Mgt Answers

7/28/2019 Mgt Answers

1/68

MANAGEMENT

Question 1.

What is the IM? What are the differences between classical managerial functions and

managerial functions of IM? What are the specific skills of managers running MNC?

International business environment - how does it influence performing managers? Explain

MNC, MNE, CFO, CEO, TCN.

Multinational management is the formulation of strategies and the design of management systems that

successfully take advantage of international opportunities and respond to international threats.

Mgt functions:

Planning. deciding in advance the most appropriate course of actions for achievement of pre-

determined goals / It bridges the gap from where we are & where we want to be

Organizing. process of bringing together physical, financial and human resources and developing

productive relationship amongst them for achievement of organizational goals

Staffing. Staffing the organization structure through proper and effective selection, appraisal &

development of personnel to fill the roles designed for the structure

Directing. sets it in motion the action of people because planning, organizing and staffing are

the mere preparations for doing the work.

o It deals directly with influencing, guiding, supervising, motivating sub-ordinate for theachievement of organizational goals.

o Direction has following elements: Supervision Motivation Leadership Communication

Control. process of checking whether or not proper progress is being made towards the

objectives and goals and acting if necessary, to correct any deviation

Skills of multinational manager:

Global mindset. Think globally act locally

Ability to work with people from diversebackground

Emotional intelligence. Manage emotions

Long-term vision

Manage change

Motivate-able

Negotiator

Willingness to travel

Foreign cultures aware


2/68

IB environment

MNC, TNC, MNE multinational corporation is the publicly owned company that engages in business

functions beyond its domestic borders.

A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with

one national home. Whilst traditional MNCs are national companies with foreign subsidiaries,[8]

TNCs

spread out their operations in many countries sustaining high levels of local responsiveness.

[9]

Anexample of a TNC is Nestl who employ senior executives from many countries and try to make

decisions from a global perspective rather than from one centralised headquarters
http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Drucker-7http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Drucker-7http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Drucker-7http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Case_study:_The_Relationship_between_the_Structure.2FStrategy_of_Multinational_Corporations_and_Patterns_of_Knowledge_Sharing_within_them-8http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Case_study:_The_Relationship_between_the_Structure.2FStrategy_of_Multinational_Corporations_and_Patterns_of_Knowledge_Sharing_within_them-8http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Case_study:_The_Relationship_between_the_Structure.2FStrategy_of_Multinational_Corporations_and_Patterns_of_Knowledge_Sharing_within_them-8http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Case_study:_The_Relationship_between_the_Structure.2FStrategy_of_Multinational_Corporations_and_Patterns_of_Knowledge_Sharing_within_them-8http://en.wikipedia.org/wiki/Multinational_corporation#cite_note-Drucker-7


3/68

CFO -corporate officerprimarily responsible for managing thefinancialrisksof the business or agency.

This officer is also responsible for financial planning and record-keeping, as well as financial reporting to

higher management.

CEO -administratorin charge of totalmanagement.

Third Country National (TCN) describes individuals of other nationalities hired by a government or

government sanctioned contractor who represent neither the contracting government nor the host

country or area of operations

Question 2.

Globalization of economy. Factors supporting globalization. Anti- globalization factors. The

competitiveness of nations and which is the role of MNC in increasing it. The tools for

measuring the economic performance and competitiveness. M. Porter Diamond.
http://en.wikipedia.org/wiki/Corporate_officerhttp://en.wikipedia.org/wiki/Corporate_officerhttp://en.wikipedia.org/wiki/Corporate_officerhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Administration_%28business%29http://en.wikipedia.org/wiki/Administration_%28business%29http://en.wikipedia.org/wiki/Administration_%28business%29http://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Administration_%28business%29http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Corporate_officer


4/68

Positive: increases economic prosperity as well as opportunity, especially among developing

nations, enhances civil liberties and leads to a more efficient allocation of resources

Promotion of free trade

Reduced transportation costs

Reduction or elimination of capital controls Emergence of worldwide production markets, financial markets,

Increase in information flows between geographically remote locations

Competition

Growth of cross-cultural contacts

Institutional

Negatives:

Poorer countries suffering disadvantages

Exploitation of foreign impoverished workers

The shift to outsourcing. (bad for developed)


5/68

Question 3.

Multinational management performed in the environment of global trading blocs- NAFTA,

ASEAN, MERCOSUR, SADC. How to operate in protectionist environment.

FREE trade - trade that largely works in the mutual benefit of both parties. Free trade enables the free

movement of goods and services without imposed tariffs on goods. This is especially advantageous to

countries in the global south who tend to find themselves 'priced out' of goods and services from the

developed, wealthy global north.

Environmentalists note that free trade encourages large multinationals to move environmentally

damaging production to poorer and often environmentally sensitive countries. Labor unions see

migration of jobs from higher wage countries to lower wage ones.

Multinationals not only trade across borders with exports and imports but also

build global networks that link R&D, supply, production and sales units across the

globe. Thus, cross-border ownership or FDI has been increasing significantly from

the 90s.

Regional trade agreements are agreements among group of countries to reduce tariffs and develop

similar technical and economic standards. These usually lead to more trade.

The three largest groups account for nearly half of the worlds trade (EU, NAFTA, APEC).

EU an economic and political union or confederation[10][11]of 27 member states which are located

primarily in Europe.

The EU traces its origins from the European Coal and Steel Community (ECSC) and the European

Economic Community (EEC), formed by six countries in 1958. In the intervening years the EU has grown

in size by the accession of new member statesand in power by the addition of policy areas to its remit.The Maastricht Treaty established the European Union under its current name in 1993.[13]The latest

amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009.
http://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Unionhttp://en.wikipedia.org/wiki/Confederation#European_Unionhttp://en.wikipedia.org/wiki/Confederation#European_Unionhttp://en.wikipedia.org/wiki/European_Union#cite_note-12http://en.wikipedia.org/wiki/European_Union#cite_note-12http://en.wikipedia.org/wiki/Member_state_of_the_European_Unionhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/European_Coal_and_Steel_Communityhttp://en.wikipedia.org/wiki/European_Economic_Communityhttp://en.wikipedia.org/wiki/European_Economic_Communityhttp://en.wikipedia.org/wiki/Inner_Sixhttp://en.wikipedia.org/wiki/Enlargement_of_the_European_Unionhttp://en.wikipedia.org/wiki/Maastricht_Treatyhttp://en.wikipedia.org/wiki/European_Union#cite_note-EU1993-14http://en.wikipedia.org/wiki/European_Union#cite_note-EU1993-14http://en.wikipedia.org/wiki/European_Union#cite_note-EU1993-14http://en.wikipedia.org/wiki/Treaty_of_Lisbonhttp://en.wikipedia.org/wiki/Treaty_of_Lisbonhttp://en.wikipedia.org/wiki/European_Union#cite_note-EU1993-14http://en.wikipedia.org/wiki/Maastricht_Treatyhttp://en.wikipedia.org/wiki/Enlargement_of_the_European_Unionhttp://en.wikipedia.org/wiki/Inner_Sixhttp://en.wikipedia.org/wiki/European_Economic_Communityhttp://en.wikipedia.org/wiki/European_Economic_Communityhttp://en.wikipedia.org/wiki/European_Coal_and_Steel_Communityhttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Member_state_of_the_European_Unionhttp://en.wikipedia.org/wiki/European_Union#cite_note-12http://en.wikipedia.org/wiki/Confederation#European_Unionhttp://en.wikipedia.org/wiki/Confederation#European_Unionhttp://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Union


6/68

With a combined population of over 500 million inhabitants,[22]or 7.3% of the world population,[23]the

EU generated a nominal GDP of 16,242 billion US dollars in 2010, which represents an estimated 20% of

the global GDP when measured in terms ofpurchasing power parity

Activities of EU: elimination of customs duties, quantative restrictions for export and import;

establishment of common customs tariff and commercial policy; abolition of all obstacles for movement

of persons, services and capital; application of programmes in order to coordinate the economic policies

1. NAFTA:

1988: beginning of negotiations between US and Canada.

