Q1 Write a short note on GATT and WTO, highlighting the differencebetween the two.Ans:WTOWorld Trade Organisation (WTO). WTO was established on 1st January 1995. In April 1994, the Final Actwassigned at a meeting in Marrakesh, Morocco. The Marrakesh Declaration of 15th April 1994 was formed tostrengthen the world economy that would lead to better investment, trade, income growth and employmentthroughout the world. The WTO is the successor to the General Agreement of Tariffs and Trade (GATT).India isone of the founder members of WTO. WTO represents the latest attempts to create an organisational focalpoint forliberal trade management and to consolidate a global organisational structure to govern world affairs. WTOhasattempted to create various organisational attentions for regulation of international trade. WTO created aqualitativechange in international trade. It is the only international body that deals with the rules of trades betweennations.General Agreement on Tariffs and Trade (GATT) - GATT is a multilateralagreement among countries providing a framework for conducting international trade.GATT is regarded as an international institution governing international trade relations. Itconsists of disciplines on governments and matters related to import and export ofgoods. It was established to promote international trade by reducing tariff and non-tariffrestrictions on imports imposed by member nations. Tariff barrier refers to imposingimport duty and non-tariff barriers means restricting imports through import licensing andby banning the imports. GATT provides a framework for negotiations on the level oftariff. It promotes multilateral trade among member nations. It provides protectionagainst unfair trade and obstructions to trade.Objectives and functionsThe key objective of WTO is to promote and ensure international trade in developing countries. The othermajorfunctions include:· Helping trade flows by encouraging nations to adopt discriminatory trade policies.· Promoting employment, expanding productions and trade and raising standard of living and income andutilisingthe world’s resources.· Ensuring that developing countries secure a better share of growth in world trade.· Providing forum for trade negotiations.· Resolving trade disputes.The important functions of the WTO as stated in the WTO agreement are the following:· Developing transitional economies – Majority of the WTO members belong to developingcountries. The
developing countries such as India, China, Mexico, Brazil and others have an important role in theorganisation. TheWTO helps in solving the problems of developing economies. The developing states are provided withtrade andtariff data. This depends on the country’s individual export interest and their participation in WTO-bodies.The newmembers benefit hugely from these services.· Providing help for export promotion – The WTO provides specialised help for export promotionto its members.The export promotion is done through the International Trade Center established by the GATT in 1964. Itisoperated by the WTO and the United Nations. The center accepts requests from member countries, usuallydeveloping countries for support in formulating and implementing export promotion programmes. Thecenterprovides information on export market and marketing techniques. The center also provides assistance inestablishingexport promotion and marketing services. Through this WTO proves its commitment in the upliftment ofthe worldeconomy.· Cooperating in global economic policy-making – The main function of the WTO is tocooperate in globaleconomic policy-making. In the Marrakesh Ministerial Meeting in April 1994, a separate declaration wasadopted toachieve this objective. The declaration specifies the responsibility of WTO as, to improve and maintain thecooperation with international organisations such as the World Bank, International Monetary Fund (IMF)that areinvolved in monetary and financial matters. WTO analyses the impact of liberalisation on the growth anddevelopment of national economies which is the important factor in the success of the economy.· Monitoring implementation of the agreement – The WTO administers sixty differentagreements that have thestatue of international legal documents. The member-governments sign and confirm all WTO agreementsonattainment.· Providing forum for negotiations – The WTO provides a permanent forum for negotiationsamong members. Thenegotiations can be on matters already in the WTO agreements or matters not addressed in the WTO law.