Multinational Management in a Changing World

Multinational

Management Formulation of strategies and mgmt systems to take advantage of intt opportunities/respond to
intl threats
o Types of Threats:
Terrorism
Piracy
Natural Disasters
Disease Bird Flu/Mad Cow
Monetary Threats Corrupt Govt (Haiti Relief, Zimbabwe)
Company Any org engaged in business practice beyond its domestic borders, both large and small orgs

Globalization

Worldwide trend of economies becoming borderless and interlinked

Pros:
o Internet allows for entrepreneurial competition
o Lower prices in many countries due to multinational companies efficiency
o Benefits emerging markets with greater availability of jobs/access to technology
Cons
o Taxes and tariffs on import/exports
o Not equal benefit to all global economies
o Terrorism/wars/economic stagnation reverse globalization trend
o Produces scarcity of natural resources, environmental pollution, negative social impacts, and increased
interdependence of world economies
o Widens distribution of wealth gap
Countries of the world
o Developed: mature economies with substantial gross GDP, intl trade, and investors
Ex: US, Canada, Western Europe, UK
o Developing: economies that have grown substantially in the past 2 decades
Ex: South Korea, China, Taiwan, Hong Kong, Singapore
o Transition Economies: have changed from communist to market/capitalist system
Ex: Czech Republic, Hungary, Poland, Russia
o Emerging Markets: currently between developed and developing countries and still growing rapidly
Ex: Brazil, Russia, India, China
o Less Developed: yet to show much progress in global arena
Ex: Sub-Saharan Africa, Central America, Mid-Eastern Countries
7 Trends of Globalizing Economy
1. Disintegrating Borders
World Trade Order (WTO) established in 1997 to provide structure for continued negotiations
and settling trade disputes among nations
Has criticisms such as: environmentalists, poor countries, and labor unions
2. Growing cross border trade/investment
Regional Trade Agreements Agreements among nations to reduce tariffs and develop similar
technical/economic standards
Ex: European Union (EU), North American Free Trade Agreement, (NAFTA)Asian-Pacific-
Economic Cooperation (APEC)
Nearly $5 Trillion in world trades is generated among TRIAD ( EU, US, and Japan)
Federal Direct Investment (FDI) when multinational companies from one country have
ownership position in another country
 Developed counties get bulk of FDI (69%), Developing countries get 30%, and least
developed countries get minimal (1%)
Implications for management: global opportunity
3. Rise of Global Products/Customers
Growing need/desire for many products/services are becoming more similar (ex: McDonalds,
Boeing, Toyota)
Customers search globe for their supplies without regard for national boundaries
4. Internet/Information Technology
Electronic Communication: email, web, etc
Spurring borderless financial market
Make new tools available and facilitate business operations
Ex: Voice-Over-Internet-Protocol (VOIP) Skype, Google, MSN Messenger, Wikis, etc
5. Privatization
Incidence/process of transferring ownership of business, enterprise, agency, or public service
from the public sector (the state or government) to the private sector (businesses that operate
for a private profit) or to private non-profit organizations.
refers to transfer of any government function to the private sector - including governmental
functions like revenue collection and law enforcement
6. New Competitors in World Market
Free market reforms are creating a potential group of new competitors
Able to make domestic rivalry/competition from western multinationals
Develop strategies to compete with very low prices
2 important effects in developing new competitors in world trade:
When developing countries are used as low-wage platforms for high-tech assembly,
multinationals facilitate the transfer of technology. Assemblers may become builders
and creators of technology
Aggressive multinationals from emerging markets are also expanding beyond their own
borders
7. Rise of Global Standards of Quality/Products
Companies can make one or only a few versions of a product for the world market
This is cheaper than making different versions for different countries
Drive to develop common standards to save money
Consistency in quality also an important requirement of doing business in many countries
International Organization for Standardization (ISO) in Geneva, Switzerland
2 Types of Risk
o Economic: considers all factors or nations economic climate that may affect foreign investor
o Political: anything govt might do/not do that may adversely affect a company

Side Notes on Hong Kong

Until 1996, was leased to UK from China

o Chinese govt wanted to reclaim territory
o Chinese used Hong Kong to initiate global trade
Called One Country, Two Systems
Culture and Multinational Management

Culture?

