1. How globalization is defined? How it has impacted developed, developing, transition and emerging markets? 
2. How regional trade agreements helping and impacting globalization? How regional trade agreements help a country’s economy? 
3. Why corporate social responsibility is a significant concept in international business. How it impacts consumer confidence? 
4. What are different kind of cultures and how they impact businesses? Why cultural differences demand different management styles?
5. What are the components of Hofstede model? What themes are shared in Hofstede, Global National Culture and 7d Cultures model?
6. How these models help corporations to effectively run their businesses globally? Why attending to them is important for effective management?   

These are the questions from   Digital and Global Enterprise subject

• Digital and Global Enterprises

Digital and Global Enterprises

Chapter
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

2
Culture and
Multinational Management

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Learning Objectives (1 of 2)

Define culture and understand the basic components of culture.
Identify instances of cultural stereotyping and ethnocentrism.
Understand how various levels of culture influence multinational operations.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Learning Objectives (2 of 2)
Apply the Hofstede, GLOBE, and 7d models to diagnose and understand the impact of cultural differences on management processes.
Appreciate the complex differences among cultures and use these differences to build better organizations.
Recognize the complexity of understanding new cultures and the dangers of stereotyping and cultural paradoxes.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

What is Culture? (1 of 2)

Pervasive and shared beliefs, norms, values, and symbols that guide the everyday life of a group.
Cultural norms: both prescribe and proscribe behaviors
What we can and cannot do.
Cultural values: what is good, what is beautiful, what is holy, and what are legitimate goals for life.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

What is Culture? (2 of 2)
Cultural beliefs: represent our understandings about what is true.
Cultural symbols, stories, and rituals: communicate the norms, values, and beliefs of a society or a group to its members.
Culture is pervasive in society: affects all aspects of life.
Culture is shared: similarity in values, beliefs, norms.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Levels of Culture (1 of 2)
National culture: the dominant culture within the political boundaries of the nation-state.
There may be subcultures within the national culture.
Business culture: norms, values, and beliefs that pertain to all aspects of doing business in a culture.
Tells people the correct, acceptable ways to conduct business in a society.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Levels of Culture (2 of 2)
3. Occupational and organizational culture
Occupational culture: the norms, values, beliefs, and expected ways of behaving for people in the same occupational group, regardless of employer.
Organizational culture: the set of important understandings (often unstated) that members of an organization share.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.1:
Three Levels of Culture

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Cultural Differences and
Basic Values
Three diagnostic models to aid the multinational manager:
Hofstede model of national culture
Global Leadership and Organizational Behavior Effectiveness (GLOBE) project
7d culture model

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Hofstede’s Model of
National Culture
A model mainly based on differences in values and beliefs regarding work goals
Five dimensions of basic cultural values:
Power distance
Uncertainty avoidance
Individualism
Masculinity
Long-term orientation

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Hofstede’s Model Applied to Organizations and Management
(1 of 2)
Five management practices considered in the discussion of Hofstede’s model include:
Human resources management
Management selection
Training
Evaluation and promotion
Remuneration

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Hofstede’s Model Applied to Organizations and Management
(2 of 2)
Leadership styles
How leaders behave
Motivational assumptions
Beliefs about how people respond to work
Decision making and organizational design
How managers make decisions and organize
Strategy
Effects of culture on selecting strategies

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.2:
Subject Matter Considered in Hofstede’s National Culture Studies
Subject Matter Individual Group Country
Change management X
Leadership X X X
HRM X X
Entrepreneurship X X
Conflict management X X X
Work-related attitudes X X
Alliance formation and joint venture X X

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Power Distance (1 of 2)
Power distance concerns how cultures deal with inequality and focuses on:
Norms that tell superiors (e.g., bosses) how much they can determine the behavior of their subordinates
The belief that superiors and subordinates are fundamentally different kinds of people