· Administrating dispute settlement – The important function of WTO is the administration of theWTO disputesettlement system. It helps in settling multilateral trading dispute. A dispute arises when a member countryadopts atrade policy and other fellow members consider it as a violation of WTO agreements. The DisputeSettlement Body(DSB) is responsible for the settlement of disputes. The dispute settlement system is prohibited fromadding ordeleting the rights and obligations provided in the WTO agreements. The WTO dispute settlement systemhelps to:° Preserve the rights and responsibilities of the members.° Clarify the current provisions of the agreements.StructureThe structure of the WTO consists of the Ministerial Conference, which is the highest authority. This bodyconsistsof the representatives from all WTO members. The WTO members meet in every two years and takedecisions onall matters under the multilateral trade agreements. The daily activities of the WTO are conducted bysubsidiary
bodies and principally by the General Council which is composed of WTO members. The members reportto theMinisterial Conference. The General Council on behalf of the Ministerial Conference administers as theDisputeSettlement Body to manage the dispute settlement procedures. It also acts as the Trade Policy Review Bodythatconducts regular reviews of the trade policies of the individual WTO members.The General Council delegates responsibility to other major bodies. They are:· Council for Trade in Goods manages the implementation and functioning of all agreements covering tradeingoods.· Trade in Services and Trade of Intellectual Property Rights are the two councils that have responsibilityfor theirrespective WTO agreements and can establish their own subsidiary bodies if required.· The Committee on Trade and Development manages issues relating to the developing countries.· The Committee on Balance of Payments conducts consultations between WTO members and countriesthat taketrade-restrictive measures to handle balance-of-payments difficulties.
Q 2 Describe various entry strategies available to a firm when it wantsto enter a foreign market.Ans: International marketing refers to marketing of goods and products by companies overseas oracross nationalborderlines. The techniques used while dealing overseas is an extension of the techniques used inthe home countryby the company.Taking into account the various conditions on which markets vary and depend, appropriatemarketing strategiesshould be devised and adopted. Like, some countries prevent foreign firms from entering into itsmarket spacethrough protective legislation. Protectionism on the long run results in inefficiency of local firmsas it is inepttowards competition from foreign firms and other technological advancements. It also increasesthe living costs andprotects inefficient domestic firms.To counter this scenario firms must learn how to enter foreign markets and increase their globalcompetitiveness.Firms that plan to do business in foreign land find the marketplace different from the domesticone. Market sizes,customer preferences, and marketing practices all vary; therefore the firms planning to ventureabroad must analyseall segments of the market in which they expect to compete.The decision of a firm to compete internationally is strategic; it will have an effect on the firm,including itsmanagement and operations locally. The decision of a firm to compete in foreign markets hasmany reasons. Somefirms go abroad as the result of potential opportunities to exploit the market and to grow globally.And for some it isa policy driven decision to globalise and to take advantage by pressurising competitors.But, the decision to compete abroad is always a strategic down to business decision rather thansimply a reaction.Strategic reasons for global expansion are:· Diversifying markets that provide opportunistic global market development.· Following customers abroad (customer satisfaction).· Exploiting different economic growth rates.· Pursuing a global logic or imperative to harvest new markets and profits.· Pursuing geographic diversification.· Globalising for defensive reasons.· Exploiting product life cycle differences (technology).· Pursuing potential abroad.Likewise, there can be other reasons like competition at home, tax structures, comparativeadvantage, economictrends, demographic conditions, and the stage in the product life cycle. In order to succeed, a firmshould carefullylook at their geographic expansion and global marketing strategy. To a certain extent, a firmmakes a decision aboutits extent of globalisation by taking a stance that may span from entirely domestic to a globalreach where the
company devotes its entire marketing strategy to global competition. In the process of developingan internationalmarketing strategy, the firm may decide to do business in its home-country (domestic operations)only or hostcountry(foreign country) only.
