International Management

1. International Management BADM 729 Dr. Yvonne Stedham

2. International Management • Review -- Session #1 and 2 • Personal Introduction • Course Introduction • Management Principles • Content Overview • Questions • What is different about an international organization? • Can you apply what you have learned about “running or managing a business” in an international context? • Expect to learn? • Framework • Format Overview (Syllabus) – Questions? Quiz vs Readings? Termpaper Sign-up

3. .Organizations and Organizational Effectiveness • What is an organization? Why do organizations exist? • When is an organization effective? • Efficiency vs effectiveness?

4. .Organizations and Organizational Effectiveness • What is an organization? Why do organizations exist? • Organizations = People • Mission, goals, objectives --- concerted effort; efficiency; effectiveness. • When is an organization effective? • Distinguish between efficiency and effectiveness. Distinguish effectiveness measures for the short, intermediate, and long run.

5. Measurement of organizational effectiveness • Long run? • Intermediate run? • Short run? • A contingency approach to management

6. Measurement of organizational effectiveness • Long run: Survival • Intermediate run: Adaptation, Responsiveness • Short run: Productivity, Efficiency • A contingency approach to management (as opposed to “administrative theory” of management): It’s management’s task to create the best possible fit between the external and internal environments of the organization and must ensure internal consistency between the organization’s elements.

7. The Organization

8. The International Organization

9. Current Information • National Public Radio (NPR) • FM 88.7, 90.5

10. The International Organization • What is “internationalization”? • Reasons for going international • Types of international organizations • Stages of Development to an International O. • Effectiveness of Internationalization

11. Internationalization • is the process by which firms • increase their awareness • of the influence of international activities on their future • and establish • and conduct • transactions with firms from other countries.

12. Reasons for becoming an international organization • Profit = Revenue – Cost = (Volume*Price) - Cost • 1. A desire for continued growth. • 2. Domestic market saturation • 3. The potential to now exploit a new technological advantage • 4. Preferable suppliers (quality, cost) • 5. Labor market (supply, quality, cost) • 6. Government involvement/restrictions

13. 7. Reducing distance to customers (cost) • 8. Tariff barriers • 9. Increased foreign competition in home country • 10. Reduce general business risk by diversifying into other countries

14. Types of "international" organizations • International organization:Any organization that exports to/imports from organizations in other countries with primarily domestic production - Multidomestic. • Multinational organization: An organization with operations in different countries but each is viewed as a relatively separate enterprise. • Global organization: An enterprise structured so that national boundaries become blurred. The best people are hired irrespective of national origin. Transnational

15. Graphic Representation • Headquarters – Subsidiary Relationship • Level of Global Participation

16. The Relationship between Level of Internationalization and Firm Performance • There is a strong relationship between the degree of internationalization and organizational performance • Degree of internationalization is measured as "sales generated by foreign affiliates" and MNE (multinational enterprise) performance is measured as "profit to sales" or "profit to assets". • Performance is at a max. at a level of internationalization of 60 to 80% and then decreases with continuing internationalization

17. Stages Model of Internationalization • Outward looking perspective: activities/issues related to the other countries (e.g., exporting) vs an inward perspective (e.g., importing) • Descriptive • Reflects the commonly observed pattern of increased commitment to international business

18. Four stages: • 1.indirect/ad hoc exporting - perhaps from unsolicited export orders • 2.active exporting and/or licensing • 3.active exporting, licensing, and joint equity investments in foreign manufacture • 4.full-scale multinational marketing and production

19. An International Organization • Definition: • operates in multiple environments, home country and one or more host countries, has foreign sales, and a nationality mix of managers and owners. • Characteristics: • 1. centralized ownership • 2. common pool of resources • 3. global, integrated strategy

20. Review • Types of international organizations • Criterion -- Level of Global Participation • International/Multi-Domestic • Multinational • Transnational/Global • Stages of Development to an International O. • Descriptive Model • Effectiveness of Internationalization • Relationship between extent of internationalization and performance • Headquarters of well-known companies (Exercise)

