media and entertainment, biotechnology, telecommunications, and medical devices and equipment—all attracted more venture capital investment in 2008 than in 2007.

59. VENTURE CAPITAL INVESTMENT FALLS IN Q1 2009 - 12 YEAR LOW https://www.pwcmoneytree.com/MTPublic/ns/moneytree/filesource/exhibits/09Q1MTPressRelease.pdf Venture capitalists invested just $3.0 billion in 549 deals in the first quarter of 2009 Quarterly investment activity was down 47 percent in dollars and 37 percent in deals from the fourth quarter of 2008 when $5.7 billion was invested in 866 deals. The quarter, which saw double digit declines in every major industry sector, marks the lowest venture investment level since 1997.

60. Context of Social Institutions Religious fundamentalism can limit the debate to ideological points that aren’t open to negotiation. Politics involves dialogue and compromise. Tradition can be a useful guide or a prison depending on how it impacts the individual. Life is socially constructed so institutions determine what we can and cannot do. Examples of important institutions?

61. Social democrats split with communism in early 20th century parting of ways between those who insisted upon political revolution as a precondition for the achievement of socialist goals and those who maintained that a gradual or evolutionary path to socialism was both possible and desirable

62. Split within social democracy after WWII between those who wanted to abolish capitalism and those who believed that the capitalist system could be retained but needed dramatic reform, such as nationalization of large businesses, creation of social programs and redistribution of wealth

63. Industrialization Pre-industrial countries provide cheap labor and untapped markets Ireland is unique in that it skipped industrial era and became information based economy because of its high educational achievement and relatively low labor cost before Postindustrial societies: emphasis on quality-of-life as opposed to economic achievement but can this be maintained given Asian competition?

64. After the 9/11 attacks, Huntington regarded as prescient The United States invasion of Afghanistan. The 2002 Bali Bombings. The 2003 Invasion of Iraq. The 2004 Madrid train bombings. The 2006 cartoon crisis needed. Danish depiction of Mohammed The 2005 London bombings. The ongoing Iranian nuclear crisis. The 2006 Israel-Lebanon conflict.

65. Religious Composition of U.S. Population: 2007 Source: Pew Forum on Religious Life Protestant: 51.3% Baptist: 17.2% Catholic: 23.9% Jewish: 1.7% Muslim: 0.6% Buddhist: 0.7% LDS: 1.6% Hindu: 0.4%

66. Exhibit 3.7: Distribution of Religions Around the World

67. Five Pillars of Islam (Arabic: ????? ???????) In Sunni Islam, the is the term given to the five duties incumbent on every Muslim. These duties are Shahada (Profession of Faith), Salat (Prayers), Zakat (Giving of Alms), Sawm (Fasting during Ramadan) and Hajj (pilgrimage to Mecca).

68. Islamic Banking: Principles Based on Religious Law Insulate Industry From Worst of Financial Crisis By Faiza Saleh Ambah, Washington Post Foreign Service, Friday, October 31, 2008 bans interest and trading in debt the use of financial instruments such as derivatives, blamed for the downfall of banking, insurance and investment giants, is banned. So is excessive risk-taking

69. “You cannot make money off of money” "In Islamic finance you cannot make money out of thin air," said Amr al-Faisal, a board member of Dar al-Mal al-Islami, a holding company that owns several Islamic banks and financial institutions. "Our dealings have to be tied to actual economic activity, like an asset or a service. You cannot make money off of money. You have to have a building that was actually purchased, a service actually rendered, or a good that was actually sold."

70. Islamic banking details Islamic bankers describe depositors as akin to partners -- their money is invested, and they share in the profits or, theoretically, the losses that result. Rather than lend money to a home buyer and collect interest on it, an Islamic bank buys the property and then leases it to the buyer for the duration of the loan. The client pays a set amount each month to the bank, then at the end obtains full ownership. The payments are structured to include the cost of the house, plus a predetermined profit margin for the bank.

71. Islamic banking details Islamic bankers describe depositors as akin to partners -- their money is invested, and they share in the profits or, theoretically, the losses that result. Rather than lend money to a home buyer and collect interest on it, an Islamic bank buys the property and then leases it to the buyer for the duration of the loan. The client pays a set amount each month to the bank, then at the end obtains full ownership. The payments are structured to include the cost of the house, plus a predetermined profit margin for the bank.

