International Strategic Management Political Risk and Management Decision and Control Chapters 10 and  11, Hodgetts, Lutha...
OVERVIEW <ul><li>Decision Making and Control </li></ul><ul><li>“ Starbucks: Building Relationships with Coffee Growers” </...
DECISION MAKING AND CONTROL <ul><li>Definitions </li></ul><ul><li>Organizational Characteristics </li></ul><ul><li>Central...
Definitions <ul><li>Decision Making </li></ul><ul><ul><li>The process of choosing a course of action among alternatives. <...
Organizational Characteristics and Decision Making  <ul><li>Formalization:  The use of defined structures and systems in d...
Centralized vs. Decentralized Decision Making <ul><li>Reasons for increased centralization </li></ul><ul><ul><li>To increa...
 
Cultural Differences <ul><li>Britain: firms generally decentralized </li></ul><ul><ul><li>Reliance on middle managers </li...
 
Types of Control <ul><li>Internal vs. external controls </li></ul><ul><ul><li>Internal: self, function, group, firm </li><...
 
Control Techniques <ul><li>Financial performance </li></ul><ul><ul><li>Profit (balance after expenses) </li></ul></ul><ul>...
 
STARBUCKS <ul><li>Key Elements of a Keiretsu </li></ul><ul><ul><li>Manufacturers and suppliers partner in design and produ...
POLITICAL RISK <ul><li>What is Political Risk? </li></ul><ul><li>Macro Risk Factors </li></ul><ul><li>Micro Risk Factors <...
What is Political Risk? <ul><li>Political risk </li></ul><ul><ul><li>The likelihood that a business’s foreign investment w...
Macro Risk Factors <ul><li>Freezing the movement of assets out of the host country </li></ul><ul><li>Placing limits on the...
Critical Risks to Firm Operations A.T. Kearney 2004 FDI Confidence Index
Adapted from Table 10–1: The 2003 Transparency International Corruption Perceptions Index
Adapted from Table 10–1: The 2003 Transparency International Corruption Perceptions Index
Micro Risk Factors <ul><li>Differential treatment of MNCs (by industry, country of origin, etc) </li></ul><ul><li>Industry...
Government Policies <ul><li>Result from policies that limit the transfer of capital, payments, production, people, and tec...
Government Policies <ul><li>Result from policies and procedures that directly constrain management and performance of loca...
Government Policies <ul><li>Result from policies or actions that inhibit ownership or control of local operations </li></u...
Assessing Political Risk Political Risks General Investments Special Investments Adapted from Figure 10–2: A Three-Dimensi...
Adapted from Table 10–2: A Guide to Evaluation of Political Risk
Country Risk Risk Adapted from Figure 10–1: Country Risk 100 80 60 40 20 0 Minimum Maximum Singapore Hong Kong Chile Taiwa...
Managing Political Risk <ul><li>Relative bargaining power analysis </li></ul><ul><ul><li>The MNC works to maintain a barga...
Integrative Techniques <ul><li>Help the overseas operation become a part of the host country’s infrastructure </li></ul><u...
Protective and Defensive Techniques <ul><ul><ul><li>Discourage the host government from interfering in operations </li></u...
Proactive Political Strategies <ul><li>Lobbying, campaign financing, a advocacy and other political interventions designed...
Use of Integrative, Protective and Defensive Techniques Protective/defensive techniques Integrative techniques (11, 14) Lo...