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Power Distance (2 of 2)
High power distance countries have norms, values, and beliefs such as:
Inequality is fundamentally good.
Everyone has a place: some are high, some are low.
Most people should be dependent on a leader.
The powerful are entitled to privileges.
The powerful should not hide their power.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.3:
Managerial Implications:
Power Distance
Sources: Adapted from Hofstede, Geert. 1980 Culture’s Consequences: International Differences in Work-Related Values. London: Sage; Hofstede, Geert. 1991. Cultures and Organizations: Software of the Mind. London: McGraw-Hill; Hofstede, Geert. 1993. “Cultural Dimensions in people management.” In Vladimir Pucik, Noel M. Tichy, and Carole K. Barnette, Globalizing Management. Hoboken, NJ: Wiley, 129-158.
Management Processes Low Power Distance High Power Distance
Human resources management
Management selection Educational achievement Social class; elite education
Training For autonomy For conformity/obedience
Evaluations/promotion Performance Compliance; trustworthiness
Leadership styles Participative; less direct supervision Theory X; authoritarian; close supervision
Motivational assumptions People like work; extrinsic and intrinsic rewards Assume people dislike work; coercion
Decision making/organizational design Decentralized; flat pyramids; small proportion of supervisors Tall pyramids; large proportion of supervisors
Strategy issues Varied Crafted to support the power elite or government

*

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Uncertainty Avoidance
Uncertainty Avoidance: Norms, values, and beliefs regarding tolerance for ambiguity:
Conflict should be avoided.
Deviant people and ideas should not be tolerated.
Laws are very important and should be followed.
Experts and authorities are usually correct.
Consensus is important.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.4:
Managerial Implications:
Uncertainty Avoidance
Sources: Adapted from Hofstede, Geert. 1980 Culture’s Consequences: International Differences in Work-Related Values. London: Sage; Hofstede, Geert. 1991. Cultures and Organizations: Software of the Mind. London: McGraw-Hill; Hofstede, Geert. 1993. “Cultural Dimensions in people management.” In Vladimir Pucik, Noel M. Tichy, and Carole K. Barnette, Globalizing Management. Hoboken, NJ: Wiley, 129-158.
Management Processes High Uncertainty Avoidance Low Uncertainty Avoidance
Human resources management
Management selection Seniority; expected loyalty Past job performance; education
Training Specialized Training to adapt
Evaluation/promotion Seniority; expertise; loyalty Objective individual performance data; job switching for promotions
Remuneration Based on seniority or expertise Based on performance
Leadership styles Task-oriented Nondirective; person-oriented; flexible
Motivational assumptions People seek security, avoid competition People are self-motivated, competitive
Decision making/organizational design Larger organization; tall hierarchy; formalized; many standardized procedures Smaller organizations; flat hierarchy; less formalized, fewer standardized procedures
Strategy issues Averse to risk Risk taking

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Individualism/Collectivism (1 of 2)
Individualism: Focus is on the relationship between the individual and the group.
Countries high on individualism have norms, values, and beliefs such as:
People are responsible for themselves.
Individual achievement is ideal.
People need not be emotionally dependent on organizations or groups.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Individualism/Collectivism (1 of 2)
Collectivism: Collectivist countries have norms, values, and beliefs such as:
One’s identity is based on group membership.
Group decision making is best.
Groups protect individuals in exchange for their loyalty to the group.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.5:
Managerial Implications:
Individualism/Collectivism
Sources: Adapted from Hofstede, Geert. 1980 Culture’s Consequences: International Differences in Work-Related Values. London: Sage; Hofstede, Geert. 1991. Cultures and Organizations: Software of the Mind. London: McGraw-Hill; Hofstede, Geert. 1993. “Cultural Dimensions in people management.” In Vladimir Pucik, Noel M. Tichy, and Carole K. Barnette, Globalizing Management. Hoboken, NJ: Wiley, 129-158.
Management Processes Low Individualism High Individualism
Human resources management
Management selection Group membership; school or university Universalistic based on individual traits
Training Focus on company-based skills General skills for individual achievement
Evaluation/promotion Slow, with group; seniority Based on individual performance
Remuneration Based on group membership/organizational paternalism Extrinsic rewards based on market value
Leadership styles Appeals to duty and commitment Individual rewards/punishments based on performance
Motivational assumptions Moral involvement Calculative; individual cost/benefit
Decision making/organizational design Group; slow; preference for larger organizations Individual responsibility; preference for smaller organizations
Strategy issues Incremental changes with periodic revolutions Aggressive