SegmentationFirms that serve global markets can be segregated into several clusters based on their similarities.Each such clusteris termed as a segment. Segmentation helps the firms to serve the markets in an improved way.Markets can besegmented into nine categories, but the most common method of segmentation is on the basis ofindividualcharacteristics, which include the behavioural, psychographic, and demographic segmentations.The basis ofbehavioural segmentation is the general behavioural aspects of the customers. Demographicsegmentation considersthe factors like age, culture, income, education and gender. Psychographic segmentation takesinto account: beliefs,values, attitudes, personalities, opinions, lifestyles and so on.Market positioningThe next step in the marketing process is, the firms should position their product in the globalmarket. Productpositioning is the process of creating a favourable image of the product against the competitor’sproducts. In globalmarkets product positioning is categorised as high-tech or high–touch positioning.One challenge that firms face is to make a trade-off between adjusting their products to thespecific demands of acountry and gaining advantage of standardisation such as the maintenance of a consistent globalbrand image andcost savings. This is task is not easy.International product policySome thinkers of the industry tend to draw a distinction between conventional products andservices, stressing onservice characteristics such as heterogeneity (variation in standards among providers, frequentlyeven amongdifferent locations of the same firm), inseparability from consumption, intangibility, andperishability. Typically,products are composed of some service component like, documentation, a warranty, anddistribution. These servicecomponents are an integral part of the product and its positioning.Firms have a choice in marketing their products across markets. Many a times, firms opt for astrategy whichinvolves customisation, through which the firm introduces a unique product in each country,believing that tastesdiffer so much between countries that it is necessary to create a new product for each market. Onthe other hand,standardisation proposes the marketing of one global product, with the belief that the sameproduct can be sold indifferent countries without significant changes. For example, Intel microprocessors are the sameirrespective of thecountry in which they are sold.Finally, in most cases firms will go for some kind of adaptation. Here, when moving a productbetween marketsminor modifications are made to the product. For example, in U.S. fuel is relatively cheap,therefore cars have larger
engines than the cars in Asia and Europe; and then again, much of the design is identical orsimilar.International pricing decisionsPricing is the process of ascertaining the value for the product or service that will be offered forsale.In international markets, making pricing decisions is entangled in difficulties as it involves tradebarriers, multiplecurrencies, additional cost considerations, and longer distribution channels. Before establishingthe prices, the firmmust know its target market well because when the firm is clear about the market it is serving,then it can determinethe price appropriately. The pricing policy must be consistent with the firms overall objectives.Some commonpricing objectives are: profit, return on investment, survival, market share, status quo, andproduct quality.The strategies for international pricing can be classified into the following three types:· Market penetration· Market holding: · Market skimming:The factors that influence pricing decisions are inflation, devaluation and revaluation, nature ofproduct or industryand competitive behaviour, market demand, and transfer pricing.The approach taken by company towards pricing when operating in international markets areethnocentric,polycentric, and geocentric.Transfer pricing is the process of setting a price that will be charged by a subsidiary (unit) of amulti-unit firm toanother unit for goods and services, which are sold between such related units.Transfer pricing is determined in three ways: market based pricing, transfer at cost and cost-pluspricing. The Arm’sLength pricing rule is used to establish the price to be charged to the subsidiary.Many managers consider transfer pricing as non-market based. The reason for transfer pricingmay be internal orexternal. Internal transfer pricing include motivating managers and monitoring performance.External factorsinclude taxes, tariffs, and other charges.Transfer Pricing Manipulation (TPM) is used to overcome these reasons. Governments usuallydiscourage TPMsince it is against transfer pricing, where transfer pricing is the act of pricing commodities orservices. However, incommon terminology, transfer pricing generally refers TPM.International advertisingInternational advertising is usually associated with using the same brand name all over the world.However, a firmcan use different brand names for historic reasons. The acquisition of local firms by globalplayers has resulted in anumber of local brands. A firm may find it unfavourable to change those names as these localbrands have their own
distinctive market.The purpose of international advertising is to reach and communicate to target audiences in morethan one country.The target audience differ from country to country in terms of the response towards humour oremotional appeals,perception or interpretation of symbols and stimuli and level of literacy. Sometimes, globalisedfirms use the sameadvertising agencies and centralise the advertising decisions and budgets. In other cases, localsubsidiaries handletheir budget, resulting in greater use of local advertising agencies.International advertising can be thought of as a communication process that transpires in multiplecultures that varyin terms of communication styles, values, and consumption patterns. International advertising is abusiness activityand not just a communication process. It involves advertisers and advertising agencies that createads and buy mediain different countries. This industry is growing worldwide. International advertising is alsoreckoned as a majorforce that mirrors both social values, and propagates certain values worldwide.International promotion and distributionDistribution of goods from manufacturer to the end user is an important aspect of business.Companies have theirown ways of distribution. Some companies directly perform the distribution service by contactingothers whereas afew companies take help from other companies who perform the distribution services. Thedistribution servicesinclude:· The purchase of goods.· The assembly of an attractive assortment of goods.· Holding stocks.· Promoting sale of goods to the customer.· The physical movement of goods.In international marketing, companies usually take the advantage of other countries for thedistribution of theirproducts. The selection of distribution channel is helpful to gain the competitive advantage. Thedistribution channelis also dependent on the way to manage and control the channel. Selecting the distributionchannel is very importantfor agents and distributors.