72. Islamic finance - more Islamic banks have stricter lending rules and require that their borrowers provide more collateral and have higher income. Islamic banking has grown by about 15 percent a year since its modern inception in the 1970s, fueled by the Middle East oil boom of that decade. Islamic finance - about 1 percent of the global market, according to Majid Dawood, chief executive of Yasaar, a Dubai-based sharia financing consultancy. "We had expected to be at 12 percent of the global market by 2025, but now with this financial crisis, we expect to get there much faster,"

73. Exhibit 3.12: The GINI Index for Selected Countries

74. 4 Managing Ethical and Social Responsibility Challenges in Multinational Companies

75. Basic Systems of Ethical Reasoning Teleological ethical theory Morality of an act or practice comes from its consequences Utilitarianism: what is good and moral comes from acts that produce the greatest good for the greatest number of people

76. Deontological Ethical Theory Actions have a good or bad morality regardless of the outcomes they produce

77. Exhibit 4.7: Excerpts from the Foreign Corrupt Practices Act and Fines

78. Exhibit 4.7: Excerpts from the Foreign Corrupt Practices Act and Fines

79. Exhibit 4.8: A Code of Conduct for the Multinational Company

80. Exhibit 4.8: A Code of Conduct for the Multinational Company

81. Exhibit 4.8: A Code of Conduct for the Multinational Company

82. Exhibit 4.8: A Code of Conduct for the Multinational Company

83. Exhibit 4.8: A Code of Conduct for the Multinational Company

84. Exhibit 4.8: A Code of Conduct for the Multinational Company

85. Exhibit 4.8: A Code of Conduct for the Multinational Company

86. “Best Practices” Steps Leading by example Making ethics part of the corporate culture Involving employees at all levels Setting and monitoring goals Effective integration in business processes Open discussion of ethics and other ethical issues Governments make agreements

87. Exhibit 4.9: Decision Points of Ethical Decision Making in Multinational Management

88. Exhibit 4.9: Decision Points of Ethical Decision Making in Multinational Management

89. 5 Strategic Management in the Multinational Company: Content and Formulation

90. Resource-based view (RBV) – unique bundle of strategic resources available to a firm. basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal sustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile valuable resources that are neither perfectly imitable nor substitutable without great effort if these conditions hold, the firm’s bundle of resources can assist the firm sustaining above average returns Source: http://en.wikipedia.org/wiki/Resource-Based_View

91. VRIN: Valuable, Rare, In-imitable, Non-substitutable Valuable - A resource must enable a firm to employ a value-creating strategy, by either outperforming its competitors or reduce its own weaknesses. Relevant in this perspective is that the transaction costs associated with the investment in the resource cannot be higher than the discounted future rents that flow out of the value-creating strategy. Rare - a valuable resource is rare. In-imitable - This advantage could be sustainable if competitors are not able to duplicate this strategic asset perfectly. Knowledge-based resources are “…the essence of the resource-based perspective.” Non-substitutable - Competitors are unable to counter the firm’s value-creating strategy with a substitute.

92. Criticisms of RBV: VRIN criteria are hard to find in real world ignores external factors concerning the industry as a whole; Porter ought also be considered. Knowledge is hard to “manage.” , Purchasable assets cannot be sources of sustained competitive advantage, just because they can be purchased. The concept ‘rare’ is obsolete: Because of the implications of the other concepts (e.g. valuable, inimitable and non-substitutability) any resource that follows from the previous characteristics is inherently rare. Sustainable: The lack of exact definition with regards to the concept sustainable makes its premise difficult to test empirically.

93. Differentiation and low-cost Differentiation strategy: providing superior value to customers Low-cost strategy: producing at a lower cost than competitors What companies can do both?

94. Niche strategy Some companies can exploit niches for a while because larger companies aren’t interested. Gore had been a research scientist working with fluoropolymers at DuPont & developed a process for insulating electrical wire with DuPont's Teflon, and this became Multi-tet, the company's first product. DuPont reportedly wasn’t interested. Large competitors don’t notice and when they do they may purchase the nuisance competitor before someone else does. Lots of high tech bad purchases that didn’t result in much except enriching the owners of the nuisance startup.

