International
Management
Chapter 06
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
LO1 Describe how the world economy is becoming
more integrated than ever before
LO2 Discuss what integration of the global economy
means for individuals companies and their
managers
LO3 Define the strategies organizations use to compete
in the global marketplace
LO4 Compare the various entry modes organizations
use to enter overseas markets
6-2
Learning Objectives (cont.)
LO5 Explain how companies can approach the
task of staffing overseas operations
LO6 Summarize the skills and knowledge
managers need to manage globally.
LO7 Identify ways in which cultural differences
across countries influence management
6-3
The Global Environment
 The global economy is
dominated by countries
in three regions: North
America, Western
Europe, and Asia.
 Other developing
countries and regions
represent important
areas for economic
growth
6-4
The Global Economy
Figure 6.1
6-5
European Unification
 Europe is integrating  Certain structural
economically to
issues within Europe
form the biggest
need to be
market in the world
corrected for the EU
to function
effectively.
6-6
U.S. Trading Partners
Based on Total Imports and Exports
Figure 6.2
6-7
Question
What economic pact that combined the
economies of the United States, Canada, and
Mexico?
A. HAFTA
B. NAFTA
C. EU
D. South American FTA
6-8
The Americas
 North American Free Trade Agreement
(NAFTA)
 An economic pact that combined the economies
of the United States, Canada, and Mexico into one
of the world’s largest trading bloc
6-9
Consequences of a Global Economy
1. Expansion of international trade
2. Foreign direct investment (FDI) is playing an
ever-increasing role in the global economy
3. Imports are penetrating deeper into the
world’s largest economies
4. Companies are finding their home markets
under attack from foreign competitors
6-10
Growing Proportion of
Goods Being Exported
Figure 6.3
6-11
Consequences of a Global Economy
 Opportunities are greater
 Environment is more complex and
competitive
6-12
Relative Growth in
World Merchandise Trade
Figure 6.4
6-13
The Role of Outsourcing
 Outsourcing
 Contracting with an
outside provider to
produce one or more of
an organization’s goods
or services.
 Offshoring
 Moving work to other
countries.
6-14
Factors to Consider for Offshoring
 What is the competitive advantage of the
products they offer?
 Is the business in its early stages?
 Can production savings be achieved locally?
 Can the entire supply chain be improved?
6-15
Organizational Models
Figure 6.5
6-16
Choosing a Global Strategy
 International model
 composed of a company’s overseas subsidiaries
and characterized by greater control by the parent
company over the research function and local
product and marketing strategies than in the
multinational model.
6-17
Choosing a Global Strategy
 Multinational model
 consists of the subsidiaries in each country in
which a company does business, with ultimate
control exercised by the parent company.
6-18
Choosing a Global Strategy
 Global model
 consisting of a company’s overseas subsidiaries
and characterized by centralized decision making
and tight control by the parent company over
most aspects of worldwide operations
6-19
Choosing a Global Strategy
 Transnational model
 characterized by centralizing certain functions in
locations that best achieve cost economies
 basing other functions in the company’s national
subsidiaries to facilitate greater local
responsiveness
 fostering communication among subsidiaries to
permit transfer of technological expertise and
skills.
6-20
Comparison of Entry Modes
Table 6.2
6-21
Entry Mode
Advantages of exporting:
 Provides scale economies by avoiding the
costs of manufacturing in other countries
 Consistent with a pure global strategy
6-22
Entry Mode
 International licensing
 an arrangement by which a licensee in another
country buys the rights to manufacture a
company’s product in its own country for a
negotiated fee (typically, royalty payments on the
number of units sold)
6-23
Entry Mode
 Franchising
 the company sells limited rights to use its brand
name to franchisees in return for a lump-sum
payment and a share of the franchisee’s profits.
6-24
Entry Mode
Joint ventures benefit a company through:
 the local partner’s knowledge of the host
country’s competitive conditions, culture,
language, political systems, and business
systems
 the sharing of development costs and/or risks
with the local partner.
6-25
Managing across Borders
 Expatriates
 Parent-company
nationals who are
sent to work at a
foreign subsidiary
6-26
Managing across Borders
 Host-country nationals
 Natives of the country
where an overseas
subsidiary is located
 Third-country
nationals
 Natives of a country
other than the home
country or the host
country of an overseas
subsidiary.
6-27
Skills of the Global Manager
 15% of all employee transfers are to
international locations
 Failure rate ranges from 20%-70%
 Failure rate
 the number of expatriate managers of an overseas
operation who come home early
 Communication is key to reducing the failure rate
6-28
Identifying International Executives
Table 6.4
6-29
How to Prevent Failed Global Assignments
Table 6.5
6-30
Understanding Cultural Issues
 Ethnocentrism
 The tendency to judge
others by the standards
of one’s group or
culture, which are seen
as superior
 Culture shock
 The disorientation and
stress associated with
being in a foreign
environment.
6-31
Understanding Cultural Issues
 Power distance
 the extent to which a
society accepts the fact
that power in
organizations is
distributed unequally
 Individualism/collectivism
 the extent to which people
act on their own or as a part
of a group.
6-32
Understanding Cultural Issues
 Uncertainty avoidance
 Masculinity/femininity
 the extent to which
people in a society feel
threatened by uncertain
and ambiguous
situations.
 the extent to which a
society values quantity
of life over quality of life
6-33
Positions of 40 Countries on the Power
Distance and Individualism Scales
Figure 6.6
6-34
Question
What is a foreign national brought in to work at
the parent company?
A. Expatriate
B. Non-patriate
C. Inpatriate
D. Unpatriate
6-35
Understanding Cultural Issues
 Inpatriate
 A foreign national
brought in to work at
the parent company.
6-36
Understanding Cultural Issues
 Americans tend to have
specific views about
the purpose of
meetings and how
much time can be
spent.
 International workers
may have different
preconceptions about
the nature and length
of meetings, and
managers should make
sure foreign nationals
are comfortable with
the American
approach.
6-37
Understanding Cultural Issues
 Workers from other
 Europeans in particular
countries can work long
may balk at working on
hours but, in countries
weekends.
with strong labor
organizations, often get
many more weeks of
vacation than American
workers.
6-38
Ethical Issues in International Management
 Research suggests that regardless of nationality or
religion, most people embrace a set of five core
values: compassion, fairness, honesty, responsibility,
and respect for others.
 These values lie at the heart of human rights issues
and seem to transcend more superficial differences
among Americans, Europeans, and Asians
6-39
Destination CEO: Papa John’s
 Discuss Papa John’s
international growth
strategy, and why it is
important to its future.
 What, in your opinion,
will be the next “big
thing” in the pizza
industry; and why?
6-40
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