Q 3. Write a note on ‘Globalization’.Ans: Globalization describes the process by which regional economies, societies, and cultures havebecome integratedthrough a global network of political ideas through communication, transportation, and trade. The term ismostclosely associated with the term economic globalization: the integration of national economies into theinternationaleconomy through trade, foreign direct investment, capital flows, migration, the spread of technology, andmilitarypresence.However, globalization is usually recognized as being driven by a combination of economic,technological,sociocultural, political, and biological factors.The term can also refer to the transnational circulation ofideas,languages, or popular culture through acculturation. An aspect of the world which has gone through theprocess canbe said to be globalized.Against this view, an alternative approach stresses how globalization has actually decreased inter-culturalcontactswhile increasing the possibility of international and intra-national conflict.Globalization has various aspects which affect the world in several different ways• Industrial - emergence of worldwide production markets and broader access to a range of foreignproductsfor consumers and companies. Particularly movement of material and goods between and within nationalboundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to$12 trillion) in the 50 years since 1955.Chinas trade with Africa rose sevenfold during 2000-07 alone.• Financial - emergence of worldwide financial markets and better access to external financing forborrowers.By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily tosupport the expanded levels of trade and investment• Economic - realization of a global common market, based on the freedom of exchange of goods andcapital• Job Market- competition in a global job market. In the past, the economic fate of workers was tied to thefate of national economies. With the advent of the information age and improvements in communication,this is no longer the case. Because workers compete in a global market, wages are less dependent on thesuccess or failure of individual economies. This has had a major effect on wages and income distribution• Political - some use "globalization" to mean the creation of a world government which regulates therelationships among governments and guarantees the rights arising from social and economic globalization.Politically, the United States has enjoyed a position of power among the world powers, in part because ofits strong and wealthy economy. With the influence of globalization and with the help of the United States’own economy, the Peoples Republic of China has experienced some tremendous growth within the pastdecade. If China continues to grow at the rate projected by the trends, then it is very likely that in the nexttwenty years, there will be a major reallocation of power among the world leaders. China will have enoughwealth, industry, and technology to rival the United States for the position of leading world power.Most of us assume that international and global business are the same and that any company that deals withanother country for its business is an international or global company. In fact, there is a considerabledifference between the two terms.International companies – Companies that deal with foreign companies for their business areconsidered asinternational companies. They can be exporters or importers who may not have any investments in anyothercountry, apart from their home country.Global companies – Companies, which invest in other countries for business and also operate fromother countries,
are considered as global companies. They have multiple manufacturing plants across the globe, catering tomultiplemarkets.The transformation of a company from domestic to international is by entering just one market or a fewselectedforeign markets as an exporter or importer. Competing on a truly global scale comes later, after thecompany hasestablished operations in several countries across continents and is racing against rivals for global marketleadership.Thus, there is a meaningful distinction between a company that operates in few selected foreign countriesand acompany that operates and markets its products across several countries and continents with manufacturingcapabilities in several of these countries.Companies can also be differentiated by the kind of competitive strategy they adopt while dealinginternationally.Multinational strategy and global competitive strategy are the two types of competitive strategy.· Multinational strategy – Companies adopt this strategy when each country’s market needs to betreated as selfcontained. It can be for the following reasons:° Customers from different countries have different preferences and expectations about a product or aservice.° Competition in each national market is essentially independent of competition in other national markets,and theset of competitors also differ from country to country.