International management GMGT 7350 Asper School of Business

GMGT 7350
International Management
• Jijun Gao
• Head, Associate Professor
• Department of Business Administration
• Asper School of Business
• University of Manitoba

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GLOBAL4 | CH1
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website, in whole or in part.
Framework from Ghoshal (1987)

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Table 2 from Ghoshal (1987)

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Global Business Concepts
• International business
• Business that engages in international economic activities
• The action of doing business abroad
• Multinational enterprise (MNE): Firm engaging in foreign direct
investment and operating in multiple countries
• Foreign direct investment (FDI): Investment in, controlling, and managing
value-added activities in other countries
LO 1

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Exhibit
website, in whole or in part. GLOBAL4 | CH1
1.1 - The Global Economic Pyramid
LO 1

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Exhibit
1.2 - Why Study International
Management?
LO 2

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Exhibit
1.4 - A Unified Framework for International
Management
LO 3

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Institution-Based View
• Firm performance is determined by institutional frameworks
governing firm behavior worldwide
• Institutional framework: Formal and informal institutions that
govern individual and firm behavior
• Deals with the external environment
LO 3

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Resource-Based View
• Focuses on a firm's internal resources and capabilities
• Liability of foreignness: Inherent disadvantage experienced by
foreign firms in host countries because of their nonnative status
• Firm’s resources and capabilities can offset the disadvantage
LO 3

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Resource-Based View (continued)
• Firms must have valuable, rare (unique), and inimitable (hard to
imitate) resources with respect to competitors in the same
environment
• VRIO framework

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Pendulum View of Globalization (continued)
• The Great Recession, Brexit, and Trump remind all firms the
importance of risk management
• Risk management: Identification and assessment of risks
• Scenario planning: Technique to prepare and plan for multiple
scenarios
LO 4

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Intitutions Under Three Pillars

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Institutions: Rules of the Game
• Success and failure of firms are determined by how firms play the
game
• Depends on how the rules are made, enforced, and changed
• Institution-based view
• For survival, firms must monitor, decode, and adapt to the changing rules of
the game
LO 1

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Exhibit
2.1 - Dimensions of Institutions
LO 1

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Supportive Pillars
• Coercive power of governments exercised through laws, regulations,
and rules
Regulatory pillar
• Mechanisms through which norms influence individual and
firm behavior
Normative pillar
• Internalized values and beliefs that guide individual and firm
behavior
Cognitive pillar
LO 1

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Role of Institutions in Reducing Uncertainty
• Institutions influence decision-making process of individuals and
firms by constraining the range of acceptable actions
• Economic uncertainty leads to transaction costs
• Opportunism is an important source of transaction costs
• Opportunism: Act of seeking self-interest with guile
LO 2

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Political Systems
• Rules of the game on how a country is governed politically
• Types
• Democracy
• Totalitarianism
LO 4

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Legal Systems
• Rules of the game on how a country’s laws are enacted and enforced
• Reduce transaction costs by:
• Minimizing uncertainty
• Combating opportunism
LO 5

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Property Rights
• Facilitate economic growth
• Insecure property rights in developing countries:
• Reduce the average firm size
• Result in the use of technologies that employ less fixed capital
• Do not entail long-term investment
LO 6

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Economic Systems
• Rules of the game on how a country is governed economically
• Market economy: Characterized by the invisible hand of market
forces
• Functions that cannot be performed by the private sector is performed by
the government
• Command economy: All supply, demand, and pricing are planned by
the government
• Mixed economy: Includes elements of both market economy and
command economy
LO 7

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Exhibit
2.4 - Implications for Action
LO 8

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Culture Ethics and Norms

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Culture
• Collective programming of the mind
• Distinguishes the members of one group or category of people from another
• Strict one-to-one correspondence between cultures and nations does
not exist
• Subcultures exist in multiethnic countries
• Consists of regional, ethnic, and religious layers
LO 2

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Classifying Cultural Differences: Context
Approach
• Focuses on context
• Context: Background against which interaction takes place
• Low-context cultures
• Communication is usually taken at face value without much reliance on
unspoken conditions or assumptions
• High-context cultures
• Communication relies on the underlying unspoken conditions or assumptions
LO 3

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Exhibit
3.1 - High-Context versus Low-Context
Cultures
LO 3

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Classifying Cultural Differences: Dimension
Approach
Power distance
Individualism versus collectivism
Masculinity versus femininity
Uncertainty avoidance
Long-term orientation
LO 4

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Understanding Cultural Differences to Do
Global Business
• Global business activity is consistent with the context, cluster, and
dimension approaches
• Average length of contracts is longer in low-context countries than in high-
context countries
• Many agreements are unspoken in high-context countries
• Preparation
• Firms are cautious when dealing with countries from other clusters
LO 4

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Global Business (continued 1)
• Individualistic societies foster higher level of entrepreneurship
• Individualist firms aim to differentiate themselves
• Collectivist firms
• Follow each other
• Managers in high masculinity societies
• Assertive, decisive, and aggressive
LO 4

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Global Business (continued 2)
• Managers in high femininity societies
• Less visible, intuitive, and seek consensus
• Managers in low uncertainty avoidance countries
• Rely more on experience and training
• Managers in high uncertainty avoidance countries
• Rely more on rules
LO 4

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Ethics
• Principles, standards, and norms of conduct that govern individual
and firm behavior
• Reflect in formal laws and regulations
• Code of conduct: Set of guidelines for making ethical decisions
LO 5

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Schools of Thought for Managing Ethics
Overseas
• Ethical relativism
• All ethical standards are relative
• Ethical imperialism
• Absolute belief that there is only one set of ethics, and one possesses it
LO 5

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Exhibit
3.4 - Managing Ethics Overseas: Three
Approaches
LO 5

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Corruption
• Abuse of public power for private benefits usually in the form of
bribery
• Causes misallocation of resources
• Slows economic development
• Discourages foreign direct investment (FDI)
LO 6

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Fighting Corruption
• Foreign Corrupt Practices Act (FCPA)
• Bans bribery of foreign officials
• Enacted by the US Congress in 1977
• Makes exceptions for small grease payments to get through customs abroad
• UN Convention against Corruption
• Corruption can be eradicated if:
• All countries criminalize bribery
• All firms resist corruption
LO 6

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Norms
• Prevailing practices of relevant players that affect the focal
individuals and firms
• Influence the way in which firms respond to ethical challenges
LO 7

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Implications for Savvy Managers
• Managers should:
• Enhance their cultural intelligence
• Cultural intelligence: Individual’s ability to understand and adjust to new cultures
• Be aware of the prevailing norms and their transitions globally
LO 7

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Exhibit
3.7 - Implications for Action
LO 8

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