1991: negotiations were formalized. August 1992: Mexico decided to join the bloc. January 1st, 1994: official date of the launch of the bloc. Total elimination of customs tariffs

15 years

In terms of combined purchasing power parity GDP of its members, as of 2007 the trade block is thelargest in the world and second largest by nominal GDP comparison.

Benefits: - development of all economies, specially the Mexican one,- easier to compete withthe Japanese economy and the EU Bloc.

Population - 2008 estimate 445,335,091 (3rd) GDP(PPP) 2008 (IMF) estimate - Total $17,153 trillion (n/a) - Per capita $35,491 (n/a)

GDP(nominal) 2008 (IMF) estimate - Total $16,792 trillion (n/a) - Per capita $35,564 (18th)2. Association of Southeast Asian Nations (ASEAN) : is a geo-political and economic

organization of 10 countries located in Southeast Asia. Nominal GDP had grown to USD$1.4 trillion in 2008

1967: ASEAN established in Bangkok.- 8% of the world's population;- 4.5 million square kilometers;- 2003: combined GDP of about US$700 billionthis GDP was growing at an

average rate of 4% p.a.

Major products: electronic goods, oil and wood. Southern African DevelopmentCommunity (SADC) July 1992: Declaration and Treaty replacement of SADCC for theSADC.Main exports: energy, petroleum, natural gas, coal, electricity.

Objectives of ASEAN: to encourage inflow of FDI in the region; to establish free trade areain the member countries; to reduce tariff of the products produced in ASEN countries

Population - 2007 estimate 575.5 millionGDP(PPP) 2007 estimate - Total US$ 3,431.2 billion - Per capita US$ 5,962

GDP(nominal) 2008 estimate - Total US$ 1,486.5 billion - Per capita $2,5833. SADC - The Southern African Development Community (SADC) is an inter-governmental

organization headquartered in Gaborone, Botswana. Its goal is to further socio-economic

cooperation and integration as well as political and security cooperation among 15 southern African

states. It complements the role of the African Union.

April 1980: Lusaka Declaration and creation of the Southern African DevelopmentCoordination Conference (SADCC).

July 1992: Declaration and Treaty replacement of SADCC for the Southern AfricanDevelopment Community (SADC).

Working languages: English, French and Portuguese. Population 2003: 219.5 millions inhabitants Main exports: energy, petroleum, natural gas, coal,electricity.4. Southern Common Market (MERCOSUR)is a Regional Trade Agreement (RTA) among

Argentina, Brazil, Paraguay and Uruguay founded in 1991.

Some implications of the Agreement: Free movement of goods, services, and factors of production elimination of customs

duties and non-tariff restrictions on the movement of goods;
http://en.wikipedia.org/wiki/European_Union#cite_note-population-23http://en.wikipedia.org/wiki/European_Union#cite_note-population-23http://en.wikipedia.org/wiki/European_Union#cite_note-population-23http://en.wikipedia.org/wiki/European_Union#cite_note-24http://en.wikipedia.org/wiki/European_Union#cite_note-24http://en.wikipedia.org/wiki/European_Union#cite_note-24http://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Trade_bloc#Most_active_regional_blocshttp://en.wikipedia.org/wiki/Populationhttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29http://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capitahttp://en.wikipedia.org/wiki/Geo-politicalhttp://en.wikipedia.org/wiki/Countrieshttp://en.wikipedia.org/wiki/Southeast_Asiahttp://en.wikipedia.org/wiki/Populationhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Inter-governmental_organizationhttp://en.wikipedia.org/wiki/Inter-governmental_organizationhttp://en.wikipedia.org/wiki/Gaboronehttp://en.wikipedia.org/wiki/Botswanahttp://en.wikipedia.org/wiki/African_Unionhttp://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Paraguayhttp://en.wikipedia.org/wiki/Uruguayhttp://en.wikipedia.org/wiki/1991http://en.wikipedia.org/wiki/1991http://en.wikipedia.org/wiki/Uruguayhttp://en.wikipedia.org/wiki/Paraguayhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/African_Unionhttp://en.wikipedia.org/wiki/Botswanahttp://en.wikipedia.org/wiki/Gaboronehttp://en.wikipedia.org/wiki/Inter-governmental_organizationhttp://en.wikipedia.org/wiki/Inter-governmental_organizationhttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Populationhttp://en.wikipedia.org/wiki/Southeast_Asiahttp://en.wikipedia.org/wiki/Countrieshttp://en.wikipedia.org/wiki/Geo-politicalhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capitahttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29http://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/Populationhttp://en.wikipedia.org/wiki/Trade_bloc#Most_active_regional_blocshttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/European_Union#cite_note-24http://en.wikipedia.org/wiki/European_Union#cite_note-population-23


7/68

Establishment of a Common External Tariff (CET); Commitment among member States to harmonize their legislation on the relevant

matters in order to strengthen the integration process.The founding of the Mercosur Parliament was agreed at the December 2004 presidential summit. It

should have 18 representatives from each country by 2010Mercosur does not have quantitative restrictions between its members, with the exception of theautomotive sector.

Population - 2006 estimate 266.616.849 (4th1

)GDP(PPP) estimate - Total U$ 2.895 trillion (5th1) - Per capita U$ 10.858 (70th1)6.APEC

Members:Australia; Brunei; Canada; Chile; China; Hong Kong; Indonesia; Japan; South Korea; Malaew Zealand; Papua New Guinea; Peru; Philippines; Russia; Singapore; Taiwan; Thailand; United Stat

The Asia-Pacific Economic Cooperation forum is a loose grouping of the countries bordering the Pacifichave pledged to facilitate free trade.Its 21 members range account for 45% of world trade.They have pledged to liberalises trade among themselves by 2010 for developed countries and 2015 for decountries.Recently China has begun signing bilateral free trade deals with a number of Apec members.

Question 4.

The biggest environmental challenges and possibilities for starting business for global

competitors. Clean energy goals and its impact on the MNC

environmental issues are intertwined with social/ cultural and socioeconomic issues

Major environmental issues climate changeglobal warming (Greenhouse effect) thawing of icebergs, precipitation change, droughts and floods, sealevel increase ozone layer acid rain eutrophicationbiodiversity erosion demographic growth world health problemspoverty and starvation drinking water agriculture global waste

Globalization is often accused to have been largely responsible for the increasing of worldpollution levels in the last decades. Actually, it appears that the net effect on world pollutionmeasures, deriving from the opening of any individual country to world commerce, isdetermined by the configuration of three basic factors within the country itself, which are:

Environmental policies implemented by its government; Comparative advantages; Income

Government can alter allowed pollution levels according to a balance between advantages and

side damage deriving from polluting production processes
http://en.wikipedia.org/wiki/Mercosur_Parliamenthttp://en.wikipedia.org/wiki/Populationhttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capitahttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29http://en.wikipedia.org/wiki/Purchasing_power_parityhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_populationhttp://en.wikipedia.org/wiki/Populationhttp://en.wikipedia.org/wiki/Mercosur_Parliament


8/68

These three giant companies are: Thames Water of England -Owned by the German conglomerate RWE, It is the worlds

third largest water company providing service to 70 million people worldwide Vivendi - Vivendi Environment: operates in about 100 countries through 3,371 companies

with a 110 million customer base.Suez - Suez Lyonnaise: the worlds largest water and wastewater business operating in about 130

countries; serving 125 million individuals, 25 million of which are in Asia Pacific

Globalisation of agriculture: Agriculture makes up large portions of the economies of most developing

nations. Farming has a direct impact on the environment. The agricultural policies of every state have

some impact on the global agricultural market.