° A company’s reputation, customer base, and competitive position in one nation have little or no bearingon itsability to successfully compete in another nation.Some of the industry examples for multinational competition include beer, life insurance, and foodproducts.· Global competitive strategy – Companies adopt this strategy when prices and competitiveconditions across thedifferent country markets are strongly linked together and have common synergies. In a globallycompetitiveindustry, a company’s business gets affected by the changing environments in different countries. The sameset ofcompetitors may compete against each other in several countries. In a global scenario, a company’s overallcompetitive advantage is gauged by the cumulative efforts of its domestic operations and the internationaloperationsworldwide.A good example to illustrate is Sony Ericsson, which has its headquarters in Sweden, Research andDevelopmentsetup in USA and India, manufacturing and assembly plants in low wage countries like China, and salesandmarketing worldwide. This is made possible because of the ease in transferring technology and expertisefromcountry to country.
Q 4 What does FDI stands for? Why do MNCs opt for FDI to enterinternational market?Ans: Foreign Direct Investment (FDI) PolicyForeign direct investment (FDI) is an investment made with an intention ofestablishing a long term interest by a business enterprise in another country. It isalso required that such an enterprise holds directly or indirectly, an ownership of10% or more of voting rights in the target enterprise.FDI policy, which is dictated by the Government of the host country, plays a vital rolein the economic growth of that country. Attracting FDI inflows with constructive policyis a challenge for any nation. Developing countries offer a lot of incentives for FDI,particularly in capital intensive sectors like power, infrastructure, transport,construction. Effective FDI policies help the host country to portray itself as anattractive investment destination.Main objectives of FDI policy are to provide and facilitate investor friendly businessenvironment, so that the foreign investors feel safe with the financial and legalframework of the country. The Government of the host countries often formulate newor special regulatory framework to attract FDI. The host country often needs to investin development of domestic infrastructure to make it investor friendly.Export orientation of multinational corporations (MNCs) has seldom been incorporated inthe analysis of spillovers from foreign direct investment (FDI). Also, until recentlyempirical research dealt mainly with intra-industry spillovers from FDI with restrictivetreatment of inter-industry effects. Yet, to the extent that local producers are not in thecompetitive fringe of MNCs, both spillovers from export oriented subsidiaries and inter-industry spillovers may be more likely. First, when MNCs use the host country as exportplatform, domestic firms are by and large not competitors to subsidaries. Then, therewould be no incentives to restrict technical information flows. As an example, resultsusing panel data from Venezuelan manufacturing point to FDI spillovers, mainly betweenbut also within industries, from export-oriented MNCs to large domestic firms. Second,MNCs that outsource have an incentive to transfer technical knowledge to local upstreamsuppliers. When this allows for spillovers to take place across sectors, we find evidencethat backward linkages are a channel of technology diffusion from export-oriented MNCsto domestic manufacturers. Furthermore, small and medium plants do not experienceproductivity gains ensuing FDI while large domestic producers experience higherproductivity growth, suggesting the importance of differences in absorptive capacity.Basically the local industry is demolished by unfair competition, international
corporations grow an extra market, infiltrates the local government and end up byexploiting all the local resources at a fraction of price due to prior commitments whichcannot be honoured e.g. repaiments of debt.The main purpose of the FDI is actually to control some of the rich in resourcescountries. Most of the so called "International help" is designed to generate long termproblems for the goverments who are accepting the contracts, also the MNCs are the nextlevel tool in extracting resources of any kind from the international market.If the local government fails to cooperate (in most of the cases to become corrupt)diferrent atctics are being utilised as in popular revolt, negative PR, or even assasinationof course in all the times would look like an accident.As the third and the last option due to some "scarry" acts and fabricated but confirmedintel, then the army is being sent. Of course before hand a full campaign of mass mentalpreparation is activated, inclusive of conspiracy theory movements which are alsomulticorporative managed.To make a long story short, most of the MNCs are in partenership with the FDI and theyare part of the same plan, that is why MNCs are using the FDI.
