LECTURE 4 NOTES
MANAGING IN THE GLOBAL ARENA
LECTURE SUMMARY:
Lecture 4 begins the student’s study of both the opportunities and challenges when
managing in the global and international arena. Most U.S. companies see great
opportunities in the international marketplace today as the U.S. population growth
slows while at the same time the population in many other countries is growing. This
growth offers a strong profit potential for companies and their managers worldwide.
Growth in profits does not come without risk, however.
LEARNING OBJECTIVES:
1. An understanding of international management
2. Insights on how to categorize organizations by level of international involvement
3. Insights about what constitutes a multinational corporation
4. Information about those who work in multinational corporations
5. Knowledge about how management functions relate to managing multinational
corporations
6. A useful definition of transnational organizations
7. Ideas about special issues that can impact managing in the international arena
TARGET SKILLS:
Global Management Skill: the ability to manage global factors as components of
organizational objectives
OUTLINE:
This is divided into seven sections:
1. Fundamentals of International Management
2. Categorizing Organizations by Level of International Involvement
3. Multinational Corporations
4. The Workforce of Multinational Corporations
5. Management Functions and Multinational Corporations
6. Transnational Organizations
7. International Management: Special Issues
Fundamentals of International Management:
This section of the chapter introduces students to the definition and concept of international
management and globalization. Statistical data is presented to further illustrate U.S.
investment in foreign countries. This type of statistical information is necessary for managers
to have a thorough understanding of the contemporary fundamentals of management.
Managers must also become aware of the risks and challenges associated with the quest for
profitability and growth in different countries.
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International management is the performance of management activities across
national borders. It involves a firm’s reaching of organizational objectives by
extending management activities to include an emphasis on organizations in foreign
countries.
The trend toward international management and globalization is now widely
recognized.
The primary question in determining whether or not to grow a business
internationally is not whether to globalize but how and how quickly to do so and then
how to measure progress globally over time.
International management takes on several different forms
o The text provides examples of international management at Domino’s Pizza and
JP Morgan Chase
Figure 4.1 illustrates the trend that already exists in the U.S. and other countries
toward developing business relationships in and with foreign countries from 2000 to
2010.
o The figure clearly illustrates U.S. investment in foreign countries and
investment by foreign countries in the U.S. has grown since 2000
o The figure further shows these investments on both sides continue to grow at
a significant pace
Figure 4.2 shows that in 2010, U.S. foreign investments were focused primarily in
Canada and Europe.
Figure 4.3 shows that European countries were by far the most significant foreign
investors in the U.S. in 2010.
Categorizing Organizations by Level of International Involvement:
This section of the chapter introduces students to the various types of foreign investment
organizations are involved in in the international arena.
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Figure 4.4 illustrates the various categories along a continuum of international
involvement, with domestic organizations representing the least and transnational
organizations representing the most international involvement.
Domestic Organizations
o Organizations that essentially operate within a single country
o Normally acquire their necessary resources within a single country and sell
their products or services within that same country
o May occasionally make an international sale or acquire a needed resource
from a foreign supplier, but the overwhelming majority of their sales come
from within the country where they are based
o Most are quite small in size, though that doesn’t prohibit them from the trend
of increasing their involvement in the international arena
International Organizations
o Organizations that are primarily based within a single country but have
ongoing international transactions in other countries
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o Are more extensively involved in the international arena than domestic
organizations but are less involved than either multinational or transnational
organizations
Multinational Organizations: The Multinational Corporation
o MNCs represent the third level of international involvement
o The next section of the text discusses in detail MNCs and their role in the
international arena
Multinational Corporations:
This section of the chapter provides a definition of multinational corporations, complexities
involved in managing a MNC, risk associated with MNC operations, diversity of the
multinational workforce, and how the major management functions relate to managing a
MNC.
