THE NATURE AND PURPOSE OF INTERNATIONAL BUISNESS International business engage in transaction across national boundaries . These include transfer of goods services, technology, managerial knowledge and capital to other countries. In, India international business majorly started after the liberalization policies of 1992. Since, then the FOREX of India has touched $trillion.
FORMS OF INTERNATIONAL FIRM Exportation of good & services Licensing agreement for producing goods in another country Management contract for operating foreign companies Joint venture with firm in the host country Form of joint venture Strategic alliance View slide
Effects of International Business Unifying Effects: - Unifying influences occur when parent company provide and share technical and managerial know how ,thus assisting the local company in development of human and material resources. Potentials for conflict: - Socio cultural differences can lead to a break down in communication and subsequent misunderstanding View slide
Multinational Corporations (MNC’s) MNC(Multinational Corporation/Companies).Such companies have offices and/or factories in different countries. They usually have a centralized head office where they coordinate global management. “MNC Company is the company where the company produces the goods in any part of the world and sells the goods in any part of the world.” Example Nike, Coco Cola, etc.
Why Companies Go Multinational Companies go abroad for two main reasons: For Market Seeking
For Resource Seeking
Lately, companies are also venturing into other markets for Knowledge Seeking
Multinational Corporations (MNC’s) Advantages: - MNCs are engines of growth. MNCs are social institutions. In addition to being profit agents, MNCs can also be good corporate citizens. Disadvantages: - A threat to national sovereignty and democratic accountability Accused of neutralizing anything that stands in the way of profits MNCs accentuate social inequalities MNCs destroy jobs
Country Alliances and Economic Blocs Definition: - Economic bloc is alsoknown as trade bloc. A trade bloc is an intergovernmental agreement, often part of intergovernmental organization, where regional barriers to trade (tariffs and non- tariffs barriers) are reduced or eliminated among the participating states.
Types of Trade Blocs
List of trade blocs CEMAC - Economic and Monetary Community of Central America. EMU – Economic and Monetary Union of European Union. OECS – Organization of Eastern Caribbean States. OII - Overseas Issuing Institute. CACM - Central American Common Market. CCCM - Caribbean Community and Common Market. EEA - European Economic Area. Economic and Monetary Union Common Markets
Conti… Custom Unions Free Trade Areas EAC – East African Community. EAEC – East Asian Community Caucus. EUCU – European Union Customs Union. GCC – Gulf Cooperation Council. SAARC – South Asian Association for Regional Cooperation. APTA – Asia Pacific Trade Agreement. ASEAN – Association of Southeast Asian Nation. NAFTA – North American Free Trade Agreement.
Free Trade Agreement Definition Sovereign nations join together, usually on a regional scale, to create free trade agreements. Purpose Free trade agreements are created to lower trade barriers and to stimulate trade between member countries. Member countries belonging to the free trade area trade freely with each other while maintaining trade barriers and tariffs for non-member countries.
List of Free trade agreements Asia-Pacific Trade Agreement (APTA) ASEAN Free Trade Area (AFTA) ASEAN Plus Three ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) African Free Trade Zone (AFTZ) Caribbean Community (CARICOM) Central European Free Trade Agreement (CEFTA) Dominican Republic – Central America Free Trade Agreement (DR-CAFTA) North American Free Trade Agreement (NAFTA) South Asia Free Trade Agreement (SAFTA) Latin American Integration Association (ALADI) European Economic Area (EEA) Commonwealth of Independent States Free Trade Agreement (CISFTA) Economic Community of West African States (ECOWAS)
European Committee (EU) The European Economic Community (EEC) (also referred to European Community, or the Common Market) was an international organization that existed between 1958 and 1993 which was created to bring about economic integration (including a single market) between Belgium, France, Germany, Italy, Luxembourg and the Netherlands. OBJECTIVES : To ensure the economic and social progress of their countries by common action to eliminate the barriers which divide Europe Recognizing that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition
European Committee (EU) To strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and the backwardness of the less-favored regions Intending to confirm the solidarity which binds Europe and the overseas countries and desiring to ensure the development of their prosperity Resolved by thus pooling their resources to preserve and strengthen peace and liberty
NAFTA NAFTA is an agreement signed by the governments of the United States, Canada, and Mexico creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. In terms of combined purchasing power parity GDP of its members, as of 2007[update] the trade block is the largest in the world. This agreement will remove most barriers to trade and investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full implementation beginning January 1, 2008.