Q5 What is the need to understand cultural Differences?Explain Hofstede’s cultural Dimensions.Ans: Cultural differences affect the success or failure of multinational firms in manyways. The company must modify the product to meet the demand of the customersin a specific location and use different marketing strategy to advertise their product tothe customers. Adaptations must be made to the product where there is demand orthe message must be advertised by the company. The following are the factorswhich a company must consider while dealing with international business:· The consumers across the world do not use same products. This is due to variedpreferences and tastes. Before manufacturing any product, the organisation has tobe aware of the customer choice or preferences.· The organisation must manage and motivate people with broad different culturalvalues and attitudes. Hence the management style, practices, and systems must bemodified.· The organisation must identify candidates and train them to work in other countriesas the cultural and corporate environment differs. The training may include languagetraining, corporate training, training them on the technology and so on, which helpthe candidate to work in a foreign environment.· The organisation must consider the concept of international business and constructguidelines that help them to take business decisions, and perform activities as theyare different in different nations. The following are the two main tasks that acompany must perform:° Product differentiation and marketing - As there are differences in consumer tastesand preferences across nations; product differentiation has become businessstrategy all over the world. The kinds of products and services that consumers canafford are determined by the level of per capita income. For example, inunderdeveloped countries, the demand for luxury products is limited.° Manage employees - It is said that employees in Japan were normally not satisfiedwith their work as compared with employees of North America and European
countries; however the production levels stayed high. To motivate employees inNorth America, they have come up with models. These models show that there is arelation between job satisfaction and production. This study showed the fact that it istough for Japanese workers to change jobs. While this trend is changing, the factthat job turnover among Japanese workers is still lower than the American workers istrue. Also, even if a worker can go to another Japanese entity, they know that themanagement style and practices will be quite alike to those found in their presentfirm. Thus, even if Japanese workers were not satisfied with the specific aspects oftheir work, they know that the conditions may not change considerably at anotherplace. As such, discontent might not impact their level of production.The following are the three mega trends in world cultures:· The reverse culture influence on modern Western cultures from growingeconomies, particularly those with an ancient cultural heritage.· The trend is Asia centric and not European or American centric, because of thegrowing economic and political power of China, India, South Korea, and Japan andalso the ASEAN.· The increased diversity within cultures and geographies.The following are the necessary implications in international business:· Avoid self reference criterion such as, one’s own upbringing, values and viewpoints.· Follow a philosophical viewpoint that considers that many perspectives of a singleobservation or phenomenon can be true.· Discover and identify global segments and global niche markets, as nationalmarkets are diverse with growing mobility of products, people, capital, and culture.· Grow the total share market by innovating affordable products and services, andmaking them accessible so that, they are affordable for even subsistence levelconsumers rather than fighting for market share.· Organise global enterprises around global centres of excellence.