95. Value chain advantage comes from deep process knowledge that is often not patented Chemical composition of substances used in a process may not be easily explicable through reverse engineering because of unknowns. Knowledge within value chain is hard to explicate, Quest fired veterans and couldn’t find buried cables! Social networks and relationships that constitute the human part of the value chain take time to develop.

96. Outsourcing of value chain activities Control of certain activities viewed as crucial. Boeing used to insist on making its own wings. Mars controls chocolate but outsources many activities. Where labor laws are absurd (e.g., Peru of 1970s), companies outsource as much as possible. Portions of R&D can be outsourced but one cannot allow sub-contractors to put it all together for advantage.

97. Outsourcing When should a multinational company outsource? Outsourcing makes sense if an outsider can perform a value-chain task better or more cheaply However, tasks that are outsourced should the ones that are not crucial to the company’s ability to achieve competitive advantage

98. Green has become a distinctive competency LEED buildings use less energy. Wal-Mart has shown how parking lots, solar panels, reduced packaging and much more can reduce costs. More effective use of water can help avoid regulatory problems (e.g., Sonoma Wine Company doubled production without additional public hearings) UPS has shown importance of scheduling & routes.

99. Read Michael Porter! Since 1980 he has been routinely publishing books and articles that have been cited thousands of times. His writing is accessible to business people and widely used by scholars. Go to google scholar and type in his name.

100. 6 Multinational and Participation Strategies: Content and Formulation

101. Global-Local Dilemma Salsa, tequila, Mexican beer, tortillas, and more have become common in the US because of immigrants. Chip making, transmissions, engines and the like are global. Companies have to learn what components can be leveraged globally but what needs to be local. McDonald’s processes are global but the menu is local, even in Hawaii.

102. Regional strategies may become more common due to energy costs As oil prices increase, silly arrangements such as shipping fish to China from Norway to be prepared and then shipped back to Norway may disappear. Europe has already found near labor markets in eastern Europe that meet its needs without relying on India or China. Immigration crisis may force US to look to Central America and Mexico for cheap labor.

103. Global Markets Still require culturally acceptable messages. Danish dairy coop lost Middle East market due to inflammatory free speech in Danish papers where journalists mocked Islam. Some markets require education about consumer products commonly sold in US. EU advertising too sexually explicit for US. Laws vary for tobacco and drug ads. Our pharmaceutical companies get customers to push doctors to prescribe. Some countries ban tobacco advertising but addictions sell themselves.

104. Governmental regulations vary tremendously Little countries still tell huge MNCs what to do. Some failed states are inaccessible (e.g., Somalia, North Korea, Myanmar, Zimbabwe with more to come!) The EU is a powerful countervailing force to US. China’s regulations evolve and have been difficult to decipher making local partners critical. India is just now opening to big box retailer like Target.

105. Global strategic alliances Fujitsu and AMD made flash memory together and shared results. Spansion evolved from this but has not done well. Airlines routinely partner but I wonder how useful miles earned are to customers when they are so hard to use. Automobile industry meltdown is leading to new alliances. Excessive financial interdependence increases vulnerability to mistakes in one leading to disasters elsewhere

106. New Argonauts Silicon Valley companies have employed and trained thousands of Indians, Chinese, Taiwanese, Israelis, Europeans and others that have returned home and continued business with Silicon Valley. These individuals understand both countries and serve as boundary spanners.

107. http://thenewargonauts.com/

108. Foreign Direct Investment (FDI) – Marxist critique Companies own and control directly a foreign operation, which can lead to a lack of local autonomy and dependence on a foreign entity that may care little for its impact on the country. For example, Chiquita’s managers tried not to fire low-level employees nor squeeze to hard on costs that made workers suffer whereas the HQ didn’t share the same concerns. Greenfield investments: starting foreign operations from scratch may involve locals so little that they don’t develop skills.

109. Export via the Internet or sales reps Exporting is an easy way for a small company to get started. It can do so via the Internet or sales reps. Shipping can be complicated but shipping companies can assist until one learns the ropes for specific high volume markets. Eventually successful markets may require overseas presence.