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  1. 1. International Strategic Management Political Risk and Management Decision and Control Chapters 10 and 11, Hodgetts, Luthans and Doh, International Management: Culture, Strategy and Behavior , 6 th edition (New York: McGraw-Hill Irwin, 2006) Adapted from PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University Mark McKenna BUS 162 (6), International and Comparative Management San Jose State University
  2. 2. OVERVIEW <ul><li>Decision Making and Control </li></ul><ul><li>“ Starbucks: Building Relationships with Coffee Growers” </li></ul><ul><li>Political Risk </li></ul>
  3. 3. DECISION MAKING AND CONTROL <ul><li>Definitions </li></ul><ul><li>Organizational Characteristics </li></ul><ul><li>Centralized vs. Decentralized Decision Making </li></ul><ul><li>Total Quality Management </li></ul><ul><li>Types of Control </li></ul>
  4. 4. Definitions <ul><li>Decision Making </li></ul><ul><ul><li>The process of choosing a course of action among alternatives. </li></ul></ul><ul><li>Controlling </li></ul><ul><ul><li>The process of evaluating results in relation to plans or objectives and deciding what action to take, if any. </li></ul></ul><ul><li>Management Decision and Control </li></ul><ul><ul><li>The choice of a course of action among alternatives and the evaluation of results of those choices in relation to plans or objectives. </li></ul></ul>
  5. 5. Organizational Characteristics and Decision Making <ul><li>Formalization: The use of defined structures and systems in decision making </li></ul><ul><li>Centralization/decentralization: The Locus of decision making (at the top or delegated to operating personnel) </li></ul><ul><li>Specialization: Assigning to individuals specific, well-defined tasks </li></ul><ul><li>Note: Organizational structures don’t always determine how firms function internally </li></ul>
  6. 6. Centralized vs. Decentralized Decision Making <ul><li>Reasons for increased centralization </li></ul><ul><ul><li>To increase efficiency and better capture economies of scale </li></ul></ul><ul><ul><li>To tighten controls and improve firm-level responsiveness to crises and uncertainty </li></ul></ul><ul><li>Differences in domestic and international responses </li></ul><ul><ul><li>Domestically, firms often decentralize in response to competition to increase responsiveness </li></ul></ul><ul><ul><li>Internationally, firms often centralize in response to competition to increase control </li></ul></ul>
  7. 8. Cultural Differences <ul><li>Britain: firms generally decentralized </li></ul><ul><ul><li>Reliance on middle managers </li></ul></ul><ul><li>France: companies more centralized </li></ul><ul><ul><li>Tradition of professional education </li></ul></ul><ul><li>Germany: codetermination </li></ul><ul><ul><li>Mandated manager-labor consultation </li></ul></ul><ul><li>Japan: ringisei (consensus decision making) </li></ul><ul><ul><li>Tatemae – doing the right thing </li></ul></ul><ul><ul><li>Honne – what one really wants to do </li></ul></ul>
  8. 10. Types of Control <ul><li>Internal vs. external controls </li></ul><ul><ul><li>Internal: self, function, group, firm </li></ul></ul><ul><ul><li>External: customers, partners, colleagues </li></ul></ul><ul><li>Direct vs. indirect controls </li></ul><ul><ul><li>Direct: face-to-face meetings </li></ul></ul><ul><ul><li>Indirect: operating reports and financial statements </li></ul></ul><ul><li>Factors influencing preference </li></ul><ul><ul><li>Culture </li></ul></ul><ul><ul><li>Timeframe </li></ul></ul>
  9. 12. Control Techniques <ul><li>Financial performance </li></ul><ul><ul><li>Profit (balance after expenses) </li></ul></ul><ul><ul><li>ROI (profits divided by assets) </li></ul></ul><ul><li>Quality performance </li></ul><ul><ul><li>Quality Control Circles (QCC) </li></ul></ul><ul><li>Personnel performance </li></ul><ul><ul><li>Assessment centers </li></ul></ul><ul><ul><li>360 degree evaluations </li></ul></ul>
  10. 14. STARBUCKS <ul><li>Key Elements of a Keiretsu </li></ul><ul><ul><li>Manufacturers and suppliers partner in design and production </li></ul></ul><ul><ul><li>Financial links between manufacturers and suppliers </li></ul></ul><ul><ul><li>Cross-marketing of products </li></ul></ul><ul><li>Look for these elements in the film </li></ul><ul><li>How does Starbucks address decision and control issues? </li></ul>
  11. 15. POLITICAL RISK <ul><li>What is Political Risk? </li></ul><ul><li>Macro Risk Factors </li></ul><ul><li>Micro Risk Factors </li></ul><ul><li>Assessing Political Risk </li></ul>
  12. 16. What is Political Risk? <ul><li>Political risk </li></ul><ul><ul><li>The likelihood that a business’s foreign investment will be constrained by a host government’s policy </li></ul></ul><ul><li>Macro political risk analysis </li></ul><ul><ul><li>Analysis that reviews major political decisions likely to affect all enterprises in the country </li></ul></ul><ul><li>Micro political risk analysis </li></ul><ul><ul><li>Analysis directed toward government policies and actions that influence selected sectors of the economy or specific foreign businesses in the country </li></ul></ul>
  13. 17. Macro Risk Factors <ul><li>Freezing the movement of assets out of the host country </li></ul><ul><li>Placing limits on the remittance of profits or capital </li></ul><ul><li>Devaluing the currency </li></ul><ul><li>Industrial piracy (e.g. counterfeiting) </li></ul><ul><li>Political turmoil (including terrorism) </li></ul><ul><li>Government corruption </li></ul><ul><li>Refusing to abide by the contractual terms of agreements </li></ul>