The two huge tasks facing governments are:(1.)determining how to clean up legacy problems, restore natural resources, and achieve human

health protection;(2.) designing strategies to allow for future growth, while protecting the environment,

maintaining biodiversity, safeguarding human health, and preserving cultural/ social values.The challenges faced by governments become even more complex when transboundary-multinational issues come into play, which is the case for issues ranging from global warmingand invasive species, to marine transportation-oil spill accidents. At the center of major globalenvironmental challenges for industry are energy strategies, energy projects, other naturalresource exploitation, and designing manufacturing life cycles to minimize future impacts. Themineral resource industries (mining and oil and gas) have generally embraced the concepts ofsustainable development and preservation biodiversity, but putting sustainability and biodiversityconcepts into play is a work-inprogress for most companies.

United States would contribute a non-negotiable amount of $129bn to the expansion of renewableenergy programmes. This is a new approach after Bushs legacy of reluctance in the arena of energy

saving projects. Similarly, in January this year, the EU set renewable energy goals for the next 12 years:

to decrease carbon emissions by 20%.

Reinventing the fire. Amory Lovins. Rocky Mountain Institute

http://www.ted.com/talks/lang/en/amory_lovins_a_50_year_plan_for_energy.html:

Four main sectors that use energy: Transportation, Buildings, Industry and Elictricity.

Integrate technology, policy, design and business strategy. These four using together can yield synergy

and create disruptive business opportunities.

For example, oil costs to US economy 1/6 of the GDP.

Two thirds of energy that goes to move a typical car is caused by its weight. One saved weight unit

accounts for seven saved fuel units.

Today ultra-light, ultra-strong materials like carbon fiber composites can make dramatic weight savings.
http://www.ted.com/talks/lang/en/amory_lovins_a_50_year_plan_for_energy.htmlhttp://www.ted.com/talks/lang/en/amory_lovins_a_50_year_plan_for_energy.htmlhttp://www.ted.com/talks/lang/en/amory_lovins_a_50_year_plan_for_energy.html


9/68

Lighter cars need less energy to move them so their engines become smaller. This makes electric

propulsion affordable and driving electric cars prices down. So price of the lighter cars will be the same

while driving costs will be much lower.

Three technologies: ultra-light materials, making them into structures and electric propulsion.

Carbon-fiber materials can save 4/5 of the capital needed to produce a car and save lives as these

materials can absorb 12 times more crash energy than steel.

Efficient electricity use (3/5 of electricity is used to run motors and pumps which can be upgraded

significantly and require much less electricity)

Renewables use (Solar and wind energy ).

This can bring a solution to: climate change, nuclear proliferation, energy security, energy poverty.

---Companies hampered by old thinking wont be a problem because they simply wont be around long-

term.

Now there is a most profound transition in human history inventing a new fire not dug from below

but flowing from above. Not scarce, not local, not costly and permanent.

Question 5.

The cultural context of international management. Cross-cultural communication

environment. Hofstede s and Trompenaar`s characteristics. Management philosophy of MNC

in coordinating international operations.

Culture represents pervasive and shared beliefs, norms, values, and symbols that guide everyday life.

Cultural norms: both prescribe and proscribe behaviors

What we should do and what we cannot do.

Cultural values: what is good/beautiful/holy beautiful, and what are legitimate goals for life.

Three levels of culture:

o National culture: the dominant culture within the political boundaries of the nation-state.

o Business culture: norms, values, and beliefs that pertain to business in a culture (Tells people

the correct, acceptable ways to conduct business in a society).

o Occupational and organizational culture

Occupational culture: the norms, values, beliefs, and expected ways of behaving

for people in the same occupational group.

Organizational culture: the set of important understandings that members of an

organization share


10/68

International negotiation requires successful cross-cultural communication. Major issues in cross-

cultural communication include:

o relationships between language and culture,

o Whorf hypothesis: theory that language determines the nature of culture

o differences between high and low context cultures,

o Low-context language: people state things directly and explicitly

Most northern European languages including German, English, and the

Scandinavian languages

o High-context language: people state things indirectly and implicitly

Asian and Arabic languages

o cultural differences in communication styles,

o Direct communication: communication that comes to the point and lacks ambiguity

o Formal communication: communication that acknowledges rank, titles, and ceremony in

prescribed social interaction

o non-verbal communication,

o Kinesics, proxemics, haptics, oculesics, and olfactics

o when and how to use interpreters,

o how to speak to non-native speakers of your language,

o how to avoid mistakes based on faulty attributions (self-reference error).

Three diagnostic models to aid the multinational manager:

Hofstede model of national culture

Global Leadership an Organizational Behavior Effectiveness (GLOBE) project

7d culture model

Hofstede's dimensions:

Power distance, that is the extent to which the less powerful members of organizations and

institutions (like the family) accept and expect that power is distributed unequally. Low power

distance (e.g.Austria,Israel,Denmark,New Zealand) expect and accept power relations that are

more consultative or democratic. In High power distance countries (e.g.Malaysia,Slovakia) less

powerful accept power relations that are more autocratic and paternalistic.

Individualism. societies in which the ties between individuals are loose: everyone is expected to

look after him/herself and his/her immediate family. On the collectivist side, we find societies in

which people from birth onwards are integrated into strong, cohesive in-groups, often extended

families (with uncles, aunts and grandparents) which continue protecting them in exchange for

unquestioning loyalty. Latin American cultures rank among the most collectivist in this category,

while Western countries such as theU.S.A.,Great BritainandAustraliaare the most individualistic

cultures.

Masculinity versus its opposite, femininity, refers to the distribution of roles between the genders.

'masculine' cultures value competitiveness, assertiveness, ambition, and the accumulation of wealth

and material possessions, whereas feminine cultures place more value on relationships and quality

of life.Japanis considered by Hofstede to be the most "masculine" culture (replaced bySlovakiain a

later study),Swedenthe most "feminine."
http://en.wikipedia.org/wiki/Austriahttp://en.wikipedia.org/wiki/Austriahttp://en.wikipedia.org/wiki/Austriahttp://en.wikipedia.org/wiki/Israelhttp://en.wikipedia.org/wiki/Israelhttp://en.wikipedia.org/wiki/Israelhttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/New_Zealandhttp://en.wikipedia.org/wiki/New_Zealandhttp://en.wikipedia.org/wiki/New_Zealandhttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/U.S.A.http://en.wikipedia.org/wiki/U.S.A.http://en.wikipedia.org/wiki/U.S.A.http://en.wikipedia.org/wiki/Great_Britainhttp://en.wikipedia.org/wiki/Great_Britainhttp://en.wikipedia.org/wiki/Great_Britainhttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Great_Britainhttp://en.wikipedia.org/wiki/U.S.A.http://en.wikipedia.org/wiki/Slovakiahttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/New_Zealandhttp://en.wikipedia.org/wiki/Denmarkhttp://en.wikipedia.org/wiki/Israelhttp://en.wikipedia.org/wiki/Austria


11/68

Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity.

Uncertainty avoiding cultures try to minimize the possibility of unstructured situations by strict laws

and rules, safety and security measures.

Long-Term Orientation. describes a society's "time horizon," or the importance attached to the

future versus the past and present

Trompenaars.

1. Universalism vs. particularism (What is more important, rules or relationships?)

2. Individualism vs. collectivism (communitarianism) (Do we function in a group or as individuals?)

3. Neutral vs. emotional (Do we display our emotions?)

4. Specific vs. diffuse (Is responsibility specifically assigned or diffusely accepted?)

5. Achievement vs. ascription (Do we have to prove ourselves to receive status or is it given to us?)

GLOBE (Global Leadership and Organizational Behavior Studies)

Seven dimensions of GLOBE are similar to Hofstede. Unique dimensions

Performance orientation. Refers to the degree to which the society encourages societal members

to innovate, to improve their performance, and to strive for excellence (high in Russia and Greece) Humane orientation. An indication of the extent to which individuals are expected to be fair,

altruistic, caring, and generous (high in Malaysia and Egypt).

International Management philosophy.

Pulmutters EPRG theory of intl mgt styles. Ethnocentric-Polycentric-Regiocentric-Geocentric.

Ethnocentric.

Foreign markets are considered as a means of disposing surplus domestic production

Foreign markets are usually culturally close and the strategy is not remarkably changed

HQ has the dominant decision-making power

Key positions are filled with managers from home country

Centralisation of activities

Lack of local responsiveness

Polycentric.