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Masculinity
Masculinity: Tendency of a culture to support traditional masculine orientation.
High masculinity countries have beliefs such as:
Gender roles should be clearly distinguished.
Men are assertive and dominant.
Machismo or exaggerated maleness in men is good.
People – especially men – should be decisive.
Work takes priority over other duties, such as family.
Advancement, success, and money are important.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Long-Term Orientation (1 of 3)
Long-Term (Confucian) Orientation: Orientation towards time that values patience.
Managers are selected based on the fit of their personal and educational characteristics.
A prospective employee’s particular skills have less importance in the hiring decision.
Training and socialization for a long-term commitment to the organization compensate for any initial weaknesses in work-related skills.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Long-Term Orientation (2 of 3)

Eastern cultures rank highest on long-term orientation.
Value synthesis in organizational decisions rather than search for correct answer.
Designed to manage internal social relationships.
Investment in long-term employment skills.
Focus on long-term individual and company goals.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Long-Term Orientation (3 of 3)
Short-Term Orientation: focus is on immediately usable skills
Western cultures, which tend to have short-term orientations, value logical analysis in their approach to organizational decisions.
Designed and managed purposefully to respond to immediate pressures from the environment.
Want immediate financial returns.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Restraint versus Indulgence
A sixth dimension of cultural values that refers to the degree to which societies enjoy life based on control or gratification of basic human desires
Indulgent societies tend to favor free satisfaction of human needs related to “enjoying life and having fun.
Restraint societies are much more restrictive and places strict norms on gratification of needs.
Multinational managers can shape work environments to take advantage of such preferences.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

GLOBE National Culture Framework
GLOBE (Global Leadership and Organizational Behavior Studies) involves 170 researchers who collected data from 17,000 managers in 62 countries
7 of 9 dimensions of GLOBE are similar to Hofstede
GLOBE’s 2 Unique dimensions:
Performance orientation
Humane orientation

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Performance Orientation
Performance Orientation refers to the degree to which the society encourages societal members to innovate, to improve their performance, and to strive for excellence.
E.g., the United States and Singapore have high scores while Russia and Greece have low scores on the dimension.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Humane Orientation
Humane Orientation is an indication of the extent to which individuals are expected to be fair, altruistic, caring, and generous.
Need for belongingness and affiliation is emphasized more than material possessions, self-fulfillment, and pleasure.
Less humane-oriented societies are more likely to value self-interest and self-gratification.
Malaysia and Egypt have high humane orientation scores, while France and Germany have low scores.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

7d Cultural Dimensions Model
(1 of 3)
Builds on traditional anthropological approaches to understanding culture.
Culture exists because people need to solve basic problems of survival.
Challenges include:
How people relate to others
How people relate to time
How people relate to their environment

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

7d Cultural Dimensions Model
(2 of 3)
5 of the 7 dimensions of this model deal with relationships among people:
Universalism vs. Particularism
Collectivism vs. Individualism
Neutral vs. Affective
Diffuse vs. Specific
Achievement vs. Ascription

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

7d Cultural Dimensions Model
(3 of 3)

The 2 remaining dimensions deal with how a culture manages time and how it deals with nature:
Time: Past, Present, Future, or Mixture
Nature: Control of vs. Accommodation with Nature

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Universalism vs. Particularism
These concepts pertain to how people treat each other:
Universalism:
Based on abstract principles such as rules of law, religion, or cultural principles.
Particularism:
Rules are only a rough guide. Each judgment represents a unique situation, which must take into account who the person is, and his relationship to the one making the judgment.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.14:
Managerial Implications: Universalism/Particularism

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Individualism vs. Collectivism
Similar distinctions to Hofstede’s view
Collectivist societies:
Focus on relationships.
“Deals” are flexible, based on situation and person.
Contracts are easy to modify.
Individualist societies:
Focus on rules.
“Deals” are obligations.
Contracts are difficult to break.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.15:
Managerial Implications:
Individualism/Collectivism

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Neutral vs. Affective
Concerns the acceptability of expressing emotions.
Neutral:
Interactions should be objective and detached.
Focus is more on tasks rather than emotional nature of interaction.
Affective:
Emotions are appropriate in almost all situations.
Preferred to find immediate outlet for emotions.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Specific vs. Diffuse
Addresses the extent to which an individual’s life is involved in work relationships
Specific:
Business is segregated from other parts of life
Contracts often prescribe and delineate relationships
Diffuse:
Business relationships encompassing and inclusive
Prefer to involve multiple life areas simultaneously.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Achievement vs. Ascription
Addresses the manner in which society accords status
Achievement:
People earn status based on performance and accomplishments
Ascription:
Characteristics or associations define status
E.g., status based on schools or universities

