Components of Culture Physical & Environments Education Personal Communication Religion Social Structure Manners & Customs Values & Attitudes Aesthetics Culture
Relationship to nature
Trust and control
Accomplishments in Life
Relationship with others
View of personal space
Hofstede Framework Individualism versus Collectivism Power Distance Uncertainty Avoidance Achievement versus Nurturing
Crouching Tiger – Globe & Mail, Saturday Jan 11, 2003
Transitioning – communist Welfare State (Iron Rice Bowl) to Capitalism, Consumerism, & Darwinism
Pace of Change – stress
Class of values
Physical & Mental Health Consequences
Ethnocentricity is the belief that one’s own ethnic group or culture is superior to that of others.
Problem with Ethnocentricity:
It causes people to view other culture in terms of their own, causing them to overlook important human and environmental differences among cultures.
North American “Values”
Intolerance for discrimination based upon:
Although equality is not applied perfectly, in many other cultures, this competence is of secondary importance
Since our values may seem radical to foreigners it is of extreme importance that international businesses spend the resources to determine what foreign cultures they can ethically and effectively conduct business in
Major Cultural Issues
Problems arise in international business when:
Employees have subconscious reactions
Employees assume all societal groups are similar
A company implements practices of work less well than intended
Employees encounter distress because of an inability to accept or adjust to foreign cultural behaviors
Companies/employees are insensitive to foreign consumer preferences
International businesses adopt an attitude towards foreign cultures
Polycentrism: control is decentralized so regional managers can conduct business in a local manner
Ethnocentrism: belief that ones own culture is superior and ignores important factors
Geocentrism: a hybrid of polycentrism and ethnocentrism, the middle ground
Companies MUST evaluate their practices to ensure they account for national cultural norms
Cultural Relativism vs Normativism
Relativism – Ethical truths depend on the groups holding them thus intervention in local traditions is seen as unethical
Normativism – universal standards of behaviour everyone should follow thus making non-intervention unethical
Which is right?
Standardized vs Responsive Practices
Global standardization advantages
Reduced costs in development and manufacturing
Economies of scale since fixed costs are spread over more units of production
Responding to national preferences
Adjusting operating, marketing, and design to meet specific national preferences
John Higgins Case
Higgins’s and Prescott’s attitudes towards implementing U.S. personnel policies in Japan?
Major Reasons for differences?
If you were Weaver’s Manager of Japan Operations what would you do about this conflict?
Tolerance, Knowledge, & Skills
A sensitive awareness of the beliefs and practices of other peoples that differ from or conflict with one’s own.
The first step in developing tolerance toward other cultures is to understand their histories.
International Business Knowledge And Skills
The type of knowledge and skills required can include the ability to design effective promotional strategies abroad, manage an international sales force, manage risk in international financial markets, and communicate effectively across cultures.
Maintaining A Global Mindset
Maintaining a global mindset means keeping up on social, cultural, political, and economic events and trends .
Maintaining a global mindset means not allowing oneself to fall into the trap of stereotyping groups of people as a result of current events.
Keys to Success
Organizations must understand cultural differences
Organizations must be culturally literate in order to avoid misunderstanding
As companies enter into the international market, localizing business policies and practices can help managers to succeed
Review of Culture
Understand cultural environments
Explain major causes of cultural difference and change
Examine behavioral factors influencing countries business practices
Examine cultural guidelines for companies that operate internationally
Political, Legal, & Environmental Influences
Political Risks for International Business
Opinions of political leadership
Human rights violations
External relations between home and host country
Political Strategies for International Businesses
Identify the exact issue
Workers rights, etc?
Define/determine the political aspect of the issue
Assess the potential political action of other companies
Identify important institutions and individuals
Common law systems (tradition/precedent)
Civil law (rules of business are part of the countries code)
Theocratic law (based on religious precepts)
Legal Issues for International Businesses
Health and safety standards
Patents, trademarks, and intellectual property protection
Taxes and reporting requirements
Economic Issues for International Businesses
What type of economic system does the country have?
What is the size, growth potential, and stability of the market?
Is the company’s industry in that country’s public or private sector?
If public, does the government allow private competition?
If private, is it moving towards public ownership?
Economic Issues for International Businesses, cont
Does the government view foreign capital as competition with or in partnership with public or local private enterprises?
How does the government control the nature and extent of private enterprise?
How much of a contribution is the private sector expected to make in assisting the government formulate overall economic objectives?