Subsidiaries operate as independent business units with their own business strategies, decision-

making and financial mgt. Thus profit is usually fully reinvested in the foreign countryFull adaptation of strategy to local conditions

Lack of synergy of the whole company network, difficulties in central coordination

Regiocentric.

Same as polycentric whilst regions are viewed as countries

Regional strategy (food and FMCG companies)

Geocentric.

World viewed as a single market.

Global strategy.Globalization of customer preferences and economies of scale

Profits are directed to the potentially most profitable parts of the MNC


12/68

Question 6.

MNC- its characteristics. The definition of MNC by different criteria. The biggest MNC

according market capitalization. Tax optimization- off shoring, tax havens.

Multinational Corporation - MNC'. A corporation that has its facilities and other assets in at least

one country other than its home country.

Trans-National Corporations (TNCs) sometimes referred to as multinational companies, are

enterprises that control economic assets in other countries generally this means controlling

at least a 10% share of such an asset. These companies command enormous financial resources,

possess vast technical resources and have extensive global reach.

Different criteria used for characteristic of MNC:

1. Ownership criterion: MNC is when parent company is effectively owned by nationals oftwo or more countries. For example, Shell and Unilever, controlled by British and Dutchinterests, are good examples. However, by ownership test, very few multinationals aremultinational.

2. Nationality mix of headquarter managers: if the managers of the parent company arenationals of several countries. Usually, managers of the headquarters are nationals of thehome country. Thus vVery few companies pass this test currently.

3. Business Strategy Usually assumed to be global profit maximization

Franklin Root, an MNC is a parent company that1. engages in foreign production through its affiliates located in several countries,2. exercises direct control over the policies of its affiliates,3. implements business strategies in production, marketing, finance and staffing that transcendnational boundaries (geocentric).

Spatial Fragmentation (and its trade consequences) Horizontal MNCs Firms replicate production process at home and abroad. Most common

between equally developed countries

Vertical MNCs Firms divide production into stages and undertake each stage where it is

relatively cheaperMost common between countries at different levels of development Intra-firm trade. Trade between affiliates of the same MNC (Accounts for one-third of

total world trade)


13/68

Market capitalization/capitalisation (aka market cap or capitalized/capitalised value) is a

measurement ofcorporate or economic size equal to the share price times the number ofshares

outstanding of a public company

Optimization of taxation involves organizational measures within the current legislation dealing with

the choice of time, location and activities, with creation and support of the most effective schemes and

contractual relationships to increase the company's cash flows due to minimization of tax payments

Offshore investment is the keeping of money in a jurisdiction other than one's country of

residence. Offshore jurisdictions are a commonly accepted solution to reducing excessive tax

burdens levied in most countries to both large and small scale investors alike

Bahamas,Bermuda,British Virgin Islands,Cayman Islands,Gibraltar,Luxembourg,Panama

Reasons for offshore investment:

Avoidance offorced heirship Asset protection

Less regulated (for example, hedge funds, which thrive in low regulatory environments

due to their highly aggressive investments strategies thrive in offshore jurisdictions,principally theCayman Islands

Privacy

Tax advantages(legal)

Money Laundering&Tax evasion(illegal)

A tax haven is a place where certain taxes are levied at a low rate or not at all. Individuals and/or firms

can find it attractive to move themselves to areas with lower tax rates:

No or only nominal taxes.

Protection of personal financial information Lack of transparency

British Virgin Islands (40% of all offshare companies), Andorra,Monaco,Cyprus.
http://en.wikipedia.org/wiki/Corporatehttp://en.wikipedia.org/wiki/Economichttp://en.wikipedia.org/wiki/Wealth_%28economics%29http://en.wikipedia.org/wiki/Share_pricehttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Bahamashttp://en.wikipedia.org/wiki/Bahamashttp://en.wikipedia.org/wiki/Bermudahttp://en.wikipedia.org/wiki/Bermudahttp://en.wikipedia.org/wiki/Bermudahttp://en.wikipedia.org/wiki/British_Virgin_Islandshttp://en.wikipedia.org/wiki/British_Virgin_Islandshttp://en.wikipedia.org/wiki/British_Virgin_Islandshttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/Gibraltarhttp://en.wikipedia.org/wiki/Gibraltarhttp://en.wikipedia.org/wiki/Gibraltarhttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Panamahttp://en.wikipedia.org/wiki/Panamahttp://en.wikipedia.org/wiki/Panamahttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Forced_heirshiphttp://en.wikipedia.org/wiki/Forced_heirshiphttp://en.wikipedia.org/wiki/Forced_heirshiphttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Offshore_jurisdictionshttp://en.wikipedia.org/wiki/Offshore_jurisdictionshttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/Tax_avoidancehttp://en.wikipedia.org/wiki/Tax_avoidancehttp://en.wikipedia.org/wiki/Money_Launderinghttp://en.wikipedia.org/wiki/Money_Launderinghttp://en.wikipedia.org/wiki/Tax_evasionhttp://en.wikipedia.org/wiki/Tax_evasionhttp://en.wikipedia.org/wiki/Tax_evasionhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Monacohttp://en.wikipedia.org/wiki/Monacohttp://en.wikipedia.org/wiki/Monacohttp://en.wikipedia.org/wiki/Cyprushttp://en.wikipedia.org/wiki/Cyprushttp://en.wikipedia.org/wiki/Cyprushttp://en.wikipedia.org/wiki/Monacohttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Tax_evasionhttp://en.wikipedia.org/wiki/Money_Launderinghttp://en.wikipedia.org/wiki/Tax_avoidancehttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/Offshore_jurisdictionshttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Forced_heirshiphttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Panamahttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Gibraltarhttp://en.wikipedia.org/wiki/Cayman_Islandshttp://en.wikipedia.org/wiki/British_Virgin_Islandshttp://en.wikipedia.org/wiki/Bermudahttp://en.wikipedia.org/wiki/Bahamashttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Share_pricehttp://en.wikipedia.org/wiki/Wealth_%28economics%29http://en.wikipedia.org/wiki/Economichttp://en.wikipedia.org/wiki/Corporate


14/68

Question 7

Corporate culture. Different layers of corporate culture. The basic factors of corporate

culture. Managers and its role in creating it. The US and EU initiative and measures to cope

with corporate governance.

Corporate culture is the total sum of the values, customs, traditions and meanings that make a

company unique.

The values of a corporate culture influence the ethical standards within a corporation, as well as

managerial behavior

Senior managementmay try to determine a corporate culture. They may wish to impose corporate

values and standards of behavior that specifically reflect the objectives of the organization.

At the foundation of any company culture are the standards that govern the operation of the

business. These standards are usually expressed in terms of the policies and procedures thatdefine how the company will operate. This will include how different departments or functionsrelate to one another in the production process, the line of communication established betweenmanagement and departmental employees, and rules governing acceptable conduct of everyonewho is part of the company. This basic organizational culture makes it possible to develop otherlayers of corporate culture based on these foundational factors.

As with many types of cultures, corporate culture usually involves the inclusions of some rites orrituals. This can be something as simple as the annual holiday bonus, a week in the summerwhen the entire company shuts down, or even the naming of an employee of the month

A number of elements that can be used to describe or influence Organizational Culture: The Paradigm: What the organization is about; what it does; its mission; its values. Control Systems: The processes in place to monitor what is going on. Role cultures

would have vast rulebooks. There would be more reliance on individualism in a powerculture.

Organizational Structures: Reporting lines, hierarchies, and the way that work flowsthrough the business.

Power Structures: Who makes the decisions, how widely spread is power, and on whatis power based?

Symbols: These include organizational logos and designs, but also extend to symbols of

power such as parking spaces and executive washrooms. Rituals and Routines: Management meetings, board reports and so on may become

more habitual than necessary. Stories and Myths: build up about people and events, and convey a message about what

is valued within the organization.