Benefits of NAFTA
ASEAN Established in 1992 Total six members – Singapore, Brunei, Malaysia, Pillipines, Thailand and Indonesia. To establish a Common Effective Preferential Tariffs (CEPT) IN 1994, ASEAN countries formed AFTA in order to develop inter ASEAN trade.
MERCOSUR Established in 1991 by Brazil, Argentina, Paraguay, Uruguay. These four members generate 70% GNP of South America. By 1996, MERCOSUR had abolished tariffs on goods accounting for 90% of the trade between its members countries, with remaining tariffs to be abolished by 2000 MERCOSUR and EU signed a cooperation agreement to pave the way for the free trade according to 2001
SAARC SAARC – South Asian Association for Regional Cooperation. Established in August 1983 Members of SAARC are India, Bangladesh, Bhutan, Pakistan, Srilanka, The Maldives and Afghanistan.
Objective of SAARC To improve the quality of life & welfare of the people of the member countries. To develop the region economically, socially and culturally To provide the opportunity to the people of the region to live in dignity& to exploit their potential. To enhance the mutual assistance among member countries in the area of economics, social, cultural, scientific and technical field. To enhance cooperation to other trade blocs.
INTERNATIONAL MANAGEMENT:CULTURAL AND COUNTRY DIFFERENCES A comprehensive study by GeertHofstede provides a good framework for studying cultural differences between countries. Our discussion will focus on selected countries. It is illustrative, rather than comprehensive, and is based on generalizations. We have to bear in mind that there are, great differences between the managers in any country. Furthermore, a society style of German managers is slowly giving way to a more participative approach.
BEHAVIORS IN DIFFERENT CULTURES The study by GeertHofstede , a Dutch researcher, found that country’s culture impacts on the behavior of employees. In his initial study of more than 110,000 people, he identified four dimensions and later added a fifth. They are (1)individualism versus collectivism, (2)large versus small power distance, (3)uncertainty tolerance versus avoidance, (4)masculinity versus femininity or aggressive versus passive goal behavior, and (5)short-versus long-term orientation. The behaviors in the five dimensions are summarized below
FIVE DIMENSIONS OF BEHAVIOR:- INDIVIDUALISMCOLLECTIVISM People focus on their own interests and the people emphasis on the group, with group supp- Close to them. Tasks more important than relationships. Ort expected. Relationships more import- ant than task orientation. LARGE POWER DISTANCE SMALL POWER DISTANCE Society accepts unequal distribution of power .Respect Society less accepting of power. Emplo- For authority .Emphasis on titles and ranks. Subordinates yees more open to the idea of dialog Expect to be told what to do. Centralization emphasized. With their superior. Less emphasis on Authority, titles ,and ranks. Inequality Minimized. Decentralization emphasized.
UNCERTAINTY TOLERANCE UNCERTAINTY AVOIDANCE People accept uncertainty and are open to risk taking. Afraid of ambiguity and uncertainty. Stru- Willing to take risks. cture and formal rules preferred. MASCULINITY FEMININITY Aggressive and assertive behavior. Emphasis on Relationship-oriented. Quality of life fav Material things, success, and money. -oured . Concern for the welfare ofothers. Emphasis on modesty. LONG-TERM ORIENTATION SHORT-TERM ORIENTATION Characterized by hard work and perseverance. Less emphasis on hard work and per- Savings- driven severance. Consumption- driven.
France Le Plan and Cadre In France, government planning on a national scale (legal-political environment factor) helps coordinate the plan of individual industries and companies (managerial function of planning). The government’s aim is to utilize most effectively the country’s resources and to avoid expansion in uneconomic areas. Thus, the plan becomes a global strategy. This involvement resulted in 4.5 million civil employees.