Key Economic Forces
General economic framework
Economic size and stability
Existence and influence of capital markets
Availability of economic infrastructure
Inputs to the production process
Factor conditions are especially critical for the production of goods
Composition of home demand (nature of buyer needs)
Gross National Income (formerly the Gross National Product)
GNI is the market value of final goods and services newly produced by domestically owned factories of production.
Countries with high populations and high per capita GNI are most desirable in terms of market potential
Gross Domestic Product
GDP: the value of production that takes place within a nation’s borders, without regard to whether the production is done by domestic or foreign factors of production
Both a Ford and Toyota manufactured in the United States counts towards our GDP
A Ford produced in Mexico would not
Importance of Per Capita GNI 4-10 Low Income 755 or less (in 2000) Developing/Emerging Country High Income 9,266 or more Developed/Industrial Country Upper Middle Income 2,996-9,265 Developing/Emerging Country Middle Income 756-9,265 Developing/Emerging Country Lower Middle Income 756-2,995 Developing/Emerging Country World Bank Category Per Capita GNI ($) Common Name
Countries Classified by Economic System Figure 4.2 4-13
Market Economy: resources are primarily owned and controlled by the private sector, not the public sector
Consumer sovereignty is the right of consumers to decide what to buy
Prices are determined by supply and demand
Economic Freedom, con’t
Command Economy (Centrally Planned Economy): all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan
Government owns and controls all resources
Prices are determined by government
Economic Freedom, con’t
Mixed Economy: Some degree of government ownership and control
No economy is purely market or command
Economic systems are along a spectrum of freedoms
Most command economies are moving towards a market economy
Economic Factors International Businesses Must Address
Balance of Payments
Reforms and Economic Progress Figure 4.3 4-18
Global Competitive Advantage 5-15
FDI and Balance-of-Payments Effects
Countries that run trade deficits must compensate for that deficit by:
Reducing its capital reserves, or
Attracting an influx of capital
Receipt of credit
Receipt of foreign investment (FDI)
Country Risk Ratings
GNP Per Capita - (+)
Propensity To Invest - (+)
Reserves to Import Ratio - (+)
Current Account Balance - (+)
Export Growth Rate - (+)
Export Variability - (mixed)
Net Foreign Debt To Exports - (-)
Debt Service Difficulty - (-)
Political Instability - (-)
Ratings Provided By - Euromoney, Institutional investor
BU669 FINS Exercise
Players in FINS
3 Multinationals – Megatronics, Eurodata, Tanaka
2 Governments of Developing Countries – Tropicalia, Paradiso
4 local companies – Tropimatics & Systrop in Tropicalia; Electro Paradys & Parafino in Paradiso
Issues For Individual Players
MNCs – Tropicalia or Paradiso or both? Type & size of Plant?
Local Companies – Enter industry? Alone or Partner? Plant type & size?
Government – Industry structure & ownership to allow? Incentives? Other government – free trade?
Issues Between MNCs & Local Companies
License, subcontract, JV, other?
Mg’t responsibilities & Control
Local market or export
Size & Type of plant
Transfer pricing – imports/exports
Issues Between MNCs & Government
Plant size & type
Number of manufacturers allowed
Foreign ownership allowed
Technology transfer conditions
Export and local content requirements
Tax & financial incentives
Repatriation of profits
Issues Between Local Companies & Governments
Incentives & Special consideration
Degree of support with MNCs
Number of manufacturers
Tax, financial & export incentives
Issues Between Local Companies
Cooperate or compete
If cooperate – independent or joint operations?
Issues Between Governments
Cooperate or compete?
Initial Strategy Report – Due Beginning of February 8 th Session
Strategy & supporting analyses – push the numbers
Player assessment – partnering options
Negotiating objectives & strategy/tactics
Deal makers & breakers
Quality of reports & presentation –
Soundness of agreements – e.g., financial consequences, competitive positions
Contributions of MNEs 11-9
Technology transferred abroad
Loss of output
Loss of exports
Replace local companies
Loss of best resources
Destroy local entrepreneurship
Decrease local R&D undertakings
Increase in demand and wages for skilled-labor
Higher product demand
More optimum use of production factors
Use of unemployed resources
Upgrading of resource quality
Ability to observe foreign competitive conditions
NAFTA , EU, Asia Pacific
Strategic Importance of International Business
Added complexity – regular business issues ++++ influences of very different environment
Understanding the environmental influences & their implications for strategy & implementation
Challenges to managers
Decision making framework – Cameron A & B
Standardization vs. customization
Ongoing management of global operations – look at cases in text