Organizational culture is shaped by multiple factors, including the following:

External environment Industry Size and nature of the organizations workforce

Technologies the organization uses The organizations history and ownership
http://en.wikipedia.org/wiki/Senior_managementhttp://en.wikipedia.org/wiki/Senior_managementhttp://www.wisegeek.com/what-is-a-bonus.htmhttp://www.wisegeek.com/what-is-a-bonus.htmhttp://en.wikipedia.org/wiki/Senior_management


15/68

While many managers acknowledge the significance of culture, few realize the roles and

responsibilities that they have in its development. Regardless of the type of culture (i.e. power,

role, task and person), the four components

Trust

o In establishing trust, as a manager, If you say youre going to do something, do it. If you cant doit, dont want to do it, dont say you will. Make up any excuse, but dont even say, you will try.

Employees need to be able to have faith in what they are being told

empowerment/delegationo Empowerment is the process of enabling others to do something. _Principle-centered

Leadership_implies that personal contribution is a great motivator consistency

o Within an organization, this means that its structure, mission statement, shared values,management philosophies and all other aspects must be aligned with one another.

mentorshipo Socialization is often begun through orientation programmes, and ideally is reinforced throughout

employment. It is during this time of orientation that the organizations values and principles canbe communicated and instilled into the behaviours of new employees

These factors contribute to the overall good of the organization. These factors cannot stand-

alone. Not only do they coexist, but also empowerment and mentorship are based upon the

foundation of trustworthiness and trust, and likewise, a strong mentor programme contributes to

that level of trust as well.

.Corporate governance is the set ofprocesses, customs, policies, laws, and institutions affecting

the way a corporation is directed, administered or controlled. Corporate governance also includesthe relationships among the many stakeholders involved and the goals for which the corporation

is governed. The principal stakeholders are theshareholders/members, management, and the

board of directors

Although the US model of corporate governance is the most notorious, there is a considerable

variation in corporate governance models around the world. The intricated shareholding

structures ofkeiretsusin Japan, the heavy presence of banks in the equity of German firms, the

chaebolsin South Korea and many others are examples of arrangements which try to respond to

the same corporate governance challenges as in the US.

The liberal model that is common in Anglo-American countries tends to give priority to the interests of

shareholders

The coordinated model in Continental Europe and Japan also recognizes the interests of workers,

managers, suppliers, customers, and the community

The European Union (EU) has achieved a great deal in terms of addressing disclosure,shareholder protection, and board structures and responsibilities since the adoption of its ActionPlan for Modernizing European Company Law and Enhancing Corporate Governance in the EU(2003).

In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron andWorldcom, as well as lesser corporate scandals, such as Adelphia Communications, AOL,
http://en.wikipedia.org/wiki/Business_processhttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Stakeholderhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Keiretsuhttp://en.wikipedia.org/wiki/Keiretsuhttp://en.wikipedia.org/wiki/Keiretsuhttp://en.wikipedia.org/wiki/Chaebolhttp://en.wikipedia.org/wiki/Chaebolhttp://en.wikipedia.org/wiki/Enronhttp://en.wikipedia.org/wiki/Worldcomhttp://en.wikipedia.org/wiki/Corporate_scandalshttp://en.wikipedia.org/wiki/AOLhttp://en.wikipedia.org/wiki/AOLhttp://en.wikipedia.org/wiki/Corporate_scandalshttp://en.wikipedia.org/wiki/Worldcomhttp://en.wikipedia.org/wiki/Enronhttp://en.wikipedia.org/wiki/Chaebolhttp://en.wikipedia.org/wiki/Keiretsuhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Stakeholderhttp://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Business_process


16/68

Arthur Andersen, Global Crossing, Tyco, led to increased political interest in corporategovernance. This is reflected in the passage of the Sarbanes-Oxley Act of 2002.

Question 8

IHRM - international human resource management. A process of recruiting, selecting and

training of international managers. Motivational factors for accepting international

assignment.

All HRM functions, adapted to the international setting. Two added complexities compared todomestic HRM: Must choose a mixture of international employees Must decide the extent of adaptation to local conditions

Human resource management (HRM): deals with the entire relationship of the employee with theorganization.

Recruitment: process of identifying and attracting qualified people to apply for vacantpositions

Selection: process of filling vacant positions in the organization Training and development: giving employees the knowledge, skills, and abilities to

perform successfully Performance appraisal: system to measure and assess employees work performance Compensation: organizations entire reward package, including financial rewards,

benefits, and job security Labor relations: ongoing relationship between an employer and those employees

represented by labor unions

A failed expatriate assignment can cost a company 2-5 times the assignees annualsalary (more than $1 mln).

Key factors of assigning an expatriate to an international position: Technical and managerial skills Personality traits (open to new and changes, flexible, interested in other cultures) Relational abilities (communication, cultural tolerance, ability to adapt) Family situation (spouses willingness, childrens education requirements) International motivation (willingness to accept expatriate position, interest in

culture) Stress tolerance

Language ability Emotional intelligence

Importance of these factors depend on assignment length, cultural similarity, required interaction and communication, job complexity and responsibility
http://en.wikipedia.org/wiki/Arthur_Andersenhttp://en.wikipedia.org/wiki/Global_Crossinghttp://en.wikipedia.org/wiki/Tyco_Internationalhttp://en.wikipedia.org/wiki/Sarbanes-Oxley_Acthttp://en.wikipedia.org/wiki/Sarbanes-Oxley_Acthttp://en.wikipedia.org/wiki/Tyco_Internationalhttp://en.wikipedia.org/wiki/Global_Crossinghttp://en.wikipedia.org/wiki/Arthur_Andersen


17/68

Question 9

The compensation scheme for expatriates. The basic factors for creating compensation

package. Basic compensation procedures and its application for HCN and TCN.

Common elements in an international compensation package Base salary: the amount of cash compensation that an individual receives in the home

country Benefits Allowances

MNCs need to provide an appropriate compensation package not only to entice

expatriates to relocate but also to retain and motivate expatriate employees.

90% of expatriate failures are family related

Factors:

Local market cost of living. Adjust the compensation levels so that the expatriate

suffers no loss from relocation

Housing. Taxes. Avoiding double taxation

Benefits. Pension and healthcare

85% of MNCs use Balance-Sheet Approach for determining compensation packages.

Provides a compensation package that equates purchasing power.

Includes allowances for cost of living, housing, food, recreation, personal care, clothing,

education, home furnishing, transportation, and medical care.

Besides these, MNC provide extra allowances and benefits:


18/68

Foreign service premiums. 10-20% of base salary increase for the individual and

family challenge of expatriate assignment

Hardship allowance. Extra for poor and high risk living conditions

Relocation allowances.

Home-leave allowances. Once or twice a year allowance for travelling home

Other

Headquarters-based compensation: paying home country wages regardless of location

Host-based compensation system: adjusting wages to local lifestyles and costs of living

Global pay systems: worldwide job evaluations, performance appraisal methods, and

salary scales are used

Compensation trends.

- Paying HCNs the same salaries as their domestic counteparts which

permits worldwide consistency, add allowances&bonuses.

- Equal-pay-for-equal-work with extra payments to expats

Question 10.

The strategy formulation for international markets. Mission and objectives, environmentalassessment. Timely development. Risk assessment. Strategic implementation. Type of

strategy for penetrating foreign markets.


19/68

Strategy: the central, comprehensive, integrated and externally oriented set of choices of how a

company will achieve its objectives

Strategy formulation: process by which managers select the strategies to be used by

their company.

Strategy needs to address the following areas:

Arenas: which business to be in

Vehicles: used to create presence in markets

Differentiators:

Sequencing: in what sequence and what pace decisions will be made (what countryto enter and when)


20/68

Popular analysis techniques

Environment analysis (PESTEL)

Competitive dynamics of the industry (Porters five forces model, Key Success

Factors)

Companys competitive position in the industry (SWOT)o Opportunities and threats faced by their company

o Companys strengths and weaknesses

On corporatelevel major issue is which businesses to invest in and which businesses

to divest. Most popular is the market growth-share BCG matrix.

