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publishing as Prentice Hall

CHAPTER 5
Managing in the Global Arena
CHAPTER OUTLINE
I.

CHALLENGE CASE: WAL-MART FACING MAJOR PROBLEMS IN JAPAN

A.

II.

MANAGING ACROSS THE GLOBE: WHY?

A.

III.

The population overseas is large and growing fast, thus the need to deal with the
challenges of global markets.

FUNDAMENTALS OF INTERNATIONAL MANAGEMENT

A.
B.
C.

IV.

Wal-Mart, the worlds number one retailer, is facing problems the Japanese
marketplace.

International management is performing management activities across national

borders.
International management may take any of several different forms and can vary from
simply analyzing and fighting foreign competition to establishing a formal
partnership with a foreign company.
The notable trend that already exists in the United States and other countries toward
developing business relationships in and with foreign countries is expected to
accelerate even more in the future.

CATEGORIZING ORGANIZATIONS BY INTERNATIONAL INVOLVEMENT

A.
B.
C.
D.

Figure 5.4 suggests a continuum of involvement, with domestic organizations

demonstrating the least international involvement and transnational organizations
the highest involvement.
Domestic Organizations
1. Domestic Organizations essentially operate within a single country.
International Organization
1. International Organizations are primarily based within a single country but have
significant transactions, sales or purchases of materials in other countries.
Multinational Organizations: The Multinational Corporation
1. Multinational Organizations, or MNC's, represent the third level of international
involvement.
2. Defining the Multinational Corporation
a.
A multinational corporation (MNC) is a company that has significant
operations in more than one country
b.
Neil H. Jacoby asserts that companies go through six stages to reach the
highest degree of multinationalism.
3. Complexities of Managing the Multinational Corporation
a.
International management differs from domestic management because it
involves operating:
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i.
ii.
iii.

prohibit

the
V.

Within different national sovereignties.

Under widely disparate economic conditions.
Among people living within different value systems and
institutions.
iv. In places experiencing the industrial revolution at different times.
v.
Over greater geographical distance.
vi. In national markets varying greatly in population and area.
4. Risk and the Multinational Corporation
a.
Managers who make foreign investment feel that such investments:
i.
Reduce or eliminate high transportation costs.
ii. Allow participation in the rapid expansion of a market abroad.
iii. Provide foreign technical, design, and marketing skills.
iv. Earn higher profits.
b.
Political complications involving the parent company (the company
investing in the international operations) and various factions within the
host country (the country in which the investment is made) could
desirable outcomes from materializing
c.
The likelihood of desirable outcomes related to foreign investments
probably will always be somewhat uncertain and will vary from country to
country.
5. The Workforce of Multinational Corporations
a.
Types of Organization Members Found in Multinational Corporations
i.
Expatriates: members who live and work in a country where they do
not have citizenship.
ii. Host-Country Nationals: members who are citizens of the country in
which the facility of the foreign-based organization is located.
iii. Third-Country Nationals: members who are citizens of one country
who work in another country for an organization headquartered in
yet another country.
b.
Workforce Adjustments
i.
Adjusting to a New Culture
a.
Food, weather, and language may be different. People may
have to drive on the "wrong" side of the road.
ii.
Repatriation
a.
Repatriation is the process of bringing home individuals
that have worked abroad and integrating them into
home-country's operations.

MANAGEMENT FUNCTIONS AND THE MULTINATIONAL CORPORATIONS

A.

Planning in Multinational Corporations

1. Perhaps the primary difference in planning in multinational versus domestic
organizations involves the plans components.
2. Organizational strategy for the multinational organization must include
provisions that focus on the international arena, while strategy for the domestic
organization does not.
3. Multinational organization plans:
a.
establishing a new salesforce in a foreign country
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b.

etc., in

B.

MNCs

C.

develop new manufacturing plants in other countries through purchase or

construction
c.
financing international expansion
d.
determine which countries represent the most suitable candidates for
international expansion
4. Components of International Plans:
a.
Plans vary by company, but four common components are:
i.
Imports/Exports
Importing is buying goods or services from another country.
Exporting is selling goods or services to another country.
ii.
License Agreements
A license agreement is a right granted by one company to another
to use its brand name, technology, product specifications,
the manufacture or sale of goods and services.
iii.
Direct Investing
Direct investing is using the assets of one company to purchase the
operating assets of another company.
iv.
Joint Ventures
A joint venture is a partnership formed by a company in one
country with a company in another country for the purpose of
pursuing some mutually desirable business undertaking.
5. Planning and International Market Agreements
a.
Managers should understand numerous complex and interrelated factors in
their market environment.
b.
International market agreements are agreements to facilitate trade among a
cluster of nations, such as the European Union (EU), the North American
Free Trade Agreement (NAFTA), and the Asian Pacific Economic
Cooperation (APEC).
Organizing Multinational Corporations
1. Organization Structure
a.
Internationally-oriented organizations establish their structure based on the
concepts mentioned in Chapter Eleven.
2. Selection of Managers
a.
Three basic management attitudes toward the operation of MNCs include:
i.
An ETHNOCENTRIC attitude reflecting the belief that
should regard home country management practices as superior to
foreign country management practices.
ii. The POLYCENTRIC attitude reflecting a belief that because foreign
managers are closer to foreign organizational units, they probably
understand them better; therefore, foreign management practices
generally should be viewed as more insightful than home country
management practices.
iii. The GEOCENTRIC attitude reflects a belief that the overall quality
of management recommendations, rather than the location of
managers, should determine the acceptability of
management
practices used to guide MNCs.
b.
The geocentric attitude is viewed to be best for managers in MNCs.
Influencing People in Multinational Corporations
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D.