GERMANY:AUTHORITY AND CODETERMINATION German business environment believes in authority and co-determination. In 1951,a law was passed that provided for codetermination, which requires labor membership in the supervisory board and the executive committee of certain large corporations. Labor directors supposedly must represent the interests of the employees and, at the same time, must make managerial decisions that are in the best interest of the enterprise
Factors Influencing Management in other western countries Managing in Australia is influenced by the country’s moralistic stance and its emphasis on political and social values, achievement, and risk taking. Italian managers operate in an environment of low tolerance for risks. They like group decision-making. Tolerance for risk taking is rather low. In Britain, job security is important, and so are resourcefulness. adaptability ,and logic. Individualism is also highly valued.
KOREAN MANAGEMENT The Korean model has characterized by the Chaebol,a tight collusion between government and industrial conglomerates. The Koreans also employ a process of consensus decision-making in certain situations, which is similar to the system of nemawashi found in Japan. This system ensures that the group feels involved in the decision, whilst ensuring that the manager can still maintain an influence over the outcome. Managers are expected to take a holistic interest in their subordinates and this necessitates greater involvement in much more personal areas of life than would be expected in Anglo-Saxon countries, where work and private are very strongly separated.
Japanese Management Management in Japanese companies often requires a long time from conception to implementation, so that a company of this kind may not conform to the interests of shareholders who expect high dividends quickly. Japanese management emphasizes the need for information flow from the bottom of the company to the top. This results in senior management having a largely supervisory rather than hands-on approach. It has been noted that policy is often originated at the middle-levels of a company before being passed upwards for ratification. The strength of this approach is obviously that those tasked with the implementation of decisions have been actively involved in the shaping of policy.
Japanese Management The key task for a Japanese manager is to provide the environment in which the group can flourish. The higher a Japanese manager rises within an organization, the more important it is that he appears unassuming and un-ambitious. Individual personality and forcefulness are not seen as the prerequisites for effective leadership. The Japanese decision making process is that of consensus building, which is know as ringisei or decision making by consensus.
Theory Z Theory Z places more reliance on the attitude and responsibilities of the workers. For Ouchi, Theory Z focused on increasing employee loyalty to the company by providing a job for life with a strong focus on the well-being of the employee, both on and off the job. Theory Z management tends to promote stable employment, high productivity, and high employee morale and satisfaction.
Total Quality Management (TQM) TQM is being adopted world over since the 80’s. Total quality management (TQM) is a business management strategy aimed at embedding awareness of quality in all organizational processes. TQM has been widely used in manufacturing, education, hospitals, call centers, government, and service industries, as well as NASA space and science programs. Under TQM "Quality" means "Meeting customer requirements" and equates to products, processes or services that are "Fit for purpose".
Total Quality Management(TQM) TQM maintains a company wide strategy that devolves responsibility to every employee for the quality of their work and the work of their team. TQM also brings the core concept of quality to early transformation processes, starting with initial design and on to working with raw materials to produce finished goods. Prior to TQM, quality testing was carried out during the final phases of a product, process or service. If faults were found additional costs were usually inevitable. TQM's aim to "Get it right first time every time" avoids such costs. TQM, thus seeks to identify the source of each defect to prevent it from entering the final product.
W. Edwards Deming W. Edwards Deming is best known for his management philosophy establishing quality, productivity, and competitive position. Deming's Total Quality Management is a powerful way for organizations to improve the quality of the products and services they offer. Deming's Cycle offers an approach that lead to TQM, sometimes called continuous improvement. An organization that continuously takes part in the cyclic activities will continuously elevate the quality of its offerings.