Generic strategies:

Differentiation strategy: providing superior value to customers

Low-cost strategy: producing at a lower cost than competitors

Focus (applying differentiation of low-cost strategy to a narrow market)

Strategies can be further subdivided on the basis ofcompetitive scope. Competitive

scope: how broadly a firm targets its products or services products or services

Narrow competitive scope for certain buyers or geographic areas

Broad competitive scope when a large range of buyers are targeted

Competitive Strategies in International Markets:

Offensive competitive strategies: direct attacks to capture market share

o Direct attacks: price cutting, adding new features, or going after poorly

served markets

o End-run offensives: seeking unoccupied marketso Preemptive competitive strategies: being first to obtain particular

advantageous position

o Acquisitions: buying out a competitor

Defensive competitive strategies: attempts to discourage offensive strategies

o Attempts to reduce risks of being attacked

o Convince an attacking firm to seek other targets

o Blunt the impacts of any attack

o Exclusive contracts with best suppliers

o

New models to match competitors lower prices Counter-parry: fending offa competitors attack in one country by attacking in

another country


21/68

Corporate-level strategies:

Related diversification (companies acquire businesses that are similar in some way

to their original or core business)

Unrelated diversification (firms acquire businesses in any industry)

Global-local dilemma:

Local-responsiveness solution: customize to country or regional differences

Global integration solution: conduct business similarly throughout the world

Four broad multinational strategies

- Multidomestic (type of differentiation strategy: The company attempts to

offer products or services that attract customers by closely satisfying their

cultural needs and expectations)

- Regional (managing raw-material sourcing, production, marketing, and

support activities within a particular region)

Attempts to gain economic advantages from regional network

Attempts to gain local adaptation advantages from regional

adaptation

- International (selling global products and using similar marketing

techniques worldwide) Limited adjustment in product offerings and marketing strategies

Upstream and support activities remain concentrated at home

country

- Transnational

location advantages (dispersing value-chain activities anywhere in

the world where they can be done best or cheapest)

Gaining economic efficiencies from operating worldwide


22/68

Participation strategies: the choice of how to enter each international market:

Exporting

Licensing

Strategic alliances

Equity International Joint Ventures

International Cooperative Alliance

Foreign direct investment

House-to-house Export

Reexport/switch/barter; Buy-back

Turnkey operation

Offset

ManagementContract


23/68

Question 11

Crossborder alliances. Equity and non-equity alliances. Joint ventures. Mergers and

acquisitions. The type of mergers and acquisitions. Synergy effect. The problems with

evaluations of synergy.

Increasingly popular strategy to develop new product and to expand into new markets

However, strategic alliances are very risky and unstable

Failure rate of 30% to 60%

Alliance combining same value-chain activities are to gain efficiencies, merge talents, or share

risks

Upstream/downstream alliances serve the objective of low-cost supply/manufacturing

Operations/marketing alliances provide access to markets

Three main types of strategic alliances

Informal international cooperative alliances

o Non-legally binding agreements between companies from two or more countries

o Agreements of any kind

o Provide links anywhere on their value chains

o Limited involvement between companies

Formal international cooperative alliances

o Higher degree of involvement than informal alliances

o Formal contract

o Popular in high tech industries because of high costs and risks


24/68

International joint venture

o Separate legal entity owned by two or more parent companies from different

countries

o No need for equal ownership

o Equity based on cash or other contributions

The key principle behind buying a company is to create shareholder value over and above that of the

sum of the two companies. Two companies together are more valuable than two separate companies -at least, that's the reasoning behind M&A.

This rationale is particularly alluring to companies when times are tough. Strong companies will act to

buy other companies to create a more competitive, cost-efficient company. The companies will come

together hoping to gain a greater market share or to achieve greater efficiency. Because of these

potential benefits, target companies will often agree to be purchased when they know they cannot

survive alone.

Synergy

Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takesthe form of revenue enhancement and cost savings. By merging, the companies hope to benefit from

the following:

Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the

money saved from reducing the number of staff members from accounting, marketing and

other departments. Job cuts will also include the former CEO, who typically leaves with a

compensation package.

Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT

system, a bigger company placing the orders can save more on costs. Mergers also translate into

improved purchasing power to buy equipment or office supplies - when placing larger orders,

companies have a greater ability to negotiate prices with their suppliers.

Acquiring new technology - To stay competitive, companies need to stay on top of technological

developments and their business applications. By buying a smaller company with unique

technologies, a large company can maintain or develop a competitive edge.

Improved market reach and industry visibility - Companies buy companies to reach new markets

and grow revenues and earnings. A merge may expand two companies' marketing and

distribution, giving them new sales opportunities. A merger can also improve a company's

standing in the investment community: bigger firms often have an easier time raising capital

than smaller ones.

That said, achieving synergy is easier said than done - it is not automatically realized once two

companies merge. Sure, there ought to be economies of scale when two businesses are combined, but

sometimes a merger does just the opposite. In many cases, one and one add up to less than two.

Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers.

Where there is no value to be created, the CEO and investment bankers - who have much to gain from a

successful M&A deal - will try to create an image of enhanced value. The market, however, eventually

sees through this and penalizes the company by assigning it a discounted share price.
http://www.investopedia.com/terms/s/synergy.asphttp://www.investopedia.com/terms/e/economiesofscale.asphttp://www.investopedia.com/terms/d/discount.asphttp://www.investopedia.com/terms/d/discount.asphttp://www.investopedia.com/terms/e/economiesofscale.asphttp://www.investopedia.com/terms/s/synergy.asp


25/68

Horizontal merger - Two companies that are in direct competition and share the same product lines

and markets.

Vertical merger - A customer and company or a supplier and company. Think of a cone supplier

merging with an ice cream maker.

Market-extension merger - Two companies that sell the same products in different markets.

Product-extension merger - Two companies selling different but related products in the same market.

Conglomeration - Two companies that have no common business areas.

It's hard for investors to know when a deal is worthwhile. The burden of proof should fall on the

acquiring company. To find mergers that have a chance of success, investors should start by looking forsome of these simple criteria:

A reasonable purchase price - A premium of, say, 10% above the market price seems within the

bounds of level-headedness. A premium of 50%, on the other hand, requires synergy of stellar

proportions for the deal to make sense. Stay away from companies that participate in such

contests.

Cash transactions - Companies that pay in cash tend to be more careful when calculating bids

and valuations come closer to target. When stock is used as the currency for acquisition,

discipline can go by the wayside.

Sensible appetite An acquiring company should be targeting a company that is smaller and in

businesses that the acquiring company knows intimately. Synergy is hard to create from

companies in disparate business areas. Sadly, companies have a bad habit of biting off more

than they can chew in mergers.

Mergers are awfully hard to get right, so investors should look for acquiring companies with a healthy

grasp of reality

McKinseyhttp://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402:

Our exploration of postmerger integration efforts points to the main source of the winner's curse: the

fact that the average acquirer materially overestimates the synergies a merger will yield.2These

synergies can come from economies of scale and scope, best practice, the sharing of capabilities and

opportunities, and, often, the stimulating effect of the combination on the individual companies.

However, it takes only a very small degree of error in estimating these values to cause an acquisition

effort to stumble.

Acquirers must undoubtedly cope with an acute lack of information. To help them assess synergies and

set targets, they usually have little data about the target company; limited access to its managers,

suppliers, channel partners, and customers; and insufficient experience. Even highly seasoned buyers

rarely capture data systematically enough to improve their estimates for the next deal. And external

transaction advisersusually investment banksare seldom involved in the kind of detailed, bottom-up
http://www.investopedia.com/terms/h/horizontalmerger.asphttp://www.investopedia.com/terms/v/verticalmerger.asphttp://www.investopedia.com/terms/c/conglomerate.asphttp://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402#foot2http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402#foot2http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402#foot2http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402#foot2http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402http://www.investopedia.com/terms/c/conglomerate.asphttp://www.investopedia.com/terms/v/verticalmerger.asphttp://www.investopedia.com/terms/h/horizontalmerger.asp


26/68

estimation of synergies that would be needed to develop meaningful benchmarks before a deal. Fewer

still get involved in the post-merger work, when premerger estimates come face-to-face with reality.