Hofstede’s cultural dimensionsAccording to Dr. Geert Hofstede, ‘Culture is more often a source of conflict than ofsynergy. Cultural differences are a trouble and always a disaster.’Professor Hofstede carried out a detailed study of how values in the workplace areinfluenced by culture. He worked as a psychologist in IBM from 1967 to 1973. At thattime he gathered and analysed data from many people from several countries.Professor Hofstede established a model using the results of the study whichidentifies four dimensions to differentiate cultures. Later, a fifth dimension called‘long-term outlook’ was added.The following are the five cultural dimensions:· Power Distance Index (PDI) – This focuses on the level of equality orinequality, between individuals in the nation’s society. A country with high powerdistance ranking depicts that inequality of power and wealth has been allowed togrow within the society. These societies follow caste system that does not allowlarge upward mobility of its people. A country with low power distance rankingdepicts the society and de-emphasises the differences between its people’s powerand wealth. In these societies equality and opportunity is stressed for everyone.· Individualism – This dimension focuses on the extent to which the societyreinforces individual or collective achievement and interpersonal relationships. Ahigh individualism ranking depicts that individuality and individual rights are dominantwithin the society. Individuals in these societies form a larger number of looserrelationships. A low individualism ranking characterises societies of a more collectivenature with close links between individuals. These cultures support extended familiesand collectives where everyone takes responsibility for fellow members of theirgroup.· Masculinity – This focuses on the extent to which the society supports ordiscourages the traditional masculine work role model of male achievement, power,and control. A country with high masculinity ranking shows the country experienceshigh level of gender differentiation. In these cultures, men dominate a major part ofthe society and power structure, with women being controlled and dominated by
men. A country with low masculinity ranking shows the country, having a low level ofdifferentiation and discrimination between genders. In low masculinity cultures,women are treated equal to men in all aspects of the society.· Uncertainty Avoidance Index (UAI) – This focuses on the degree of tolerancefor uncertainty and ambiguity within the society that is unstructured situations. Acountry with high uncertainty avoidance ranking shows that the country has lowtolerance for uncertainty and ambiguity. A rule-oriented society that incorporatesrules, regulations, laws, and controls is created to minimise the amount ofuncertainty. A country with low uncertainty avoidance ranking shows that the countryhas less concern about ambiguity and uncertainty and has high tolerance for avariety of opinions. A society which is less rule-oriented, readily agrees to changes,and takes greater risks reflects a low uncertainty avoidance ranking.· Long-Term Orientation (LTO) – Describes the range at which a societyillustrates a pragmatic future oriented perspective instead of a conventional historicor short term point of view. The Asian countries are scoring high on this dimension.These countries have a long term orientation, believe in many truths, accept changeeasily, and have thrift for investment. Cultures recording little on this dimension, trustin absolute truth is conventional and traditional. They have a small term orientationand a concern for stability. Many western cultures score considerably low on thisdimension.
Q 6 Write short notes on: a) Ethnocentric Approach b) Polycentric ApproachAns: Ethnocentric Approach: There is no international firm today whose executiveswill say that ethnocentrism is absent in their organization. The word ethnocentrismderives from the Greek word "ethnos", meaning “nation” or “people,” and the Englishword center or centrism. A common phrase set for ethnocentrism is “tunnel vision.” Inthis context, ethnocentrism is the view that a particular ethnic group’s system of beliefsand values is morally superior to all others. Ethnocentrism is characterized by or based onthe attitude that one’s own group is superior to others. The ethnocentric attitude is foundin many companies that have many nationalities and culture groups working together. Itis a natural tendency for people to act ethnocentrically because it is what they feelcomfortable with. It is based on past experiences and learned behaviors and norms.The ethnocentric attitude is seen often when home nationals of various countries believethey are superior to, more trustworthy and more reliable than their foreign counterparts.Ethnocentric attitudes are often expressed in determining the managerial process at homeand overseas. There is a tendency towards ethnocentrism in relations with subsidiaries indeveloping countries and in industrial product divisions.Organizations that are designed with an ethnocentric focus will portray certaintendencies. These include an organizations headquarters that’s decision-making authorityis relatively high. Home standards are applied to the evaluation and control of theorganization. These standards are to ensure performance and product quality.Ethnocentric attitudes can be seen in the organizations communication process. This isevident when there is constant advice, and counsel from the headquarters to thesubsidiary. This advice usually bears the message, “This works at home; therefore it mustwork in your country". Organizations that portray ethnocentrism usually identifythemselves with the nationality of the owner. For example, Wal-Mart is seen as anAmerican company because its headquarters are located in America. The crucial criticalconcept of ethnocentrism in international organizations is the current policy that recruitsfrom the home country are hired, and trained for key executive position in theorganization. The ethnocentric attitude is a centralized approach. With the centralizedapproach, the training originates at the headquarters and than corporate trainers travel tothe subsidiaries, and often adapt to local situations.There are many costs that ethnocentrism can incur on an international organization.Using the centralized approach can cause inefficient staffing problems in theorganization, this is because the employed staff will incur high financial costs to theglobal business as they have to pay for the transfer costs of the staff coming from thehome country to overseas. This also could bring inefficiency to the business if the newstaff is not able to fit in and be culturally compatible in their newly situated location.
