Cases Int Management Flashcards
What is globalisation?
The widening set of interdependent relationships among people from different parts of a world divided into nations.
What does international business consist of?
All commercial transactions that take place between two or more countries, including sales, investments and transportation
What is leading to increasing globalisation?
TLCCCCS
- Increase in and expansion of technology
- Liberalisation of cross-border trade and resource movements
- Growing consumer pressures (bring that product here too!)
- Increased global competition
- Changing political situation and government policies
- Expanded cross-national cooperation – EU, NAFTA
- Development of services that support international business (agents…)
What are the costs of globalisation?
Threats to national sovereignty
Economic growth and environmental stress (argument for global growth and global cooperation)
Growing income inequality and personal stress (24H work cycle, the rich get richer, the poor get poorer)
How is globalisation a threat to national sovereignty?
Local objectives and policies: companies go elsewhere if conditions aren’t right, e.g. Germany leather industry due to high regulations
Small economies’ overdependence
Cultural homogeneity (McDonalds, H&M, Zara…)
What objectives lead countries to engage in international business?
Expand sales (increase potential market and profits)
Acquiring resources (lower cost, new/better products, additional operating knowledge)
Minimising risk
How does engaging in international business minimise risk?
- Smoothing sales and profits: less dependent on current context through geographical diversification - one economy goes bust, the other is going well.
- Preventing competitors from gaining advantages (competitor cross-subsidising markets to undercut prices)
What modes of operations exist for international business?
- Importing and exporting
- Tourism and transportation
- Asset use: licensing and franchising
- Service performances: turnkey operations and management contracts
- Investments: Foreign direct investment (including joint ventures) and portfolio investment
What is a foreign direct investment?
Investor takes a controlling interest in a foreign company
e.g. Joint Venture
What is a Portfolio Investment?
A non-controlling financial interest in another entity.
E.g. Mutual funds often include international companies.
What are some importing and exporting modes of operations?
Merchandise exports and merchandise imports (for goods) = visible exports and imports
Service exports and service imports
What kinds of collaborative arrangements between companies are there?
- Joint ventures
- Licensing arrangements
- Management contracts
- Minority ownership
- Long-term contractual arrangements
What are the characteristics of a strategic alliance?
- Companies work together, and the agreement is critical to at least one partner
- Agreement does not involve joint ownership.
What are multinational enterprises (MNEs)?
They take a global approach to markets and production or have operations in more than one country.
Also called:
- multinational corporations (MNCs)
- multinational companies (MNCs)
- transnational companies (TNCs)
Why and how companies adapt their typical methods of doing business?
Why: foreign conditions may dictate a particular method (e.g. need to at least assemble there, highly automated/manual)
How: Operating modes may be different from those used domestically
What does culture refer to?
The learned norms based on values, attitudes and beliefs of a group of people.
It affects every business function (e.g. when pay for goods)
What is the advantage of fostering cultural diversity?
Global competitive advantage through people with diverse backgrounds and experiences (so better access to market, broader range of ideas)
What is the disadvantage to cultural diversity?
Cultural collision can occur when:
- A company implements practices that are less effective or
- An employee has difficulty in accepting or adjusting to foreign behaviours
What hinders building cultural awareness?
- No foolproof method to do so
- Most agree cultures differ, but not on what the differences are
- Subconscious reactions to circumstances
- Assumption that all societal subgroups are identical (e.g. many subcultures in Spain, USA, Germany…)
What are the shortcomings of cultural approaches?
- What people say about their own attitudes may be coloured by their culture, which they are trying to explain.
- Specific variations within countries get overlooked when researchers focus on national differences in terms of averages
- Cultures evolve => behaviour reflecting current attitudes may change in the future. E.g. post DDR, particularly younger generations have changed.
What are the advantages and disadvantages of using a nation as a point of reference to delineate cultures?
Pros:
- Similarity is a cause and effect of national borders
- Laws apply primarily along national lines
Cons:
- Not everyone in a country is alike; variation within some countries is great
- Similarities link groups from different countries more than with their own country (e.g. urban people in big cities, Finance workers in Frankfurt and London)
How do cultures form?
- Cultures are transmitted in various ways: from parent to child, teacher to pupil, social leaders to follower, but particularly from peer to peer
- Language as a diffuser (spreader) and stabiliser of culture
- Religion as a cultural stabiliser (many strong values are the result of a dominant religion)
- By age 10, most children have a basic value system that is firmly in place and not easily changed.
E.g. Eritrea – long coast line and starvation, but due to culture don’t eat fish => can only convince children under 10 to eat it.