Solutions:

Reduce top-line synergy estimates

Acknowledge revenue dis-synergies (our experience indicates that the average merging

company loses 2 to 5 percent of its combined customers).

Increase estimates of onetime costs

Apply outside-in benchmarks to cost synergies (While managers in about 60 percent of

mergers deliver the planned cost synergies almost totally, in about a quarter of all cases they

are overestimated by at least 25 percent, a miscalculation that can easily translate into a 5 to

10 percent valuation error)

Involve key line managers

Codify experiences

Question 12

Foreign direct investments. The inflow and outflow of FDIs. The role of FDIs in emerging

economies. The measurement of effects of FDIs. The attractiveness of FDIs for MNCs.

Global foreign direct investment (FDI) inflows rose modestly in 2010, following the large

declines of 2008 and 2009. At $1.24 trillion in 2010, they were 5 per cent higher than a

year before (figure I.1). This moderate growth was mainly the result of higher flows to

developing countries, which together with transition economies for the first time

absorbed more than half of FDI flows.


27/68

UNCTAD predicts FDI flows will continue their recovery to reach $1.41.6 trillion, or the

pre-crisis level, in 2011. In the first quarter of 2011, FDI inflows rose compared to the

same period of 2010, although this level was lower than the last quarter of 2010 (figure

I.2). They are expected to rise further to $1.7 trillion in 2012 and reach $1.9 trillion in

2013, the peak achieved in 2007.


28/68


29/68


30/68


31/68


32/68

Most of FDI scientists believe that FDI has a positive impact on the economic growth in

the receiving countries.

They showed that many countries like China, India and Uk use FDI as a advanced

business for making economic growth. In general, a multinational company s decision

to develop production to another is driven by lower cost and higher deficiency

consideration. In the host countries, the benefit of FDI are not limited to promote use of

its sources, but also branch from the introduction of new processes to domestic market,

learning-by-observing, networks, training of the labour force, and other spillovers and

externalities. Due to the growth-development benefits FDI assumes to conduct,

different countries and places have followed active policies to attract FDI.

In many empirical evidences reveals that FDI plays a key role in contributing to

economic growth. However, the level of development of local financial markets is crucial

for these positive impacts to be absolved.

The factors that consider as the full benefits of FDI in some developing countriesinclude the level of education and health, the technological range of host country

enterprise, insufficient openness to trade, weak competition and inadequate regulatory


33/68

frameworks. On the other hand, in developing countries; the level of technological,

educational and infrastructure achievement are things being equal, equip it better to

benefit from a foreign presence in its markets.

Impacting foreign direct investment on export depends on the type of FDI. For instance,

vertical FDI is assumed to motivate trade whereas horizontal FDI is expected to

substitute for trade.

Attrativeness.

Why is FDI so common in international business?

Production or distribution facilities in a country can reduce costs of trade

(transportation, tariff and nontariff barriers, transaction costs, and time) Toyota in US


34/68

Production within a country takes advantage of domestic sourcing of parts,

components, services

Investment and employment in host country gain political support for the international

business: quid pro quo investment Cemex and Southdown

Closer to customers for manufacturers

Take advantage of low-cost labor, highly-skilled labor, and proximity to resources

Reduce costs of trade from import/export

Question 13,14

Evolution and change in MNC organizational structures. Choice of organizational form.

Coordination and reporting for global operations. Virtual structures

The main organizational strategies- export department,, subsidiaries, divisions, global

product, area structure, functional and multinational matrix. Mixed structures. .

Organizational design represents how organizations structure subunits and coordination and

control mechanisms to achieve strategic goals

Export department.

Created when exports become a significant percentage of company sales

Export managers control pricing and promotion of products for international markets, deal with

export management companies, foreign distributors, foreign customers and may coordinate

foreign sales force.

As companies evolve beyond initial participation strategies of exporting and licensing, they

switch to more complex structures such as international division, worldwide geographic and

products structures, worldwide matrix structure and the transnational-network structure.

Foreign subsidiary.

Types of foreign subsidiaries:

Minireplica subsidiary: smaller version of the parent - company

Uses the same technology and producing the same products as the parent company

Transnationalsubsidiary: has no companywide form or function

Each subsidiary contributes what it does best


35/68

International Division

Larger and has greater responsibilities compared to the export department

Responsible for managing exports, international sales, and foreign subsidiaries

Usual step after export department

Deals with all products

Manages overseas sales force and manufacturing sites

Reasons to abandon the international division

- Diverse products overwhelm capacities of multinational

- Not close enough to local markets

- Cannot take advantage of global economies of scale or global sources of knowledge

Organizations usually divide work into departments or divisions based on functions, geography,

products or combination of these choices.

Functional structure:

Departments perform separate business functions such as marketing or manufacturing

Is the simplest form of organizational structures.

Most smaller organizations have functional structures.

Product structure: departments or subunits based on different product groups

Geographic structure: departments or subunits based on geographic regions

Both are usually less efficient than the functional organization and allow to serve customer

needs that vary by region or product.

Managers choose product structures when product or an area sufficiently unique to require

focused functional efforts on one type of product or service

Hybrid structure: mixes functional, geographic, and product units

Worldwide geographic structure. The prime reason for this structure is to implement a multi-

domestic or regional strategy (e.g. Toyota).


36/68

Country-level divisions exist only when a countrys market size is sufficiently large or important

to support a separate organization.

In worldwide product structures each product division assumes responsibility for producing

and selling its products throughout the world. This structure supports strategies that emphasize

production and sales of worldwide products and is considered ideal for international strategy

implementation. In international strategy company attempts to gain economies of scale by

selling worldwide with most upstream activities based at home. (e.g. Ford Motor)

Most large multinationals have hybrid structures (Sony Corp, Unilever).

The front-back hybrid structure divides the organization into two line sub-organizations. The

front side has units based on geography to provide multi-domestic/regional focus. The backside

has units based on product groups to capture global economies of scale in R&D and production.

upstream activities are global and downstream activities are local (e.g. Tetra Pack, Citibank)

To balance benefits of hybrid structure, a worldwide matrix structure is used. It represents a

symmetrical organization: equal authority for product and geographic groups. It works well only

when there are nearly equal demands from the environment for local adaptation and for

product standardization with its economies of scale.

Matrix structure to be successful requires extensive resources for communication among

managers who have two bosses.

Requires middle and upper level managers with good human relations skills

The Transnational-Network Structure

Newest solution to the complex demand of being locally responsive and taking advantage of

global economies of scale

Combines functional, product, and geographic subunits. Has no symmetry or form. Its network

links different types of transnational subsidiaries. Nodes, units at the center of the network,

coordinate product, functional and geographic information (e.g. Philips which has 8 product

divisions with more than 60 subgroups). Other characteristics:

Dispersed subunits (location anywhere in the world where subsidiaries can benefit the

company the most)

Specialized operations

Interdependent relationships


37/68

Next org structure to evolve might be a metanational one.