21. External Environment: Theory • Competitiveness • International Competitiveness • Porter Diamond: The major determinants of national competitive advantage - why some nations succeed and others fail in international competition. Porter's research is based on studying 100 industries in 10 nations. • - Reading: Competitive Advantage of Nations, Porter • Gabbye, Lance, Dan

22. PORTER DIAMOND • National Competitive Advantage • Four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage: • 1. Factor endowments or conditions • 2. Demand conditions • 3. Related and supporting industries • 4. Firm strategy, structure, rivalry

23. Porter’s Diamond • Why a nation achieves success in a particular industry? • Why Japan -- automobile, cameras • Why SUI -- precision instruments, pharmaceuticals • Why Germany and U.S. -- chemical • Diamond of four mutually reinforcing factors • 1. Factor Endowment -- Basic, Advanced (Nokia, Ericsson) • 2. Demand Conditions -- Quality, Innovativeness • 3. Related Industries -- Suppliers (U.S. - semiconductor/comp) • 4. Strategy, Structure, Rivalry -- Executive background • => Domestic environment encourages the development of characteristics that make company internationally competitive

24. Rugman-Verbeke Model: • 1. Firm specific advantages: relative to competitors -- technological experience, salesforce, customer loyalty • 2. Country specific advantages: source of advantage lies outside the firm -economic (labor - qual., quan., cost; natural resources); - non-economic (social, cultural); -governmental (property rights, free enterprise) • Compare to Porter’s model

25. References for Porter • 1. Michael Porter, 1990. The Competitive Advantage of Nations. Free Press • 2. M. Grant, 1991. The Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12, 535-548

26. External Environment: Theory - Trade Agreements • Why? Protectionism? Pro /Con • Trade Area • Common tariffs among members -- individual tariffs with non-members. NAFTA, ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam - 420 Mill) • Customs Union • Common tariffs for non-members. ANDEAN (Bolivia, Ecuador, Peru, Columbia, Venezuela) • Common Market • Free flow of goods and labor. Mercosur (Brazil, Paraguay, Uruguay, Argentina, Chile) • Economic Union • European Union -- 15 Members; Euro; European Parliament, Court of Justice • Political Union • Increasing economic integration

27. Political Environment Form of government Political stability Foreign policy State companies Role of military Level of terrorism Restrictions on imports/exports Economic Environment Economic system Stage of development Economic stability GNP Int’l financial standing Monetary/fiscal policies Foreign investment The External Environment

28. Regulatory Environment Legal system Prevailing int’l laws Protectionist laws Tax laws Role of contracts Protection for proprietary property Technological Environment Level of technology Availability of local technical skills Technical requirements of country Transfer of technology Infrastructure Environmental protection The External Environment

29. External Environment: Current Developments- Overview • Relevant variables: GDP ; GDP/capita ; GDP growth; factor endowments; demand conditions • The GDP (gross domestic product): • The value of the final output of goods and services produced by the residents of an economy (World Bank). There are several methods to calculate the GDP. The PPP (purchasing power parity) method reflects the cost of a basket of goods in two countries in their local currencies.

30. The top 7 economies (PPP GDP) ‘90s: • US ($ 7.1 trillion); China ($ 3.8); Japan ($ 2.6); Germany ($ 1.6); India ($ 1.5); France ($ 1.4); Italy ($ 1.0) • The next 7 economies: UK ($ .9); Brazil ($ .85); Indonesia ($ .7); Russia ($ .68); Canada ($ .60); Mexico ($ .58); Spain ($ .57)

31. The wealthiest nations • GDP per capita: Luxembourg ($37,930); US ($26,980); Switzerland ($25,860); Kuwait ($23, 790); Sweden ($23,630); Hong Kong ($22,950); Singapore ($ 22,770); Japan ($22,110); Norway ($21,940); Belgium ($21,660); Austria ($21,250); Denmark ($21,230); Canada ($21,130); France ($21,030); Iceland ($20,460); Germany ($20,070)