Polycentric Approach:Polycentrism is one of the three legs in the EPG framework that “identifies one of theattitudes or orientations toward internationalization that is associated with successivestages in the evolution of international operations”Polycentrism can be defined as a host country orientation; which reflects host countriesgoals and objectives with respect “to different management strategies and planningprocedures with regard to international operations.” Under a polycentric perspective, acompany’s management team believes that in international business practices localpreferences and techniques are usually found most appropriate to deal with the localmarket conditions. In the most extreme views of polycentrism, it is the “attitude thatculture of various countries are different, that foreigners are difficult to understand andshould be left alone as long as their work is profitable.”Although there is great benefit to taking into consideration local preferences in the hostcountry when it comes to international business practices, a polycentric approach has itsobstacles once implemented. A polycentric approach “gives rise to the problems ofcoordination and control.” Management usually loses coordination of its internationalsubsidiaries usually because they are forced to operate independently of one another, andestablish separate objectives and plans which meet the host countries criteria. “Marketingof the company’s products are organized on a country-by-country basis, and marketingresearch is conducted independently in each country.”Management is unable to have total control over the company in the host country becauseit is found that “local nationals have a better understanding and awareness of nationalmarket conditions, more so than home office personnel.” This is very accurate in severalaspects of the products delivery including pricing, customer service and well-being,market research, and channels of distribution. Therefore, the majority of control in thehost countries practices is lost, and the company is forced to manage its operations fromthe outside. “Local nationals occupy virtually all of the key positions in their respectivelocal subsidiaries, and they appoint and develop their own people.”There are a few other drawbacks to the polycentric approach which may restrict amultinational company from completely realizing its full potential in the host country.The first drawback of a polycentric approach is that the “benefits of global coordinationbetween subsidiaries such as the development of economies of scale cannot be realized.”This basically restricts the company for mass production of its products, as they areforced to manufacture its products with the local preferences being the priority ofproduction. Secondly, the fact that because all of the subsidiaries work independently ofone another, learning across geographic regions is not applied to one another. Thereforeknowledge that could be beneficial across all regions is lost, and subsidiaries could beworse off than if they had obtained the knowledge. Lastly is that the “treating of eachmarket as unique may lead to the duplication of facilities.” By focusing on the businesspractices of local preferences and techniques which pertain to the local market
conditions, the subsidiary in the host country could mimic that of local companies andappear less appealing to local consumers.In concluding, a polycentric approach should only be used within a company in whichthere is a certain amount of comfort in allowing the host country to make all majordecisions, following their own procedures and objectives. It must be understood that thereis limited control or communication between the home and host-country, and productsand distribution may vary across countries. Companies should evaluate all legs of theEPG model before implementing a strategy, as all companies differ in internationalstrategy among industry and region.