110. Licensing requires trust Local and foreign licensees will steal brand if permitted to do so. Slight modifications to recipes to adapt to local tastes can shift preferences from global company to local competitor (e.g., Central American fried or broiled chicken companies). Internet and global travel makes governments and local business people aware of old products so one cannot readily sell obsolete junk.

111. Trust is critical for any alliance Panamanian government ordered United Fruit to buy from local growers. United Fruit made trusted veteran local employees local growers. This worked until the company showed a lack of sensitivity to the next generation of growers and they switched to Dole.

112. Financial shenanigans Companies circumvent profit repatriation restrictions by finding other MNC that needs local currency for building or land purchase & then get paid in hard currency offshore. MNCs manipulate transfer prices between entities of the company to take the tax hit in low tax countries. Offshore banking facilitates obfuscation of sketchy or dubious transactions. The line between tax avoidance and evasion is sometimes hard to discern.

113. Political risks greatest in dictatorships but there can be some surprises Costa Rica appears to be a good place to invest yet it used to expropriate property from its citizens so often that it appeared risky. Even the US can be a fickle partner in some arenas such as family planning programs where the religious right and Catholics have “undue” influence. Chavez, Mugabe, Ortega, etc. are obvious examples. EU & US are poor models for fair trade in agriculture. Cotton subsidies in US are ruinous to West Africa.

114. Country risks include: Security risk: Big deal for wealthy expats in countries where kidnapping is practiced or lives are threatened. Political stability risk: The oil companies somehow manage this even in sub-Saharan Africa. Labor market risk: Closing a business or firing employees in some countries can be ruinous. Legal and regulatory risk: There can be any number of surprises. Infrastructure risk: Natural disasters disrupt transportation, existing roads limit transportation etc. Tax policy risk: We all know what our mysterious tax code can do and believe it or not we train other countries’ bureaucrats!

115. 7 Brief comment on international entrepreneurs

116. International entrepreneurs Otavalo Indians of Ecuador sell products widely within region, just like the Wolof of Senegal trade widely including Italy or the chasidic diamond merchants. Examples of other particular groups that sell widely? 1/3 of hotel/motel space in US is owned by Indians, with the name Patel common. A network developed and they assisted one another. Overseas Chinese have been vital to commercial sectors of Indonesia, Philippines, Singapore etc.

117. 8 Organizational design implications for Multinational Companies

118. Problems associated with design Too much local autonomy can lead to problems. Nestles’ local managers pushed infant formula too hard and an international scandal resulted Nike’s arms length relationship with sub-contractors led to sweat shop allegations. “Cowboy” local managers don’t follow policy. Controllers should report to global controller and not local manager so that integrity of control is maintained.

119. Problems with complex structures such as networks and matrices External stakeholders, government officials, and customers sometimes don’t know who to address. Employees don’t understand the chain of command or decision making processes. Complex structures are more expensive than simpler ones because of coordination costs.

120. How to enhance organizational design Local issues need voice through effective local managers. HQ just doesn’t get it sometimes. Important technical issues need international control. These include virtually anything that can cause trouble from chemical disasters (e.g., Bhopal) to quality flaws from shoddy Chinese imports. Did you know that “made in Japan” used to mean junk in the 50s & 60s? They used Deming and Juran to improve quality long before the 1980s when the US woke up.

121. Design for enhanced communication Video conferencing is used as substitute for grueling and expensive transoceanic visits. Regional and international meetings help create awareness and communication channels. Expatriate assignments increase awareness, knowledge, and communication. Bringing people from overseas to HQ does the same. Redundancy is vital for effective communication.

122. Internet stats BUS 202 May 21, 2009

145. Pornography Time Statistics Every second - $3,075.64 is being spent on pornography  Every second - 28,258 Internet users are viewing pornography  Every second - 372 Internet users are typing adult search terms into search engines   Every 39 minutes: a new pornographic video is being created in the United States US porn revenue exceeds the combined revenues of ABC, CBS, and NBC http://internet-filter-review.toptenreviews.com/internet-pornography-statistics.html#time

147. Adult Internet Pornography Statistics

148. Country: Porn Pages

149. 11 International Human Resource Management

150. Big issue now is plant closings overseas In the US this is never easy but it’s much more complicated in many other countries. Severance pay can be costly. It can be drawn out.