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Time Orientation
Time Horizon: How cultures deal with the past, present and future
Future-oriented societies, such as the U.S., consider organizational change as necessary and beneficial.
Believe a static organization is a dying organization.
Past-oriented societies assume that life is predetermined based on traditions or will of God.
Revere stability and are suspicious of change.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 2.19:
Managerial Implications:
Time Horizon

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Internal vs. External Control
Concerned with beliefs regarding control of one’s fate
Best reflected with how people interact with the environment
Does nature dominate us or do we dominate nature?
In societies where people dominate nature, managers are more proactive and believe situations can be changed.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Caveats and Cautions (1 of 2)
Cultural paradoxes: when individual situations seem to contradict cultural prescriptions
Stereotyping: assumes that all people within one culture behave, believe, feel, and act the same.
Ethnocentrism: people from one culture believe that theirs are the only correct norms, values, and beliefs.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Caveats and Cautions (2 of 2)
Cultural relativism: all cultures, no matter how different, are correct and moral for the people of those cultures.
Cultural Intelligence: ability to interact effectively in multiple cultures, composed of three components
A mental component
A motivational component
A behavior component

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Summary
There are an immense variety of cultures in the world.
This chapter provides one approach to understanding national cultures.
Goal is to make one aware of complex and subtle influences of culture on multinational management.
Astute managers realize that understanding cultures is a never-ending learning process.

Chapter
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

1
Multinational Management
In a Changing World

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Learning Objectives
Define multinational management.
Understand the characteristics of a multinational company.
Understand the nature of the global economy and the key forces that drive globalization.
Know the basic classification of the world’s economies.
Identify the characteristics of the next generation of multinational managers.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Definition of
Multinational Management

The formulation of strategies and management systems to take advantage of international opportunities and respond to international threats

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Nature of the Multinational Company

A multinational company is any company that engages in business functions beyond its domestic borders.
Such companies may be large or small.
Most multinational companies (MNCs) are multinational corporations.
The largest MNCs are all public corporations.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 1.1:
Largest Companies in the World
Source: Adapted from Fortune 2015. “Fortune Global 500.”
Rank Company Industry Headquarters Country Revenues
(US$ mil)
1 Wal-Mart Stores Retailing U.S.A 476,294
2 Royal Dutch Shell Petroleum The Netherlands 459,999
3 Sinopec Group Petroleum China 457,201
4 China National Petroleum Petroleum China 432,007
5 Exxon Mobil Petroleum U.S.A. 407,666
6 BP Petroleum U.K. 396,217
7 State Grid Power Supply China 333,386
8 Volkswagon Automotive Germany 261,539
9 Toyota Motor Automotive Japan 256,454
10 Glencore International Manufacturing Switzerland 232,694

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 1.2:
Newcomers to Global 500 List

Name of Company

Country of Origin

2014 Global 500 Rank

Achmea

Netherlands

395

Agricultural Development Bank of China

China

491

Alimentation Couche-Tard

Canada

329

Antarchile

Chile

488

Bohail Steel Group

China

327

China Energy

China

349

China Development Bank

China

122

China Energy Engineering

China

465

China General Technology

China

469

Duke Energy

US

485

Enbridge

Canada

377

Energy Transfer Equity

US

213

Fuji Heavy Industries

Japan

494

Hanwha

South Korea

331

Itau Inobanco Holding

Brazil

138

Lotte Shopping

South Korea

464

Louis Dreyfus Commodities

Netherlands

150

Pacific Construction Group

China

166

Perusahaan Listrik Negara

Indonesia

477

Plains GP Holding

US

257

Qualcomm

US

480

Rolls-Royce

UK

489

Russian Grids

Russia

498

Samsung C&T

South Korea

460

Talanx

Germany

302

Unipol

Italy

439

VTB Bank

Russia

443

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Globalizing Economy: A Changing (but Not Always Stable) Environment for Business (1 of 4)