E.

VI.

1. Influencing people within a MNC is more complex and challenging than with a
domestic organization.
2. To successfully influence people, MNC managers should:
a.
Acquire a working knowledge of the languages used in countries that
house foreign operations.
b.
Understand the attitudes of people in countries that house foreign
operations.
c.
Understand the needs that motivate people in countries housing foreign
operations.
3. Hofstede identified five dimensions of national culture variations:
a.
power distance (society uphold unequal distribution of power)
b.
uncertainty avoidance (society feel threatened by uncertainties)
c.
individualism and collectivism (society operate individually or group)
d.
masculinity and femininity (traditional masculine or feminine values)
e.
short-term and long-term orientation (short-run success to long-run)
Controlling Multinational Corporations
1. As with domestic corporations, control in MNCs requires that standards be set,
performance be measured and compared to standards, and corrective action be
taken if necessary.
2. Control of an MNC, however, has additional complexities:
a.
Special Difficulties - Different currencies.
b.
Improve Communications - Organizational units with MNCs are generally
more geographically separated thus requiring careful design of the
communication network or information system that links them.
Transnational Organizations
1. Transnational organizations, also known as global organizations, take the entire
world as their marketplace.

INTERNATIONAL MANAGEMENT: SPECIAL ISSUES

A.
B.

Maintaining Ethics in International Management

1. Managers can strive to respect human rights, respect local traditions, and
determine right from wrong by examining the context.
Preparing Expatriates for Foreign Assignments
1. The expatriate needs to learn much about and undertake planning for working in
the new environment.
2. Managers need to be proactive in undertaking actions which will assure that the
expatriate is prepared.
3. Training programs contain core elements:
a.
culture profiles ( expats learn new culture)
b.
culture adaptation (expats learn how to survive adjustment)
c.
logistical information (expats learn basic info such as personal safety)
d.
application (expats learn specific organizational roles they will perform)

Essay Questions
1. Globalization is an inevitable trend in present day business scenario. In this context
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discuss what globalization is, whether it is an option for business firms, and the various
forms in which globalization take place.
(a)
(b)
(c)

Globalization/international management entails reaching organizational objectives by

extending management activities to include an emphasis on organizations in foreign
countries.
A trend towards increased globalization is now widely recognized. The primary
question for most firms is not whether to globalize but how and how quickly to do so.
Globalization can take several forms, from simply analyzing and fighting competition in
foreign markets to establishing a formal partnership with a foreign company.

2. Compare and contrast between domestic and international organizations.

Domestic organizations are organizations that essentially operate within a single country. They
normally acquire necessary resources within a single country but also sell their goods and services
within that same country. International organizations are based within a single country but have
continuing meaningful international transactions, such as sales and purchases in other countries.
3. What is a multinational corporation? Highlight the implications of a multinational
corporations core function of exporting products to foreign countries.
A multinational corporation (MNC) is a company that has significant operations in more than one
country. It is an organization involved in doing business at the international level. It disregards
national boundaries and is guided by a common strategy from a corporation center.
An MNC exports its products to foreign countries. Different national sovereignties generate
different legal systems. In turn, each legal system implies a unique set of rights and obligations
involving property, taxation, anti-trust law, corporate law, and contract law. In turn, these rights
and obligations require the firm to acquire necessary skills to assess international legal
considerations.
4. Why does a manager of a MNC make foreign investments? Mention the potential risks and
measures that may be taken to mitigate them.
Managers make foreign investments to:
(a) Reduce/eliminate high transportation cost.
(b) Allow participation in the rapid expansion of a market abroad.
(c) Provide foreign technical design and marketing skills.
(d) Earn higher profits.
Risks faced include political complications involving the parent company and various factions
within the host country which may prevent the parent company from realizing the desired
outcomes.
Managers attempt to minimize this kind of risk by adding standard clauses to their contracts
stipulating that in the event a business controversy cannot be resolved by parties involved they
will agree to mediation by a mutually selected mediator.

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5. It is required of managers doing business with different countries to design actions

consistent with the cultural values of those countries. Explain the variances in cultural
values as described by Hofstede.
(a)
(b)
(c)
(d)
(e)

Power distance
Uncertainty avoidance
Individualism and collectivism
Masculinityfemininity
Short-termlong-term orientation

6. Discuss the importance of respecting core human rights in maintaining ethical practices in
international management situations.
All people deserve an opportunity to achieve economic advancement and an improved standard of
living. All people have the right to be treated with respect. Companies have guidelines on
minimum wage comparable to existing individual country standards; cracking down on child
labor; establishing a maximum of sixty hours in the work week with at least one day off; and
elimination of forced labor, harassment, abuse and discrimination in the workplace.