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A MNC is a company that has significant operations in more than one country
Is essentially an organization involved in doing business at the international level
The MNC’s activities are carried out on an international scale with disregard for
national boundaries while guided by a common strategy from a corporate center
MNCs go through six stages to reach the highest degree of multinationalization.
Table 4.1 in the text provides an illustration of this continuum.
o In general, the larger the organization, the greater the likelihood the
organization participates in international operations of some sort
o The text provides examples of companies large and small that have prospered in
the global marketplace.
Complexities of Managing the Multinational Corporation
o Classic management thought has shown international management differs
from domestic management because of the differences in operating the two
firms:
 Within different national sovereignties
 Under widely disparate economic conditions
 Among people living within different value systems and institutions
 In places experiencing the industrial revolution at different times
 Often over great geographical distance
 In national markets varying greatly in population and area
o Figure 4.5 shows some of the more important management implications of each
of these six variables and the relationships among them
o Risk and the Multinational Corporation
 Developing a MNC requires a substantial investment in foreign
operations
 Managers who make foreign investments expect these investments to
do the following:
 Reduce or eliminate high transportation costs
 Allow participation in the rapid expansion of a market abroad
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 Provide foreign technical, design, and marketing skills
 Earn higher profits
Not all managers and their companies understand the risks involved in
international management
 Parent company – the company investing in international
operations
 Host country – the country in which the investment is made
 Political complications involving the parent company and
various factions within the host country could prevent the
parent company from realizing the desirable outcomes from
international management
The ability to achieve desirable outcomes related to international
management and foreign investments is usually uncertain and varies
from country to country – these risks must be assessed as accurately
as possible
An unwise decision to invest in another country can cause serious
financial problems for an organization
The Workforce of Multinational Corporations:
This section of the chapter offers insight into the challenges organizations face as they become
more global and their employees become more diverse. This section provides input to help
managers build these diverse teams by offering details and insights into the various types of
organization members generally found in MNCs and the adjustments these members normally
must make to become efficient and effective contributors to attaining their organization’s
goals and how managers can facilitate these adjustments.
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Managers of MNCs face a continual challenge of forming a competitive business team
made up of people of different races and nationalities who speak different languages
and come from different and varying geographic locations around the world.
Types of Organization Members Found in Multinational Corporations
o Workers in MNCs are typically divided into three basic types
 Expatriate – an organization member who lives in a country where he
or she does not have citizenship
 Host-Country National – an organization member who is a citizen of
the country in which the facility of a foreign-based organization is
located
 Third-Country National – an organization member who is a citizen of
one country and works in another country for an organization
headquartered in still another country
o Global organizations typically employ all three types of workers, though the
host-country national category is increasingly used due to their lower costs
since they are already located within the individual country. Expatriates and
third-country nationals typically require relocation and preparation training.
o Workforce Adjustments
The two most difficult challenges are related to expatriates and thirdcountry nationals as they adjust to a new culture and repatriation
o Adjusting to a New Culture
 Commonly individuals arriving in a foreign country experience
confusion, anxiety, and stress as they need to make cultural
adjustments in their organizational and personal lives
 Food, weather, language are different, driving may be on a different
side of the road
 Organizational differences include differing attitudes toward work and
different perceptions of time in the workplace
 Managers absolutely need to help individual employees adjust quickly
and effortlessly so they can begin contributing to organizational goal
attainment as soon as possible
o Repatriation
 The process of bringing individuals who have been working abroad
back to their home countries and repatriating them into the
organization’s home-country operations
 Involves its own set of adjustment problems as advantages of their
overseas lifestyle are no longer a part of their lives upon returning
home
 Additionally we see individual employees who have idolized
their home countries while they were abroad become
disappointed upon returning home only to find the country
unable to live up to their fantasies upon that return
 Habits learned abroad are also difficult to forego upon their
return
 The issues associated with repatriation require managers to be patient
and understanding with them – organizations have provided
counseling to better handle readjustment challenges – others have
provided the individual employees with a written agreement
specifying what their new duties and career paths will be upon their
return to help reduce friction and facilitate the repatriate’s
readjustment
 Advantages of having individuals take these “go abroad” appointments
are well known and increasing in number.