Globalization: the world’s economies are becoming borderless and interlinked.
Companies are no longer limited by their domestic boundaries, and may conduct any kind of business activity anywhere in the world.
Globalization creates a changing, but not uniform, and not always stable, environment for business.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Globalizing Economy: A Changing (but Not Always Stable) Environment for Business (2 of 4)
Negatives of globalization
Not all economies benefit or participate equally.
Terrorism, wars, and economic stagnation have limited or reversed some aspects of globalization.
Globalization produces a scarcity of natural resources, pollution, negative social impacts, and increased interdependence of economies.
Globalization may be widening the gap between rich and poor countries.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Globalizing Economy: A Changing (but Not Always Stable) Environment for Business (3 of 4)
Benefits of globalization
Globalization results in lower prices in many countries, as multinationals become more efficient.
Globalization benefits many emerging markets such as India and China, as these countries enjoy greater availability of jobs and better access to technology.
Globalization is the main reason why many new companies from Mexico, Brazil, China, India, and South Korea are the new dominant competitors.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Globalizing Economy: A Changing (but Not Always Stable) Environment for Business (3 of 4)
7 key trends of the globalizing economy
Falling, disintegrating borders
Growing cross-border trade and investment
The rise of global products and global customers
The internet and information technology (IT)
Privatizations of formerly government-owned firms
New competitors in the world market
Increased global quality and production standards

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Countries of the World:
The Arrived and the Arriving (1 of 4)

Developed Countries (the Arrived) have mature economies with substantial per capita Gross Domestic Product (GDP), international trade and investments.
E.g., the United States of America, Britain, Japan, Germany, and many others

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Countries of the World:
The Arrived and the Arriving (2 of 4)

Developing Countries (the Arriving) have economies that have grown extensively over past two decades.
E.g., Hong Kong, Singapore, Taiwan, Malaysia, Indonesia, Thailand.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Countries of the World:
The Arrived and the Arriving (3 of 4)

Transition economies are countries that have changed from mostly communist systems to market/capitalistic systems.
E.g., the Czech Republic, Hungary, Poland, Russia

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Countries of the World:
The Arrived and the Arriving (4 of 4)

Emerging Markets are those countries whose economies are growing rapidly.
E.g., Brazil, Russia, India, & China (BRIC)

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 1.3:
Selected Economies of the World
Developed Economies Developing Economies Transition Economies
Australia
Austria
Belgium
Britain
Canada
Denmark
France
Germany
Italy
Ireland
Japan
The Netherlands
Spain
Sweden
Switzerland
United States Hong Kong
Singapore
Taiwan
Malaysia
Indonesia
Thailand
Czech Republic
Hungary
Poland
Russia

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 1.4:
Age Breakdown of Selected Economies

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 1.5:
The Globalizing Economy

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Disintegrating Borders: The World Trade Organization and Free Trade Areas
In 1947, nations met to reduce tariffs from 45% to less than 7%; these negotiations resulted in the General Agreement on Tariffs and Trade (GATT).
In 1986, negotiations began in Uruguay to continue reducing tariffs. The World Trade Organization (WTO) succeeded GATT.
WTO provides structure for continued negotiations and settling trade disputes among nations.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

World Trade Organization
In 1997, WTO countries agreed to end tariffs on software, computers and related products; hi-tech exports to Europe from Asia and the US doubled.
Since GATT, world trade has grown at more than four times the output of the world’s GDP.
Some say WTO favors developed nations, encourages environmental damage, and moves jobs from higher-save countries to lower-wage countries.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Regional Trade Agreements
(1 of 2)
Regional Trade Agreements are agreements among nations to reduce tariffs and develop similar technical and economic standards.
The three largest account for half the world’s trade:
the European Union (EU)
the North American Free Trade Association (NAFTA), and
the Asia-Pacific Economic Cooperation (APEC)