Deming's 14 Points of Management 1."Create constancy of purpose towards improvement". Replace short-term reaction with long-term planning. 2."Adopt the new philosophy". The implication is that management should actually adopt his philosophy, rather than merely expect the workforce to do so. 3."Cease dependence on inspection". If variation is reduced, there is no need to inspect manufactured items for defects, because there won't be any. 4."Move towards a single supplier for any one item." Multiple suppliers mean variation between feed stocks. 5."Improve constantly and forever". Constantly strive to reduce variation. 6."Institute training on the job". If people are inadequately trained, they will not all work the same way, and this will introduce variation. 7."Institute leadership". Deming makes a distinction between leadership and mere supervision. Leaders are results-oriented, not supervision-oriented
Deming's 14 Points of Management 8."Drive out fear". Deming sees management by fear as counter- productive in the long term, because it prevents workers from acting in the organization's best interests. 9."Break down barriers between departments". Another idea central to TQM is the concept of the 'internal customer', that each department serves not the management, but the other departments that use its outputs. 10."Eliminate slogans". Another central TQM idea is that it's not people who make most mistakes - it's the process they are working within. Harassing the workforce without improving the processes they use is counter-productive. 11."Eliminate management by objectives". Deming saw production targets as encouraging the delivery of poor-quality goods. 12."Remove barriers to pride of workmanship". Many of the other problems outlined reduce worker satisfaction. 13."Institute education and self-improvement". 14."The transformation is everyone's job".
Joseph Juran Management is responsible for quality failure and quality improvement. Juran Focused on Quality trilogy: quality planning, quality control and quality improvement. Introduces the term “internal customers”. The Juran methodology was central to maintaining control of special product and process characteristics (CTQs)
Crosby Crosby defined 5 absolutes of quality: Quality means conformance, not goodness or elegance There is no such thing as a quality problem It is always cheaper to do the job right the first time Cost of quality is the only measure of performance Zero defects is the only performance standard
Crosby’s Process For Achieving TQM 1. Management commitment 2. Quality improvement team 3. Quality measurement 4. Cost of quality 5. Quality awareness 6. Corrective action 7. Zero defects 8. Training 9. Zero defects day 10. Goal setting 11. Error cause removal 12. Recognition 13. Quality councils 14. Do it over again
Kaoru Ishikawa The fourth guru associated with TQM is Kaoru Ishikawa who initiated Company-wide Quality Control (CWQC) that started in Japan during the period 1955-1960. Ishikawa sees the CWQC as implying that quality does not only mean the quality of product, but also of after sales service, quality of management, the company itself and the human life. Ishikawa's biggest contributions are in simplifying statistical techniques for quality control and inventing quality circles. In addition, he created the cause-and-effect diagram
Kaoru Ishikawa’s Fishbone/ Cause and Effect Diagram
Malcolm Baldrige National Quality Award The Malcolm Baldrige National Quality Award is the highest national recognition a US company receive for business excellence. The categories for participation are manufacturing firms, service companies and small enterprises. The Award promotes awareness of performance excellence as an increasingly important element in competitiveness and information sharing of successful performance strategies and the benefits derived from using these strategies.
Criteria for Performance Excellence Leadership Strategic Planning Customer Focus Measurement, Analysis, and Knowledge Management Workforce Focus Process Management Results
ISO 9000 ISO 9000 is a family of standards for quality management systems. ISO 9000 is maintained by ISO, the International Organization for Standardization and is administered by accreditation and certification bodies. Although the standards originated in manufacturing, they are now employed across several types of organizations. A "product", in ISO vocabulary, can mean a physical object, service, or software. A common criticism of ISO 9001 is the amount of money, time and paperwork required for registration. According to Barnes, "Opponents claim that it is only for documentation. Proponents believe that if a company has documented its quality systems, then most of the paperwork has already been completed."
Requirements in ISO 9001:2008 A set of procedures that cover all key processes in the business; Monitoring processes to ensure they are effective; Keeping adequate records; Checking output for defects, with appropriate and corrective action where necessary; Regularly reviewing individual processes and the quality system itself for effectiveness; and Facilitating continual improvement
European Framework for Quality Management (EFQM) The EFQM Excellence Model was introduced at the beginning of 1992 as the framework for assessing applications for The European Quality Award. It is the most widely used organizational framework in Europe. In India too, several organizations are using this model and CII in association with EXIM bank uses the same framework for Quality award for CII members. Examples include:
Organizations assessing themselves in order to identify where to focus improvement activity.
Strategy reviews and creation.
As the basis for applying for the European Quality Award and many national quality awards.
European Framework for Quality Management (EFQM) The arrows emphasize the dynamic nature of the model. They show innovation andlearning helps to improve enablers that in turn lead to improved results.