151. 304,000 to 38,000 hourly employees in GM-US GM had about 304,000 hourly U.S. workers in 1991, but by 1993, that number had fallen to 265,000. In 2000, the company's hourly ranks totaled 133,000, before falling to 63,700 by the end of last year. The automaker now expects its U.S. blue-collar work force to total about 40,000 people by 2010 and 38,000 by 2011.

152. GM: European Unions Recommend Disposals GM’s European Employee Forum, which links the company’s labor unions across the region, said yesterday that the carmaker should sell Opel and Vauxhall because plans to keep or reorganize the European units put them at risk of closure. The disposal … would be “the only reasonable and feasible option” for preserving the brands’ production and jobs … . “The current restructuring plan for General Motors Europe … is not viable,” as it would “finish off” the businesses and “implies several risks of litigation,” forum Chairman Klaus Franz and Vice ChairmanRudi Kennes said in the statement. “The spinoffs would exclude any further risk for General Motors.”

153. The changing nature of mobility worldwide - HR function has to meet a series of challenges work within globally coordinated systems whilst being sensitive to local needs. source talent from increasingly varied places around the world, so integrating a diverse workforce for maximum organizational and individual performance is crucial. lines between traditional HR functions are blurred, so recruiting specialists have to focus on management development and reward issues as well. Merger and acquisition activity means that HR practitioners are engaged in selection of employees in a changing environment and looking to harmonize HR practices. HR is looking to maximize the learning opportunities given by global networks to share best practice. Rapidly changing business situations in volatile global markets means that HR must often recruit, deploy, develop and shed people at great speed. Source – UK HRM organization http://www.cipd.co.uk/subjects/intlhr/intrecovrvw.htm

154. Types of international employees and their required competencies international commuters contract expatriates employees used on long-term business trips assignees on short term or medium term business trips cadres of global managers international transferees (from one subsidiary to another) ‘self-initiated movers’ who live and work away from their home country virtual international employees active in cross-border project teams domestically based employees dealing with international suppliers and/or clients overseas workers attracted to a domestic labor market. enlargement of the European Union has brought an increase in employees to the domestic market who have been educated and trained in different systems so there is a very real and immediate challenge facing organizations to understand the vocational education and qualification structures of other countries. 

155. Competencies to look for in the recruitment and selection of international employees adaptability, flexibility, conflict resolution skills, questioning and listening skills, cross cultural awareness, communicative ability, influencing skills, emotional maturity, self motivation and resilience.  global leadership skills and international mindset: high value on sharing information, knowledge and experience across national, functional and business boundaries and on balancing the country, business, and functional priorities that emerge as organizations globalize. 

156. HRM & international talent management: Managing the talent pipeline – recruit ‘ahead of the curve’ to engage individuals with particular skills and aptitudes, bearing future business needs in mind. Developing relationships with universities and business schools to secure future talent. Using global IT systems to create databases of internal talent pools. Creating skilled and competent teams of recruiters in different geographies. Managing recruitment suppliers on a global basis, introducing speed, cost and quality controls, the use of preferred partners, branding messages and ensuring audit trails to protect against legal issues associated with global diversity. Using e-enabled job boards and websites to attract and select applicants and to convey messages about the employer brand worldwide.

157. Roles for the local business partner: Investigating local job centers and agencies, how they can be used and building local networks. Working with search agencies, from large global agencies to specialized local firms. Setting up the necessary legal entities and frameworks for employing people. Understanding general frameworks of local employment law, although taking specialist legal advice is always recommended. Investigating the local skill level for specialist skills and deciding whether local recruitment can be valid for all levels of jobs. Building the local capability to match business needs. Developing cross-national advertising strategies, taking into account local media. knowledge, sensitivity to cultural values, translation needs, different legislative structures, differing skills and competencies. Assessing language competence where this is a requirement of the role.

158. Selection and training of expats In IHRM recruitment is one of the more important functions because people have to fit with the organization, be open to learning about other cultures, want to work abroad, be smart, be able to add value fairly quickly etc. Language training is especially important and takes months! Families need to included in selection and training process since family failure results in expatriate failure.