 The individuals who have gone abroad and succeeded become
highly valuable to their organizations
 A challenge has become retaining them after they complete the
assignments
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Management Functions and Multinational Corporations
This section provides an overview of the planning, organizing, influencing, and controlling
managerial functions as they occur in MNCs.
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Planning in Multinational Corporations
o To review, planning involves determining how an organization will achieve its
objectives – in this chapter planning is applicable to the management of both
domestic and multinational organizations, but with some differences
o Primary difference between planning in domestic versus international firms
is in the plans’ components as the international plans focus on the
international arena in the following areas:
 Establishing a new salesforce in a foreign country
 Developing new manufacturing plants in other countries through
purchase or construction
 Financing international expansion
 Determining which countries represent the most suitable candidates
for international expansion
o Imports/Exports
 Importing involves buying goods or services from another country
 Exporting involves selling goods or services to another country
 Planning in this area involves determining whether reaching
organizational objectives involves importing and exporting
o License Agreements
 License agreements involve a right granted by one company to another
to use its brand name, technology, product specifications, etc. in the
manufacture or sale of goods and services
 The company with the license pays a fee for the privilege
 International planning components in this area involve identifying
how to reach organizational objectives through either the purchase of
or sale of licenses at the international level
 Very essential both parties involved understand the terms of the
license agreement – many have ended up in litigation as a means of
settling disputes regarding specifics of the contents in the license
agreement
o Direct Investing
 Using the assets of one company to purchase the operating assets of
another company
 International planning in this area emphasizes reaching organizational
goals through the purchase of the operating assets of another company
in a foreign country
 We see this in the U.S. as Japanese firms have a rich and continuing
tradition of making direct investments in the U.S.
o Joint Ventures
 International joint ventures involve a partnership formed between a
company in one country and a company in another country for the
purpose of pursuing some mutually desirable business undertaking
 International planning components in this area include joint ventures
emphasizing the attainment of organizational objectives through
partnerships with foreign companies
o Planning and International Market Agreements
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Planning properly for international management requires mangers of
MNCs to understand numerous complex and interrelated factors
present within the organization’s international environment
These areas include the international environment factors such as the
economic and cultural conditions and the laws and political
circumstances in the foreign countries within which their companies
operate
International market agreements are arrangements among a cluster of
countries that facilitate a high level of trade among countries. In their
planning, managers need to consider existing international market
agreements as they relate to countries where their organizations
operate
The book addresses the most notable international market agreements:
 The European Union (EU) –
o Established in 1994
o Dedicated to facilitating trade among member nations
o Nations in the EU have eliminated tariffs among
themselves and have worked toward deregulation in
banking, insurance, telecommunications, and airlines
o The nations have developed standardized accounting
principles
o The nations involved believe they will ultimately see
increased export and investments from member nations
o Figure 4.6 in the text provides a view of the EU member
nations as of 2013
 North American Free Trade Agreement (NAFTA) –
o Established in 1994
o Formed to facilitate trade among member nations,
including Canada, the U.S., and Mexico
o The countries have agreed to phase out tariffs on U.S.
farm exports to Mexico, opening up Mexico to U.S.