32. Largest cities and cost of living index: • Tokyo 26 mill (150); New York 17 mill (100); Sao Paulo 16 mill (100); Mexico City 15 mill (75); Shanghai 15 mill (100); Bombay 15 mill (50); Los Angeles 13 mill (100) Largest populations: • China 1.2 bill; India 900 mill; US 258 mill; Indonesia 187 mill; Brazil 156 mill; Russia 148 mill; Japan 124 mill; Pakistan 122 mill;

33. External Environment: Current Developments - Regions International Investment and Trade  Level of International Activities

34. Major Regions • North America • United States - which industries most internationally active? Why? • Mexico - wage rate maquiladora industry (1965)

35. Europe • delayed differentiation • acquisitions/alliances • EU -15 member countries: Belgium, Britain, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Finland, Sweden, Austria • EU – The Euro

36. European Union • The European Commission • The Council of Ministers (counterbalance to Commission) • The European Parliament • The European Court of Justice

37. European Union • What kind of trade agreement? Governance? • The European Commission • proposes policies and legislation • responsible for the administration of the EU • ensures - provisions of the EU treaties+the decisions of the other institutions are properly implemented • one rep per country(two for the 5 larger countries) • represent, protect, further the European interest + its members do not represent or take orders from their national governments

38. Eastern Europe • - Break-up of The Soviet Union • (Dec 1991) • - Russia (glasnost, perestroika) • - The Ukraine • - Czech Republic • - Poland

39. Asia • Japan • MITI (Ministry of International Trade and Industry) • keiretsus (chaebols in South Korea) • Current economic conditions • China • GDP growth of 10% • low wage rates

40. Newly industrialized countries: • The FourTigers • South Korea, Hong Kong,Singapore, Taiwan • Baby Tigers • Thailand, Malaysia, Indonesia

41. Less developed countries • Large population, high unemployment, inflation, low or negative economic growth, low literacy rate • India, Arab Countries, Africa, Central and South America  Major economic regions: • North America,Europe, Asia

42. Economic Superpowers • The Triad - The Golden Triangle: • The United States, the EU(dominated by Germany??), Japan • Dominates foreign direct investment and international trade • FDI Clusters

43. External Environment: National Culture • Harry and Sally in Saudi Arabia • What went wrong? • Why did things go wrong? • What were the consequences of these mistakes?

44. Culture and International Management • Relevance: • Cross-cultural literacy • Cost of doing bus in a particular culture

45. Internationalization Decision • Benefits from internationalization into a specific country • Cost associated with internationalization into a specific country • Risk associated with internationalization into a specific country. • Decision = f (benefit-cost-risk tradeoff)

46. Cultural dimensions • All peoples have common life problems (?) – choose different solutions • Six basic dimensions describe the cultural orientations of societies • What is the nature of people? • What is a person's relationship to nature? • What is a person's relationship to other people? • What is the primary mode of activity? • What is the conception of space? • What is the temporal orientation?

47. Cultural dimensions • Six basic dimensions describe the cultural orientations of societies • What is the nature of people? Good/evil/change • What is a person's relationship to nature? • Dominant/harmony -subjugation • What is a person's relationship to other people? • Individualistic/group – hierarchical/lateral • What is the primary mode of activity? • Doing/being • What is the conception of space? • Private/public • What is the temporal orientation? • Future/present/past

48. Determinants of Culture (Values and Norms) • 1. Social structure • Social stratification (class consciousness) • Class membership is a function of ?? • Social mobility

49. 2. Religion - • Christianity 1 bill; 20%; Protestant work ethic • Islam 750 mill; all embracing way of life, governing the totality of a Muslim being; prayer five times a day; free enterprise/hostile to socialist ideals - earning a legitimate profit through commerce and trade; Koran; contractual obligations, keeping one's word)

50. Hinduism 500 mill; spiritual achievement; nirvana • Buddhism 250 mill; Central and Southeast Asia, China, Korea, Japan; "life is suffering; misery is everywhere and originates in people's desire for pleasure; Noble Eightfold Path: right views, right intention, right speech, right action, right livelihood, right effort, right awareness, right concentration)