  14. 18. Critical Risks to Firm Operations A.T. Kearney 2004 FDI Confidence Index
  15. 19. Adapted from Table 10–1: The 2003 Transparency International Corruption Perceptions Index
  16. 20. Adapted from Table 10–1: The 2003 Transparency International Corruption Perceptions Index
  17. 21. Micro Risk Factors <ul><li>Differential treatment of MNCs (by industry, country of origin, etc) </li></ul><ul><li>Industry-specific regulations or taxes </li></ul><ul><li>Restrictive local laws (regarding employment, sourcing, access to capital) </li></ul><ul><li>Government policies that promote exports and discourage imports </li></ul><ul><li>Impact of WTO decisions and or regional trade agreements/consortia </li></ul>
  18. 22. Government Policies <ul><li>Result from policies that limit the transfer of capital, payments, production, people, and technology in and out of the country </li></ul><ul><ul><ul><li>Tariffs on exports and imports </li></ul></ul></ul><ul><ul><ul><li>Restrictions on exports </li></ul></ul></ul><ul><ul><ul><li>Dividend remittance </li></ul></ul></ul><ul><ul><ul><li>Capital repatriation </li></ul></ul></ul>Transfer risks
  19. 23. Government Policies <ul><li>Result from policies and procedures that directly constrain management and performance of local operations </li></ul><ul><ul><ul><li>Price controls </li></ul></ul></ul><ul><ul><ul><li>Financing restrictions </li></ul></ul></ul><ul><ul><ul><li>Export commitments </li></ul></ul></ul><ul><ul><ul><li>Taxes </li></ul></ul></ul><ul><ul><ul><li>Local sourcing requirements </li></ul></ul></ul>Transfer risks Operational risks
  20. 24. Government Policies <ul><li>Result from policies or actions that inhibit ownership or control of local operations </li></ul><ul><ul><ul><li>Foreign-ownership limitations </li></ul></ul></ul><ul><ul><ul><li>Pressure for local participation </li></ul></ul></ul><ul><ul><ul><li>Confiscation </li></ul></ul></ul><ul><ul><ul><li>Expropriation </li></ul></ul></ul><ul><ul><ul><li>Abrogation of proprietary rights </li></ul></ul></ul>Transfer risks Operational risks Ownership control risks
  21. 25. Assessing Political Risk Political Risks General Investments Special Investments Adapted from Figure 10–2: A Three-Dimensional Framework for Assessing Political Risk Transfer Operational Ownership control Conglomerate Vertical Horizontal
  22. 26. Adapted from Table 10–2: A Guide to Evaluation of Political Risk
  23. 27. Country Risk Risk Adapted from Figure 10–1: Country Risk 100 80 60 40 20 0 Minimum Maximum Singapore Hong Kong Chile Taiwan Malaysia Thailand Poland Israel Hungary India Saudi Arabia China South Africa Mexico Brazil Egypt Iran Colombia Ukraine Pakistan Turkey Nigeria Indonesia Cote d’Ivoire Kenya Venezuela Angola Argentina Iraq
  24. 28. Managing Political Risk <ul><li>Relative bargaining power analysis </li></ul><ul><ul><li>The MNC works to maintain a bargaining power position stronger than that of the host country </li></ul></ul><ul><li>Integrative, protective, and defensive techniques </li></ul><ul><li>Proactive political strategies </li></ul>
  25. 29. Integrative Techniques <ul><li>Help the overseas operation become a part of the host country’s infrastructure </li></ul><ul><ul><li>Developing good relations with the host government and other local political groups </li></ul></ul><ul><ul><li>Producing as much of the product locally as possible with the use of in-country suppliers and subcontractors </li></ul></ul><ul><ul><li>Creating joint ventures and hiring local people to manage and run the operation </li></ul></ul><ul><ul><li>Doing as much local research and development as possible </li></ul></ul><ul><ul><li>Developing effective labor–management relations </li></ul></ul>
  26. 30. Protective and Defensive Techniques <ul><ul><ul><li>Discourage the host government from interfering in operations </li></ul></ul></ul><ul><ul><ul><ul><li>Doing as little local manufacturing as possible and conducting all research and development outside the country </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Limiting the responsibility of local personnel and hiring only those who are vital to the operation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Raising capital from local banks and the host government as well as outside sources </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Diversifying production of the product among a number of countries </li></ul></ul></ul></ul>
  27. 31. Proactive Political Strategies <ul><li>Lobbying, campaign financing, a advocacy and other political interventions designed to shape and influence the political decisions prior to their impact on the firm </li></ul><ul><ul><li>Formal lobbying </li></ul></ul><ul><ul><li>Campaign financing </li></ul></ul><ul><ul><li>Seeking advocacy through the embassy and consulates of the home country </li></ul></ul><ul><ul><li>Formal public relations and public affairs activities such as grassroots campaigning and advertising </li></ul></ul>
  28. 32. Use of Integrative, Protective and Defensive Techniques Protective/defensive techniques Integrative techniques (11, 14) Low or stable technology ((7, 10) Advanced management skill Unified logistic, labor transmission (16,6) (14, 3) Dynamic high technology Adapted from Figure 10–4: Use of Integrative and Protective and Defensive Techniques by Firms in Select Industries High 20 Moderate 10 Low 1 1 Low 10 Moderate 20 High
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