trucking, and safeguarding North American
pharmaceutical patents in Mexico
o Data shows a significant impact since NAFTA’s
implementation
 U.S. exports to Mexico have increased 30 percent
 Mexican exports to the U.S. have increased 15
percent
 Trade between the U.S. and Canada has also
exploded
o Countries in the Caribbean and South America have also
applied for membership
 Asian-Pacific Economic Cooperation (APEC)
o Established in 1989
o Intent is to further economic growth and prosperity of
the Asia-Pacific community
o Has worked to reduce tariffs and other trade barriers
across the Asia-Pacific region
o Free and open trade creates greater opportunities for
international trade and prosperity among member
nations
o Includes 21 member nations, including Canada, China,
Indonesia, and the U.S. – Figure 4.7 in the text provides a
visual of the member nations
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Organizing Multinational Corporations
o The process of establishing orderly uses for all resources within an
organization – this definition applies to both domestic and international
organizations
o Two areas where organizing differs between domestic and international
organizations include organizational structure and the selection of managers
 Organizational Structure
 Structure applies to the sum of all established relationships
among resources within an organization – and the organization
chart is the graphic illustration of a firm’s organization
structure
 MNC’s organization charts can be set up according to the major
business FUNCTIONS the organization performs – the major
PRODUCTS the organization sells – the GEOGRAPHIC areas
within which the organization does business
 Figure 4.8 illustrates these three
 There is no one best way to organize a MNC – managers need to
assess the multinational circumstances that confront the
corporation and design its structure based on those
 Selection of Managers
 A key element in choosing the right individual to lead a MNC is
their attitudes toward how such organizations should operate
 Managerial Attitudes Toward Foreign Operations
 Three basic managerial attitudes:
o Ethnocentric
 The belief that MNCs should regard homecountry management practices as superior to
foreign-country management practices
o Polycentric
 The belief that MNC managers are closer to
foreign organizational units, understand those
units better, and should generally be viewed as
more insightful than home-country management
practices
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o Geocentric
 The belief that the overall quality of management
recommendations rather than the location of the
managers should determine the acceptability of
the management practices used to guide MNCs.
 Managers today need to continuously monitor these three
attitudes that exist in their organizations to ensure they match
with and are consistent with the global aspirations of their
organizations
Advantages and Disadvantages of Each Management Attitude
 Ethnocentric Advantages
o Keeping the organization uncomplicated
 Ethnocentric Disadvantages
o Impedes the organization from receiving feedback from
its foreign operations
o May result in resentment toward the home country
within the foreign society
 Polycentric Advantages
o Permits the tailoring of foreign organizational resources
to their cultures
 Polycentric Disadvantages
o Can result in creating organizational segments that are
individually run and distinctive, which then makes them
difficult to control
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Geocentric Advantages
o Thought to be the most appropriate for managers in
MNCs
o Promotes collaboration across all managers
o Encourages development of managerial skills regardless
of the manager’s location
o Better quality products, worldwide utilization of human
resources, increased managerial commitment to
worldwide goals, and increased profit generally
outweigh the disadvantages
Geocentric Disadvantages
o Incurs high travel and training expenses
o Many decisions are made by consensus
Overall, managers with a geocentric attitude contribute more to
the long-term success of a MNC than do managers with an
ethnocentric or polycentric attitude
Influencing People in Multinational Corporations
o The guiding of organizational employees toward the appropriate directions
through communicating, leading, motivating, and managing groups
o Much more complex in MNCs than doing so in a domestic organization
o Culture
 The set of characteristics for a given group of people and their
environment
 Norms, values, customs, beliefs, attitudes, habits, skills, state of
technology, level of education, religion
 Steps towards influencing employees in MNCs include:
 Acquire a working knowledge of the languages used in the
countries that house foreign operations
 Understand the attitudes of people in the countries that house
foreign operations
 Understand the needs that motivate people in the countries
housing foreign operations
o Hofstede’s Ideas for Describing Culture
 Geert Hofstede’s developed one of the most recognized set of
descriptions of values in foreign cultures
 Power Distance
 Degree to which a society promotes an unequal distribution of
power
 Countries which heavily promote power distance have citizens
who tend to emphasize, expect, and accept leadership that is
more autocratic than democratic
 Mexico and France tend to value autocratic leadership
 U.S. tends to value democratic leadership
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Uncertainty Avoidance
 Extent a society feels threatened by uncertain or unpredictable
situations
 Countries with high uncertainty avoidance prefer more defined
and predictable situations