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Regional Trade Agreements
(2 of 2)
The European Union (28 European nations, and growing) allows free movement of goods and services and a common currency (EMU).
The North American Free Trade Agreement (NAFTA) linking the US, Canada, and Mexico, allows the freer exchange of goods and services.
The Asia-Pacific-Economic Cooperation (12 Asian nations) with goals for free trade by 2020.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Sell Anywhere, Locate Anywhere: Trade Growing, but Setbacks (1 of 2)
World trade grew an average of 6.5% per year between 1990 and 2000, slowed to 4% in 2004, grew again to 6% in 2005 and to 8.5% in 2006.
WTO reports the global economy is suffering from a very severe slowdown.
EU countries are suffering the worst debt crisis they have ever faced.
Change in imports & exports higher for developing and emerging economies than for developed economies.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Sell Anywhere, Locate Anywhere: Trade Growing, but Setbacks (1 of 2)
The latest WTO report suggests a few trends:
Emerging markets continue to grow dramatically.
Developing nations have played a more important role in international production networks known as Global Value Chains (GVC).
Commodities such as energy and minerals have doubled between 2003 and 2008.
The world has never been more connected.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Sell Anywhere, Locate Anywhere: Foreign Direct Investment (FDI)
(1 of 2)
Foreign Direct Investment (FDI) occurs when a multinational company from one country has an ownership position in an organizational unit located in another country.
FDI increased by more than 36% from 1996 – 2000.
Since 2001, there has been a decline in FDI, but FDI grew to its highest level in 2007.
Emerging markets will continue to attract FDI.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Sell Anywhere, Locate Anywhere: Foreign Direct Investment (FDI)
(1 of 2)
Developing countries provide opportunities and risks.
MNCs should consider two types of risk:
Economic risk: includes all factors of a nation’s economic climate that may affect a foreign investor.
Political risk: anything a government might do or not do that might adversely affect a company.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Internet and Information Technology Are Making It All Easier (1 of 3)
Email and the internet allow multinationals to communicate with company sites throughout the world.
Text and graphic information can flow to any part of the world almost instantaneously.
Headquarters, R&D, manufacturing can be located anywhere in the world.
Information technology is spurring a borderless financial market.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Internet and Information Technology Are Making It All Easier (2 of 3)
Information technologies make available many new tools that facilitate business operations:
Worldwide communication using Voice-Over-Internet Protocol (VOIP) systems such as Skype, MSN Messenger and AOL is cost-effective.
Collaborative networks can be provided by WIKI firms at very low cost.
Information can be obtained by increasingly sophisticated search engines like Google.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Internet and Information Technology Are Making It All Easier (3 of 3)
Information technology presents multinationals with many new opportunities.
Developments in computing technology mean that the manufacturing sector will no longer see hammers, lathes, drills, and stamping presses.
One of the most significant recent technologies is the 3D printer.
The potential for the 3D printer to revolutionize multinational operations is tremendous.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Rise of Global Products and Global Customers
The needs of customers for many products and services are growing more similar
E.g., McDonald’s, Boeing, Toyota.
Global customers search the world for their supplies without regard for national boundaries.
These factors link economies because companies can produce one product for everyone, and anyone can buy anything from anywhere.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

New Competitors Are Emerging (1 of 2)
Two new forms of competitors are having dramatic influences on global business.
First, experts now recognize the existence of powerful emerging market competitors.
Secondly, companies worldwide will increasingly have to contend with formidable state competitors.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

New Competitors Are Emerging (2 of 2)
Emerging market multinationals: Global companies born in emerging markets
These multinationals often have the tenacity to succeed at business challenges that developed world multinationals have avoided.
State multinationals: Multinationals from emerging markets that can rely on state support.
These enterprises have often been very successful while relying on state support.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Rise of Global Standards (1 of 2)
When a product standard is accepted globally or regionally, companies can make one or only a few versions of a product for the world market rather than hundreds.
Products are developed to accommodate different regional standards, such as electrical currents & plugs.
The company that can establish its standard as dominant has a tremendous strategic advantage.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Rise of Global Standards (2 of 2)
The drive for consistency in quality led to the International organization for standardization (ISO) in Geneva, Switzerland.
ISO developed technical standards known as ISO 9001:2000, adopted by law in Europe.
Many large European MNCs now require ISO certification.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Corporate Social Responsibility and Business Ethics (1 of 2)

Despite their size and clout, MNCs face increased pressure to be socially responsible from both the media and the public.
Mindful of rankings on ethics, proactive MNCs pay close attention to these issues, and take appropriate action.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Corporate Social Responsibility and Business Ethics (2 of 2)
Some MNCs are becoming more proactive in responding to social and ethical issues that arise from their overseas operations.
Some issues are:
Climate change
Environmental degradation and pollution
Sweatshop conditions for labor
Bribery

