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Bottom line:
o Easiness of doing business varies widely across countries
o Costs of doing business in a country have to be balanced
against the gains from doing business there
Topic 3: Management Practices
Not only the environment external to the firm varies a lot, what
happens inside the firms (management practices) also varies
widely across countries and within countries
Measuring management practices:
Interview-based evaluation tool that defines and scores 18 basic
management practices from one (worst practice) to five (best
practice)
Three broadly defined areas:
o Monitoring: how well do companies track what goes on
inside their firms and use this for continuous improvement?
o Target setting: do companies set the right targets, track
the right outcomes and take appropriate actions if the two
dont align?
o Incentives: are companies promoting and rewarding
employees based on performance and systematically
trying to hire and keep their best people
Management practices also vary significantly across different
types of firms
o Multinational firms, exporters, ownership structure
o Multinationals:
Better managed everywhere
Largely able to transport their better practices
abroad
o Exporters
Better practices than non-exporters, but not than
multinationals
o Ownership type
Family owned and managed, government owned:
bad practices
Dispersed shareholders: good practices
Why management practices vary across countries?
o 1. Product market competition
managers asked how many competitors they faced
strong correlation between answer MNG score
o How?
1. Selection: badly run firms have shorter life in more
competitive markets
2. Incentives: firms have greater incentive to improve
practices in more competitive markets
o 2. Labor market regulation
tougher labor market regulation lower MNG score
on incentives
but labor market regulation does not relate to
different MNG score on monitoring and targets
o 3. Ownership types vary a lot across countries
o 4. Education
educational levels vary across countries
and educational levels matter for management
performance
o 5. Information
could it be that managers just dont know whether
they are adopting the best practices or not?
Internationalization of the firm
o When firms move part of their production process to
another country, they need to realize that they will have to
adapt to a new environment
On the labor market, the will have to compete with
local firms to attract talented employees
On the product market, competition for their goods
might be different than in the domestic market
o Adopting and maintaining good management practices
seems critical for productivity and profitability, but is far
from trivial
And is much more difficult in some places than
others
But exporters and multinationals do relatively well
even in difficult places
Slide 8?