What are sources of changing a culture
Choice - e.g. decide to move
Imposition - e.g. refugees –> more difficult to change
Why does English travel so well?
Although only 8% have English as a first language, 33% of the world’s output come from countries where English is the primary language.
What behavioural practices affect business?
CRRIMS
- Communications
- Relationship preferences
- Risk-taking behaviour
- Information and task processing
- Work motivation
- Issues in social stratification
What issues in social stratification affect business?
PAGOOFA
- Performance orientation (USA)
- Ascribed vs acquired group memberships
- Gender based groups: egalitarian?
- Open and closed societies: how easy to enter?
- Occuption: is occuption or income more important? Wealth as positive or negative?
- Family based groups: Arabic - a good family?
- Aged based groups: how seen? Promotion by seniority or performance? Don’t send a young person to an Asian country (not accepted)
What issues in work motivation affect business?
AHEMP
- Assertiveness - the Masculinity/Femininity Index
- Hierarchy of Needs indicates that people try to fulfil lower-level needs before moving on to higher-level needs –> don’t target too high or low?
- Expectation of success and reward –> motivation depends on success and reward
- Materialism and motivation: is income important?
- Productivity/leisure tradeoff
What is the Hierarchy of Needs?
Physiological, Security, Afiliation, Esteem, Self-actualisation
What issues in relationship preferences affect business?
Power distance - Hofstede (between managers and employees)
Individualism vs collectivism
What issues in risk taking behaviour affect business?
TUF
- Trust
- Uncertainty avoidance
- Future orientation v fatalism (who do pick to write the strategy?)
What issues in information and task processing affect business?
- Perception of cues/hints
- Obtaining information: low context (facts) v high context cultures - e.g. ad for car with beautiful woman
- Information processing:
- – Idealism vs pragmatism
- – Monochromic (one thing after the other like Germany) vs polychromic (multitasking) cultures.
What issues in communications affect business?
- Spoken and written language: lost in translation?
- Silent language: offer food or not, distance (personal space, in Islam men don’t shake hands with women)
- Time and punctuality
- Body language
- Prestige – hierarchy? Power distance?
What cultural considerations should a business consider when determining their strategy for how much to adapt a business to the host culture?
- The extent to which a culture is willing to accept anything foreign: host cultures do not always expect foreigners to adjust to them.
- Whether key cultural differences are small or great: cultural differences in seemingly homogeneous countries may be overlooked
- Ability of individuals to adjust: culture shock and reverse culture shock
- The general management orientation of the company
What are the possible general management orientations of a company in relation to culture?
- Polycentrism: business units abroad should act like local companies
- Ethnocentrism: home culture is superior to local culture, overlook national differences
- Geocentrism: integrate home and hot practices
What rational elements should be considered when devising a strategy to institute change?
VCR PORTL • Value systems • Cost-Benefit Analysis of change • Resistance to too much change • Participation (in decisions): doesn’t work for some decisions, e.g. who has to be fired => can explain the decision at least • Opinion Leadership => sometimes you have to win over some opinion leaders, e.g. customers => they will spread the idea • Reward sharing • Timing • Learning abroad
What is a legal system?
The mechanism for creating, interpreting and enforcing the laws in a specified jurisdiction.
What types of legal systems are there?
- Common law
- Civil law
- Theocratic law (religion, e.g. Islam)
- Customary law
- Mixed systems
What is the bases of rule in a country?
Totalitariam system: the rule of man - legal rights derive from the individual who commands the power to impose them.
Democratic system: the rule of law - systematic and objective laws applied by public officials who are held accountable for their administration
How does the political system work, and what are its functions?
• Interaction between the international environment and domestic environment
1. Inputs: interest articulation by: politicians, individuals, business, and interest groups
2. → Interest aggregation
3. →Policy alternatives formulated (e.g. incentive to buy an electric car)
4. →implementation and adjudication (e.g. legality)
5. Outputs: New policies by: political parties, bureaucracies, legislatures, courts
• Outputs feeds back to each previous stage.
How do you formulate and implement political strategies?
- Identify the issue
- Define the political aspect of the issue (Is it a political issue? Behind it could be culture, poverty….)
- Assess the potential political action of other companies and special-interest groups
- Identify important institutions and key individuals
- Formulate strategies
- Determine the impact of implementation
- Select the most appropriate strategy and implement it.
How does political ideology affect management decisions?
- Political risk
- Government intervention in the economy
What is a political ideology?
A body of constructs (complex ideas), theories, and aims that constitute a socio-political program.