 Greece and Japan tend to tolerate risk and uncertainty less than
the U.S. and Canada
Individualism and Collectivism
 Degree to which people in a society operate primarily as
individuals or operate primarily within groups
 As individuals, tend to focus on meeting their own needs, are
more self-reliant, tend to succeed by competing with others
 As groups, tend to build relationships with others and
downplay individualism
 China and South Korea emphasize collectivism
 U.S., Australia, and Canada emphasize individualism
Masculinity and Femininity
 Extent to which a culture emphasizes traditional masculine or
feminine values
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Masculine values emphasize competitiveness, assertiveness,
success, and wealth
 Feminine values emphasize caring for and nurturing of others
and increasing the quality of life
 Scandinavian countries tend to admire more feminine values
 Japan and the U.S. tend to approve more masculine values
Short-Term and Long-Term Orientation
 Degree to which a culture deemphasizes short-run success in
favor of long-run success
 Long-run success emphasizes planning, educating, rewarding
long-term results and keeping a future-oriented perspective
 Short-run success emphasizes training to complete jobs today,
rewarding short-run results, and maintaining a day-to-day
perspective
 Asian societies are generally focused on long-term success
 Pakistan is a country that values short-term orientation
Hofstede’s model is widely accepted
Managers need to understand cultural values within the countries
within which it conducts business and strive to design and implement
actions consistent with those values
Controlling Multinational Corporations
o Involves making something happen the way it was planned to happen
o Control requires standards be set, performance be monitored and compared
to standards, and corrective actions taken when necessary
o Labor costs, product quality, and inventory is also important to organizational
success regardless of whether the organization is domestic or international
o The text provides an example of Kimberly-Clark Corporations savings of $500
million as the company established a global procurement function to direct all
purchasing for the global company
o Special Difficulties
 Management must determine how to compare profits generated by
organizational units located across geographic boundaries in different
countries and thus expressed in differing currencies
 Management must determine how to address organizational units that
are geographically separated
o Improving Communication
 All company units need to acquire and install computer equipment in
all offices to ensure the availability of network hookups to overcome
communication barriers among all foreign locations
Transnational Organizations
This section defines transnational organizations and provides an example of Nestle as a
transnational organization.
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Transnational organizations are also known as global organizations
Their view is that the entire world is its business arena
National boundaries are inconsequential as the firm’s primary goal is doing business
wherever it makes sense
These firms have transformed from home-based companies with worldwide
interests into worldwide companies pursing business activities across the globe and
claiming no loyalty to any one country
Nestle has grown by acquiring companies rather than by expanding its present
operations – the firm now has 210,000 employees and operates 494 factories in 71
countries worldwide
International Management: Special Issues
This section of the chapter focuses on two special issues associated with MNCs – maintaining
ethical workplaces in international management and preparing expatriates for foreign
assignments.
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Maintaining Ethics in International Management
o Ethical behavior needs to be defined by management operating across
geographic boundaries
o What seems ethical in a manager’s home country might be unethical in a
different country
o Respecting Core Human Rights
 All people deserve an opportunity to achieve economic advancement
and an improved standard of living
 All people deserve to be treated with respect
 Companies need to determine how they will handle child labor,
establish minimum wages, workweek hours, inspection of factories,
etc. worldwide
 Not doing this typically results in forced labor, harassment, abuse, and
discrimination in the workplace
o Respecting Local Traditions
 International managers should hold in high regard the customs of the
foreign countries within which they operate
o Determining Right from Wrong by Examining Context
 Managers need to evaluate the specifics of the international situation
confronting them when determining whether a particular
management activity is ethical
 Implementing ethical management practices across national borders
enhances organizational success
Preparing Expatriates for Foreign Assignments
o U.S. companies are increasing their use of international joint ventures and
strategic alliances – the number of expatriates being sent from the U.S. to
other countries is also rising
o Many companies prepare their expatriates via special training programs
o Training includes the following core elements:
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Culture profiles
 Training about the new culture in which they will be working
Cultural adaptation
 Training on how to survive the difficulties of adjusting to a new
culture
Logistical information
 Training on basic information, such as personal safety, whom to
call in an emergency, how to write a check, etc.