Cultural norms are things we believe that are standards in life

Cultural values are things that we cherish and uphold
Cultural beliefs are our truths about our culture.
o Ex: symbols, stories, and rituals
Culture is pervasive and cant be avoidable
o Culture affects all aspects of life
o Not all aspects are observable, some are implied
o Ex: iceberg: can see a lot above water, but there is more underneath.

3 levels of culture:

1. National Culture
a. Usually dominant culture to prospective region
b. represents population
2. Business Culture
a. Gives general idea on how to conduct business properly
b. Standards and norms for region
3. Occupational Culture
a. Relating to particular position and conduct corresponding to it.
4. Organizational Culture (related to number 3)
a. Conveys image of organization
b. Ex: Attire(IBM), mgmt walking around office (HP)

Cultural Differences and basic values

1. 3 diagnostic models
1. Hofstede Model of National Culture (ex: U.S. vs. Russia(pre-Lenin))
Power Distance (Distribution of Wealth)
Ex: Indias professional sphere tied with religion
Uncertainty avoidance (conduct what is dangerous/safe)
U.S. has low uncertainty avoidance, more risk averse culture
Individualism (customizing to person)
U.S. know as most individual centered culture in world
To cater to person
Middle Eastern nations more collectivist oriented
Masculinity (culture that supports traditional Masculine role)
Ex: Japan has separate professional sphere for men and women.
Japan has highest dimension of masculinity
Low masculinity found in Norway, Sweden.
Long-term orientation
How much we are willing to invest in employees to judge if employee is good fit for
company.
Japan employment is typically long-term
U.S. employment can be short-term because of skill bias
2. Global Leadership an Organizational Behavior Effectiveness (GLOBE) project
How people relate to time and each other
Dimensions similar to Hofstede
Unique dimensions
 o Performance orientation desired or frowned on?
o Humane orientation extent of expectation of fairness (caring, generous, demanding,
etc)
3. 7d culture model
Builds on traditional anthropological approaches to understanding culture
Challenges include
How people relate to others, time, and environment.
Dimensions dealing with relationships
Universalism vs. Particularism
Collectivism vs. Individualism
Neutral vs. Affective
Diffuse vs. Specific
Achievement vs. Ascription
Dimensions dealing with cultures management of time and how it deals with nature
Sequential vs. Synchronic
Internal vs. External control

Trust

Difficult to build; easy to destroy

Differences among cultures in terms of how and when people trust each other.

Caveats and Cautions

Stereotyping an attempt to characterize a culture with a general statement/trend

Ethnocentrism belief that ones culture is correct culture is superior to another because of familiarity
Cultural Relativism

Movie Bridging the Cultural Gap

Western business was primary way of business across globe until recent
Many countries are now in position to demand mutual respect
Must now accommodate to emerging cultures
Most people of world see themselves as forces of nature similar to nature (culture)
How cultures support each other?
Culture affects the way we greet each other, how we dress, what and how we eat, etc
We assume our normal ways of doing this is the normal way.
Stereotypes are group characteristics that are placed on individuals
The Institutional Context of Multinational Management
Institutional Context

Includes other elements besides national culture that can produce important differences
Understanding this concept is extremely important for better management

National Context

Includes both national culture/social institutions of society

o Impacts how individuals within a society act in business environment
o Influences how firms are formed and how they approach multinational strategic management

Social Institutions

Complex of positions, roles, norms, and values organizing stable patterns of human resources to sustain
important societal structures
o Regulative social institutions Rules
o Cognitive social institutions Thought processes
o Normative social institutions standards of conduct