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Exhibit 1.7:
Ranking the World’s
Most Ethical Companies
Source: Adapted from Ethisphere Institute, 2015. World’s Most Ethical Companies; http://www.ethisphere.com
Industry Company Nationality
Apparel H&M Sweden
Automotive Cummins, Inc. U.S.A
Banking National Australia Bank Australia
Business Services Dun & Bradstreet U.S.A
Computer Software Symantec Corporation U.S.A
Consumer Products Henkel AG Germany
Energy: Electric Iberdrola, S.A. Spain
Energy: Water Northumbrian Water Group U.K.
Food & Beverages Kellogg U.S.A.
Health & Beauty L’Oreal France
IT Services Ricoh Company, LTD Japan
Industrial Manufacturing 3M Company U.S.A.
Oil & Gas DCC, Plc. Ireland
Retail Marks & Spencer U.K.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Next Generation of Multinational Managers (1 of 3)
The successful Multinational Manager needs these characteristics:
A global mindset
Emotional intelligence
A long-range perspective
The talent to motivate all employees to achieve excellence

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Next Generation of Multinational Managers (2 of 3)
Characteristics of the successful Multinational Manager (continued):
Accomplished negotiation skills
A willingness to seek overseas assignments
An understanding of national cultures

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

The Next Generation of Multinational Managers (3 of 3)
Research suggests that you need three forms of capital to become a successful international leader.
Intellectual capital: willingness to learn and build you knowledge base regarding cultural differences and how to adapt to such differences.
Psychological capital: Ability to be receptive to new ideas and experiences.
Social capital: Ability to develop networks of individuals who are different from you.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Multinational Management:
A Strategic Approach (1 of 2)
You may well find yourself a multinational manager; foreign competition and doing business in foreign markets are daily facts of life for today’s managers.
Competing successfully requires a strategic approach; formulate and implement your strategy.
Multinational strategies must include maneuvers that deal with operating in more than one country and culture.
Position yourself for an evolving global economy.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Multinational Management:
A Strategic Approach (2 of 2)
In formulating your strategy, consider the trends that will shape the future business environment:
Blurring of industry boundaries
The need for flexibility more than size
The need to find your niche
Hypercompetition
Emphasis on innovation and the learning organization

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Summary and Conclusions
Chapter 1 provides key background information to support study of multinational management.
World economies are increasingly linked, creating both threats and opportunities.
New competitors are coming from developing nations in Asia, the Americas, and Eastern Europe.
Multinational managers need a global mindset, and strategies for succeeding in different nations and cultures.

*

Name of Company Country of
Origin

2014 Global
500 Rank

Achmea Netherlands 395
Agricultural Development Bank of China China 491
Alimentation Couche-Tard Canada 329
Antarchile Chile 488
Bohail Steel Group China 327
China Energy China 349
China Development Bank China 122
China Energy Engineering China 465
China General Technology China 469
Duke Energy US 485
Enbridge Canada 377
Energy Transfer Equity US 213
Fuji Heavy Industries Japan 494
Hanwha South Korea 331
Itau Inobanco Holding Brazil 138
Lotte Shopping South Korea 464
Louis Dreyfus Commodities Netherlands 150
Pacific Construction Group China 166
Perusahaan Listrik Negara Indonesia 477
Plains GP Holding US 257
Qualcomm US 480
Rolls-Royce UK 489
Russian Grids Russia 498
Samsung C&T South Korea 460
Talanx Germany 302
Unipol Italy 439
VTB Bank Russia 443

Name of Company
Country of
Origin
2014 Global
500 Rank
Achmea Netherlands 395
Agricultural Development Bank of China China 491
Alimentation Couche-Tard Canada 329
Antarchile Chile 488
Bohail Steel Group China 327
China Energy China 349
China Development Bank China 122
China Energy Engineering China 465
China General Technology China 469
Duke Energy US 485
Enbridge Canada 377
Energy Transfer Equity US 213
Fuji Heavy Industries Japan 494
Hanwha South Korea 331
Itau Inobanco Holding Brazil 138
Lotte Shopping South Korea 464
Louis Dreyfus Commodities Netherlands 150
Pacific Construction Group China 166
Perusahaan Listrik Negara Indonesia 477
Plains GP Holding US 257
Qualcomm US 480
Rolls-Royce UK 489
Russian Grids Russia 498
Samsung C&T South Korea 460
Talanx Germany 302
Unipol Italy 439
VTB Bank Russia 443