Application
 Training on the specific organizational roles they will play in
their new role
o 4-1 – Discuss three similarities and three differences of international versus
transnational organizations.
International organizations are organizations that are based primarily within a
single country but have continuing, meaningful international transactions –
such as making sales and purchases of materials – in other countries.
Transnationals take the entire world as their business arena. Doing business
wherever it makes sense is primary; national borders are considered
inconsequential. The transnational organization transcends any single home
country, with ownership, control, and management being from many different
countries. MNCs have transformed themselves from home-based companies
with worldwide interests into worldwide companies pursuing business activities
across the globe and claiming no singular loyalty to any one country.
Differences pertain to their level of involvement. Transnational organizations
represent the fourth, and maximum, level of international activity as depicted
on the continuum of international involvement. International organizations are
more extensively involved in the international arena than are domestic
organizations, but less so than transnational organizations.
Learning Objective: LO4.2: Insights on how to categorize organizations by level
of international involvement
o 4-2 – List and define three types of organization members found in
multinational organizations.
Organization members in multinational organizations can be divided into three
basic types:
o Expatriates who live and work in a country where they do not
have citizenship
o Host-Country Nationals who are citizens of the country in which
the facility of a foreign-based organization is located
o Third-Country Nationals who are citizens of one country and who
work in another country for an organization headquartered in
still another country
Discuss the contribution that each type can bring to creating the success of
the organization.
Student responses will vary regarding contributions but may include the
following:
o They furnish details and related insights about the various types
of organization members generally found in multinational
corporations
o They describe the adjustments members of multinational
organizations normally must make in order to become efficient
and effective contributors to organization goal attainment
o They suggest how managers can facilitate these adjustments
The use of Host Country Nationals is increasing because they are normally the
least expensive to employ. Such employees, for example, do not need to be
relocated or undergo training in the culture, language, or tax laws of the
country where the organization is doing business. Both expatriates and thirdcountry nationals, on the other hand, would have to be relocated.
Learning Objective: LO4.3: Insights about what constitutes a multinational
corporation
o 4-3 – What knowledge must a manager have to successfully influence
organization members of multinational corporations?
To influence organizational members of different countries, a manager should:
(a) Acquire a working knowledge of the language used in countries which house
foreign operations. This reduces the chance of mistakes relating to poor or
improper translation.
(b) Understand the attitudes of people in countries that house foreign
operations. Such an approach allows managers to design business practices
that are appropriate for unique foreign operations.
(c) Understand the needs that motivate people in countries housing foreign
operations. Managers must provide reward systems to the people and
provide them with the opportunity to satisfy their personal needs while
accomplishing the organizational goals.
Would it be easy for a manager to acquire such knowledge? Why?
Student responses may vary; however, it may not be easy to acquire such
knowledge, such as a working knowledge of the language used in countries
which house foreign operations.
How should the manager acquire the knowledge?
Understanding the attitudes and needs that motivate people in countries in
foreign operations can more easily be learned through training programs, etc.
Learning Objective: LO4.5: Knowledge about how management functions relate
to managing multinational corporations
o 4-4 – Is the preparation of expatriates more important than their
repatriation? Explain fully.
Both are equally important. Many expatriates may experience confusion,
anxiety, and stress related to the need to make cultural adjustments in their
organizational and personal lives. From a personal viewpoint, food, weather,
and language may all be dramatically different.
Upon repatriation, many expatriates find equal difficulty. Some organizations
provide repatriates with counseling so that they will be better prepared to
handle readjustment problems. Others have found that providing employees,
before they leave for foreign duty, with a written agreement specifying what
their new duties and career path will be when they return home reduces friction
and facilitates the repatriate’s adjustment.
Learning Objective: LO4.4: Information about those who work in multinational
corporations