Social Institutions and influence on organizations

Isomorphism: Similarity of form

o Organizational
o Coercive
o Mimetic
o Normative
Key social institutions that influence business environment
o Economic systems
Capitalist/market economy
Socialist/command economy state has much of control
Mixed economy has capitalism and socialism
These are important because a decision to open operations abroad makes you subject to the
prospective countrys legislation.
Multinationals should expect to develop more formal relations with govt in mixed economies
Index of economic freedom can be used to determine the extent of govtal intervention
o Level of industrialization
Production is organized and distributed in society
Types:
Pre-Industrial (agriculture)
o Ex: African countries, Western China
Industrial
Post-Industrial (service oriented)
Direct correspondence between industrialization and economic development
Pre-Industrial countries provide?
Industrial countries favor?
Post-Industrial countries emphasize?
Motivation for workers in each of these?
o Religion
Shared set of beliefs, activities, and institutions that have basis upon faith in supernatural forces
Forms the foundation of human society
Provides individuals with guidelines to deal issues
Religiosity how important religion is to specific cultures
 Gives idea of degree of responsiveness needed to accommodate religion
Islamic religion prayer time 5 times per day
Jewish religion Yam Capour, Hanukkah
Religion is very important in Middle East
According to Islamic Law, interest cannot be charged on borrowed money
o Instead they assume stake in whatever funds are used for

Social Inequality

Refers to degree to which people have privileged access to resources and positions within societies
Societies with high social inequality have few individuals with the ability to control and use important resources
as sources of control
Implications
o Multinational companies can consider the GINI index as an indicator of the degree of social inequality
(developed in 1912 by Italian statistician Corrado Gini)

Education

Organized networks of socialization experiences that prepare individuals to act in society

Central element in organization of society
In U.S. education is REQUIRED

Organizations Alike: Globalization and Convergence

Globalization is pushing organizations to be more similar

o Global customers and products
o Growing levels of industrialization and economic development
o Global competition and global trade

Movie Notes Globalization is Good

3,000,000,000 peole have been lifter from poverty from Globalization

Narrator is from Sweden
First steps toward national capitalism is land reform
Taipe, Taiwan
o Taiwan poverty rate has been cut by more than half from globalization
o Acer flourished by responding to competition with innovation of products
Vietnam
o Nike
Employees 18 and up for footwear
Employees 16 and up for apparel
Nike gives microloans to employees to open their own business
Lady in movie(Nike employee) makes 2.25 million Dong per month
Kenya
o Poverty is ramped due to closed view on globalization
o Govt owns all land, which prevents natives from making improvements to property because of lack of
personal interest.
o Kenya is leading flower exporter due to low tariffs being imposed by EU.

Article Reviews
1. China biggest bank Industrial Bank of China is trying to buy stake in Bank of E. Asia (Hong Kong)
a. Want 80% of Hong Kong bank to offer smoother exchange on currency
b. China hopes to gain more access to US info technology through this measure
c. Committee on Foreign Investment in US doesnt feel offer is favorable
2. Economy in China is growing and are target of global enterprises
a. China is having trouble keeping up with consumer purchases
b. Main concern is purchases on credit
c. Older Chinese are more prone to saving while younger are more prone to spending
3. Safety in sweatshops Boxcon
a. Employee suicide was high
b. Attempted to make work environment more friendly
c. Trying to implement friendlier working conditions
4. Globalization Conflicts in India
a. Focuses on American companies that had to send Execs over to maintain assets according to US standards
b. Internet and globalization is causing communication gap to vanish and cultures are becoming widely
accepted
c. Indians have poor soft skills(customer service)
5. Chrysler Financial purchased by Toronto Dominion Bank (Canada)
a. Purchase of $6.3 billion
b. This year loan is being extended of $1 billion for lease and customer purchases
c. Expect to earn $100 million in adjusted gross income by end of 2012
6. Facebooks expansion to Japan
a. Tried before but didnt succeed well because of MIXI (Japanese social networking site)
b. Currently at 2.2 million users
c. Inaccessible in china