Nb. Most modern societies are pluralistic - several ideologies exist in one society.
What are the basic political ideologies?
It is a political spectrum from democracy to totalitarianism.
Different ideologies, but effect can be similar without a system of checks and balances → a selected few decide what is good for everybody.
Describe democracy.
Can be reactionary, conservative, liberal, radical
Ideology:
• All citizens are politically and legally equal
• All are equally entitled to freedom of thought, opinion, belief, speech and association
• All equally command sovereign power over public officials
Waht are the indicators of democracy?
- Freedom of opinion, expression, press and freedom to organize
- Election: voters decide who represents them
- Limited terms of elected officials (E.g. US president can only be elected twice)
- An independent and fair court system, with regard to individual rights and property
- A non-political bureaucracy and defense infrastructure
- Accessibility to the decision-making process.
Name some prominent types of democracy
- Representative
- Multiparty
- Parliamentary
- Social
Nb: democracy can be direct (Switzerland) or indirect.
Describe totalitarianism.
- Totalitarian system subordinates the individual to the interests of the collective → dissent is eliminated through propaganda, indoctrination, surveillance, censorship, persecution and violence.
What are some prominent types of totalitarianism?
- Authoritarianism (similar to reactionary)
- Fascism
- Communist
- Dictatorship (similar to radical)
There are secular and theocratic types of totalitarianism
If thinking about dealing with countries that are not “free”, what should a company consider?
- product category
- safety of workers
- ideology –
• ban/boycott (trade will stabilise the current system) v
• Trade will open up the country - consequences for inhabitants.
Nb: Map of Political Freedom can be useful, but what is defined as free? Democracy?
What is political risk?
A risk that occurs because of political instability
What are the types and causes of political risk?
- Opinions of political leadership
- Civil disorder
- External relations
What is the difference between micro and macro political risks?
Micro: political actions are aimed at specific foreign investments
Macro: political actions affect a broad spectrum of foreign investments
What are the general categories of political risk?
Nb: you need to address these each in a different way.
- Systemic political risk: assume laws and political leaders will change over time
- Procedural political risk: bureaucracy doesn’t work without pushing for a decision, e.g. bribe → raises cost, not following international law, bribes affect donors, receivers and third parties.
- Distributive political risk: if exploiting natural resources and business is successful, local want a share (taxes, work) – although they may not have wanted a part of the initial risk!
- Catastrophic political risk: riots, civil unrest, civil war, everything is out of control.
What types of Government Intervention paradigms are there?
- Individualistic paradigm: Minimal government intervention in the economy
- Communitarian paradigm: The government defines needs and priorities and partners with business in a major way.
What criteria should you use to select countries to invest?
- Demand conditions or market potential (preferred approach to start with, particularly if looking for a market; you could find out that it’s best to produce there too)
- Factor conditions or production factors (if looking to produce there)
What does looking at the demand conditions or market potential include?
- Composition of demand (homogeneity) (quality)
- Size and growth of demand (quantity)
- Internationalisation of demand
What does looking at factor conditions or production factors include?
Human PICK
- Human resources
- Physical resources
- Infrastructure
- Capital
- Knowledge resources (expertise in an area)
What is economic freedom, and where is it measured?
- People have the right to work, produce, consume, save and invest the way they prefer (with limitations so as not to harm others).
- Measured across: labour freedom, business freedom, trade freedom, property rights, financial freedom, investment freedom, freedom from corruption, government size, fiscal freedom and monetary freedom.
How can Economic freedom be measured?
Vertical axis: Index of Economic Freedom (higher = more freedom)
Horizontal axis: Region
Size of bubble: population
How can countries be classified by income?
- GDP
- Gross National Income (GNI)
- Purchasing Power Parity (PPP)
- Human Development Index
- Green measures of Gross National Product (GNP): Green economics, sustainable development and happynomics
What is Gross National Income (GNI)
Market value of final goods and services produced by domestically owned factors of production (including overseas)
How can countries be classified according to GNI?
GNI per capita adjusted for purchasing power parity
World Bank classifications:
• Low income (31) - $1,025 or less – developing countries
• Lower middle income (52) - $1,026 - $4,035 developing
• Upper middle income (55) - $4,036 - $12,475 developing
• High income (79) – $12,476 or more (developed countries)
What is GDP?
Gross Domestic Product = Market value of final goods and services newly produced domestically.
What is Purchasing Power Parity (PPP)
Number of units of a country’s currency required to buy the same amount of goods and services in the domestic market as $1 would buy in the USA.