Large entrepreneurial multinational that can tap into pockets of innovation, technology,

and

markets located around the world

Develops extensive systems to encourage organizational learning and entrepreneurial

activities Nonstandard business formulas for any local activity

Looking to emerging markets as sources of knowledge and ideas

Creating a culture supporting global learning

Extensive use of strategic alliances to gain knowledge for varied sources

A centerless organization that moves focus from HQ to large markets

With development of Internet a new for evolvedMicro-multinational

Operate everywhere around the globe

Use state-of-the-art technology for communication purposes

Hire workers around the world


38/68

Control Systems

Control system: helps link the organization vertically, up and down the organizational hierarchy

Basic functions of control system:

Help focus activities of the companys subunits to support company-wide strategic goals

and objectives Measure or monitor the performances of subunits regarding their roles in the strategy

Provide feedback to subunit managers regarding the effectiveness of their units

Coordination systems help link organizations horizontally

- Provide information flows among subsidiaries so that they can coordinate their respective

activities

Design Options for Control Systems

Four types of control systems

Output control system

o Assesses the performance of a unit based on results, not on the processes

used to achieve these results

o Profit center (commonly a mini-replica subsidiary): unit controlled by its

profit or loss performance

Bureaucratic control systemo Focuses on managing behaviors within the organization. Bureaucratic tools

include:

Budgets set financial targets for expenditures during specific time

periods

Statistical reports: information to top management about

nonfinancial outcomes

Standard operating procedures (SOPs): rules and regulations of

appropriate behavior

Decision-making control (centralized vs. decentralized)

o Represents the level in the organizational hierarchy where managers have

the authority to make decisions

Cultural control system:

o uses corporate culture to control behaviors and attitudes of employees

o strong organizational structure may be the only way to link a dispersed

multinational company


39/68

Design Options for Coordination Systems:

Textual communication (e.g. reports, e-mails, memos)

Direct contact (face-to-face communication, teleconferences)

Liaison roles (part of managers responsibility to communicate with other departments)

Task forces (temporary teams created to solve a particular organizational problem such as

entering a new market and they usually link several departments)

Full-time integrators (same as liaison role except for it is a sole job responsibility e.g. product

managers coordinate development of product with design teams, production, sales and

marketing)

Teams (strongest coordination mechanisms; unlike taskforces are permanent, also come from

several company subunits e.g. a new product development team)

*Question 15

The creation of global business network in specific industries. Financial institutions. Service

industries. Production branches. Outsourcing and its role in increasing of MNC effectiveness.

Breaking down a company into its individual value activities makes it possible to identify thecurrent and potential contribution of each activity to the companys competitive position.

The value activities of a company, whether they are primary or secondary, can be distributedamong different countries.


40/68

One reason for the speeding-up of the whole globalisation process is the rapid emergence ofglobal value chains. The whole process of producing goods, from raw materials to finished

product, has increasingly been sliced and each process can now be carried out wherever the

necessary skills and materials are available at competitive cost.


41/68

But globalisation is no longer only about goods and products; it increasingly involves foreigndirect investment (FDI) and trade in services. Information and communication technologies(ICT) have made it possible to base services such as customer call centres anywhere in theworld, regardless of where the customers are.

Economic globalisation has resulted in a growing openness of the manufacturing sector, but not

all manufacturing industries are affected to the same extent. High technology industries aregenerally more internationalised than less technology-intensive industries, mainly because high-technology firms no longer have all the required knowledge in-house and increasingly have tolook outside.

While manufactured goods still account for the largest share of international trade, globalisationincreasingly extends to FDI and trade in services. Improvements in technology, standardisation,infrastructure growth and decreasing data transmission costs have all facilitated the sourcing ofservices from abroad. In particular, knowledge work such as data entry or research and

consultancy services can easily be carried out via the Internet and e-mail, and through tele- andvideo-conferencing.

Multinational firms (MNEs) play a prominent role in globalised value chains. The importance ofMNEs in todays global economy is linked to their strengths in a range of knowledge-basedassets, such as management and intellectual property, which allow them to take advantage of

profitable opportunities in foreign markets by setting up subsidiaries and affiliates abroad.

Affiliates under foreign control not only serve local markets, but have also become essentiallinks in global value chains as they serve other (neighbouring) markets and provide inputs forother affiliates in the multinationals network. Cross-border trade between multinational firmsand their affiliates, often referred to as intra-firm trade, accounts for a large share of internationaltrade in goods.

The development of global value chains also offers new opportunities to small and medium

enterprises (SMEs), although they also face important challenges in reaching internationalmarkets: management, finance and the ability to upgrade and protect in-house technology can

all be hurdles. As suppliers, SMEs are often given more responsibilities in the value chain and

more complex tasks than in the past. This places them under increasing pressure to merge with

other firms in order to achieve the critical mass required to support R&D, training of personnel,

control over firms in lower levels of the chain, and to fulfil requirements in terms of standards

and quality.

Value chain for financial institutions:http://www.soc.duke.edu/NC_GlobalEconomy/banks/value.shtml:
http://www.soc.duke.edu/NC_GlobalEconomy/banks/value.shtmlhttp://www.soc.duke.edu/NC_GlobalEconomy/banks/value.shtmlhttp://www.soc.duke.edu/NC_GlobalEconomy/banks/value.shtmlhttp://www.soc.duke.edu/NC_GlobalEconomy/banks/value.shtml


42/68

Automotive industry:

Selected external factors that affect the configuration of international value chains

Engineering and construction industry:


43/68

EU initiative to promote the smart use of information technologies and the integration of SMEs in

global industrial value chains:

Five first major demonstration actions have started already namely in support of the

automotive industry, the fashion industry, the transport and logistics sectors, the tourism

industry, and the agro-food supply-chain.First results are remarkable, with significant efficiency gains, speedier and affordable integration

of SMEs in global value networks, broad participation of SMEs, involvement of reference namesin the sectors and prospects for mass market adoption through the European standardisationorganisations and consortia.Altogether some 20 000 small enterprises have been involved in all of these projects. The addedvalue is not limited to the number of direct beneficiaries, but lies also in the creation of newmodels that can be adopted to have a major impact in the real market.

The demonstration action for the fashion industry (http://www.ebiz-tcf.eu) figured significantbusiness benefits and SMEs involvement:

The costs related to order management dropped by 65% in one year.

The average response time for an order dropped by 50%. The rate of errors in order processing dropped from a 10% average to null;

Over 150 small companies from the textile and footwear sector, from 20 European countries

participated in digital supply chains, i.e. integrated IT solutions in their daily business

transactions, during the action, while over 4.000 enterprises were touched by dissemination

actions;

Among those, some reference brands, namely BATA, shoes and accessories world wide, ZEGNA,

high segment menswear world wide, Marco Polo, clothing retail.

An MoU was signed among key industry stakeholders and leading sectoral associations, to

further promote the results and stimulate real market roll-out;

After the end of the pilot project, a CEN workshop agreement was established to further

maintain, extend, validate and promote the interoperability framework, through the officialstandardisation bodies.

The demonstration action for the automotive industry (Auto-gration,http://www.auto-gration.eu/) triggered remarkable industry leadership:

Industry-led initiative to maintain, promote and extend the auto-gration framework by a joint

auto-gration forum consisting of CLEPA, FIGIEFA and Odette;

VDA (the German Automotive association, representing 50% of the automotive industry in

Europe) issued an official recommendation to adopt auto-gration for their SME eInvoicing

solution;

Odette and its national organisations plan to issue auto-gration as best-practicerecommendation.

Significant number of B2B marketplaces and ICT vendors specialising in the automotive industry,

engaged to adapt their commercial solutions to become "Auto-Gration compliant", thus

ensuring interoperability between them.

An MoU was signed among key industry stakeholders, leading sectoral associations and ICT

vendors, to further promote the results and stimulate real market roll-out;

So far, major automotive manufacturers (VW, BMW, Renault, Skoda Auto) engaged to

implement auto-gration in their daily business processes.

The demonstration action for the transport and logistics industry (DiSCwise,

http://www.discwise.eu/) demonstrated impressive potential for concrete business benefits andled to promising industry follow-up actions:
http://www.ebiz-tcf.eu/http://www.ebiz-tcf.eu/http://www.ebiz-tcf.eu/http://www.auto-gration.eu/http://www.auto-gration.eu/http://www.auto-gration.eu/http://www.auto-gration.eu/http://www.discwise.eu/http://www.discwise.eu/http://www.discwise.eu/http://www.auto-gration.eu/http://www.auto-gration.eu/http://www.ebiz-tcf.eu/


44/68

The Common Framework helped to lower the technical boundaries. Faster roll-out of new

services, activation of new users and reduction of implementation costs by 70%.

Date post:	03-Apr-2018
Category:	Documents
Upload:	igor-tadic
View:	227 times
Download:	0 times

Mgt Answers

Documents