159. Third country nationals Third country nationals (TCN): expatriate workers who come from neither the host nor home country TCNS are especially useful because they often are fluent in the local language and understand how business is done in the region.

160. Reasons for U.S. expatriate failure – Very expensive! Individual: Personality of the manager, Lack of technical proficiency, No motivation for assignment Family: Spouse or family members fail to adapt & family members or spouse do not want to be there Cultural: Manager fails to adapt & Manager fails to develop relationship with key people Organizational: excessively difficult responsibilities, failure to provide cultural training, company fails to pick the right person, company fails to provide the technical support, excess of difficult responsibilities of international assignment, failure of company to consider gender equity

161. Strategic Role of Expatriate Assignments Helps managers acquire international skills Helps coordinate and control operations dispersed activities Communication of local needs/strategic information to headquarters In-depth knowledge of local markets Provide important network knowledge But don’t stay abroad too long! 3-5 years tops.

162. Short term assignments travel on short notice for shorter time durations while maintaining their family and personal lives at the home-country location Key functions - Sent to explore markets - Consider problem areas in the foreign subsidiary - Manage projects - Help with transfer of technology

163. Key Success Factors for Expatriate Assignments Technical and managerial skills: competence is critical Personality traits: fit with local culture, able to listen and learn Relational abilities: ability to smooze, play local sports, music or something else to DO with colleagues other than drink Family situation: family has to want to be there International motivation: Assignment should be an adventure Stress tolerance: Able to observe and learn and control impulses without falling back on dysfunctional coping Language ability: Always critical. English is not enough. Emotional intelligence: Seems like a good idea but people have trouble defining it and it might be overrated.

164. Don’t get hired locally Expats get lots of goodies: - Local market cost of living even if you live for much less Housing Tuition assistance for children Home leaves - Taxes: companies have ways of equalizing tax burden so that people don’t choose low tax countries and avoid high tax assignments - Benefits

165. Repatriation is a huge problem HQ is social network that you have been out of HQ doesn’t appreciate your knowledge “reverse culture shocks” Many leave company upon returning home

166. Many women expect international assignments Women are often seen more for their role than gender in some locations where sexism prevails. Few places have such sexist cultures that women aren’t free to work but there are some. It’s foolish to generalize about female or male attributes when discussing female expatriates since the number isn’t large and they be extraordinary. Family is easier to balance because of servants, assuming spouse has job or opportunity to grow.

167. How can expatriates succeed? Provide cultural mentors: No matter how long we live in a country we will be surprised from time to time Social networks, both inside and outside the company, are crucial Dual-career issues are often deal breakers but sometimes things can be arranged within or outside the company. Lots of career expatriates and TCNs have spouses from the region, which makes it easier for them.

168. 13 International Negotiation and Cross-Cultural Communication always requires a cultural mentor, extensive preparation, and experience.

169. High- and Low-Context Languages Low-context language: people state things directly and explicitly, which the foreigner must usually do - Most northern European languages including German, English, and the Scandinavian languages High-context language: people state things indirectly and implicitly because they understand the nuances of context - Asian and Arabic languages

170. Avoiding Attribution Errors Attribution: process by which we interpret the meaning of spoken words or nonverbal exchanges - Attribute meaning based on our taken-for-granted cultural expectations - Easy to make mistakes of attribution - Need to observe carefully - Avoid subtleties of a foreign language - Avoid complex nonverbal behaviors

171. The Successful International Negotiator: Personal Characteristics Tolerance of ambiguity Flexibility and creativity Humor Stamina Empathy Curiosity Bilingualism

172. Major Points Regarding Successful International Negotiation Few negotiations succeed without extensive preparation. Building personal relationships is a key step in a negotiation. Managers should be aware that first offers may differ by cultural background.

173. Major Points Regarding Successful International Negotiation Many tactics are used in persuasion. Know how counterpart views the concession-making process. Culture and legal traditions influence the content and force of law regarding business contracts. Competitive negotiation seldom leads to long-term relationships.

174. Major Points Regarding Successful International Negotiation Problem-solving negotiation is more flexible and probably more successful strategy. Must be flexible, empathic, and physically tough.

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