International business and the global companies

ORGANISATION AND MANGEMENT Lourdes Fuente Mugica INDEX: Introduction……………………………………………………................................ 3 What is globalization? ............................................................................................... 3 Nature of multinational enterprises……………………………................................4 Global companies ……………………………………………….............................. 6 Strategy management of multinational enterprises………….................................... 6 Authors………………………………………………………................................... 7 E-Business system……………………………………………................................. 10 Conclusion………………………………………………………............................. 11 Bibliography.............................................................................................................. 12 Introduction: International business is the study of transactions taking place across national borders for the purpose of satisfying the needs of individuals and organisations. These transactions can be trade (importing, exporting) and direct investment. The main focus will be Multinational Enterprises: MNE. MNEs have directly invested billions of dollars overseas. Most of these foreign investments have been two-way. MNEs have recently been turning their attention to developing countries. Another international business activity has been the international joint venture (agreement between two or more partners to own and control overseas business). SME Many small and medium-sized businesses are involved in international business. We include here service industries that currently employ 70% of work force in USA, Canada and Europe. Large multinational enterprises tend to influence the success of smaller businesses because they rely on small business for goods and services. What is globalization? We understand globalization as the political, economical, social, cultural and ecological process that it is happening nowadays. Thanks to this process, there is a bigger economic interrelationship between different countries, no matter how far they are, and always under the multinational companies’ control. Each time there more ambits regulated by the free market, neoliberal ideology is applied with more intensity in almost all the countries and the big corporations achieve each time more power. GLOBALIZATION is the process that emerges from: The internationalisation of production and services Stateless corporations The existence of world markets (Ford, McDonalds, Coke, Hollywood, Revlond, Sony, Levy’s) Increase integration into the international division of labour: China and Eastern Europe specialising in cheap labour Internationalisation of financial markets: transnational banks and subsidiaries of multinationals. We can define globalization in some different levels: Worldwide level: Growing economic interdependence among countries reflected in cross border flow of goods, services, capital and know-how. Country level: Extent of a country’s inter-linkages with the rest of the world Industry level: Degree to which a company’s competitive position within that industry in one country is interdependent with that in another country Why is important globalization? It can lead into cultural homogenisation It make markets to converge It leads to globalization of customers Globalization is characterised by cost drivers: - Economies of scale and scope - Increase in levels of fixed costs Globalization has lead to fundamental changes in industry structure (deregulation, privatisation, technological change) Nature of Multinational enterprises: Multi-Domestic Industries vs Global industries: International trade incorporates many different types of competition and industries differ markedly in their patterns of international competition. Multi-domestic industries: Competition in one country is independent of competition elsewhere This lead to a collection of domestic industries A firm can and should manage its world-wide activities as a portfolio of independent subsidiaries in each country. The firm therefore should adopt a country-centred strategy. Global industries: Competition in one country influenced by competition elsewhere, leads to international rivalry To be a leader a firm must develop and implement a strategy that integrates its activities in various countries but some portions of the firm’s activities must take place in each individual country. The firm should adopt a global strategy. Ongoing integration of activities on a worldwide basis. What are the main characteristics of “Global”? Standardisation of large international market segments Product standardisation Reconfiguration of the value chain (distribution…) Global marketing function Multi-point competition Governments play two roles: “players” and “referees” Multinationals: The USA has identified over 45,000 MNEs, but the largest 500 account for 80 percent of the entire world’s foreign direct investment. These firms are engaged in operations such as automobiles, chemicals, computers, consumer goods, financial goods, industrial equipment, oil and steel production… Their main characteristics are: Looking at the environment in which they operate, there are two major areas of concern: the home country of its headquarters and the host countries in which it does business (stakeholders can come from anywhere in the world) Their affiliates must be responsive to a number of important environment forces, including competitor, customers, suppliers, financials institutions and government. The MNE draws on a common pool of resources, including patents, trademarks, information and human resources Its affiliates are linked by a common strategic vision. Firms become multinationals to: Protect themselves from the risks and uncertainties of the domestic business cycle (International diversification) To tap the growing world market for goods and services In response to increased foreign competition and to protect world market share. To reduce costs To overcome tariffs walls by serving a foreign country from within To take advantage of technological expertise by manufacturing goods directly rather than allowing others do it under a license (for example). MNEs are better able to protect their international competitiveness than companies that have license agreements. Global companies: MNEs are also called global companies: “A global company is one which operates with resolute constancy at low relative cost-as if the entire world (or major regions of it) were a single entity; it sells the same things in the same way anywhere” T. Levitt, 1983, HBR Philosophy of MNEs: MNEs make decisions primarily based on what is best for the company even if this means transferring funds or jobs to other countries. MNEs make whatever agreements are in their best interest, even if this means bringing in firms from three or four different countries It is the ability of MNEs to understand different consumer tastes in segmented regional markets and to respond to different national standards and regulations that are imposed by autonomous governments and agencies. Strategic management of Multinational Enterprises MNE affiliates are linked by a strategic plan. Basic nature of strategic management process consists of: Strategy formulation, strategy implementation, evaluation and control of operation. These functions encompass a wide range of activities: environmental analysis of external and internal conditions and an evaluation of organisational strengths and weaknesses. Steps in the strategic management process: Strategic planning: typically begins with a review of the company’s basic mission, which is determined by answering the question: What is the firm business? What is its reason for existence? After determining its mission, the MNE will evaluate the external and internal environment. The goal of external environmental analysis is to identify opportunities and threats that will need to be addressed. Internal and external analysis will help the MNE to identify both long-range goals (2-5 years) and short-range goals (less than 2 years). Globally strategic planning: Strategic planning is the process of evaluating the enterprise’s environment and its external strengths, next identifying long and short-range objectives and then implementing a plan of action for attaining these goals. MNEs rely on this process because it provides them with both general direction and specific guidance in carrying out their activities. International Human Resources Management is made more complex by: -Different labour markets -International Mobility Problems -National Management and Labour Supply Styles and Practices -Strategy and Control Issues Cultural Issues: Some aspects of culture differ significantly across national borders and have great impact on how business is conducted. Effective international management depends partially on recognising and accommodating these cultural differences. Cultural values: Two cultural variables shape the characteristics of a culture’s values Religion: Religion rules and events: Example: Muslim religion, effects closing times, use of alcohol, regulates daily timetable, praying, eating behaviours… Language: is used to transmit culture but is an important influence in itself. Different languages have different thought patterns and effects the way we look at things and problem… The development of genuinely transnational business organizations therefore requires managerial approaches and systems which allow for variations deriving from such diversity. This might be "national" cultural diversity between nations, races or ethnic groups (e.g. in a two-nation joint-venture), intra-national diversity involving the range of cultures within a single nation (e.g. in the USA), or internal cultural diversity where managers need to deal with foreign-owned transnational companies in their own country (e.g. a British manager dealing with a Korean manufacturer in the UK). Authors: We can find different authors talking about the importance of the culture on business: Hofstede’s view of the cultural exchange (Uncertainty avoidance, verbal and non-verbal communication, power distance and the male/female ratio), is to be considered, in order to understand properly how to handle an international negotiation. As a matter of fact, the analysis of each component, of the Hofstede scheme, will help the manager in his understanding of eventual cultural barriers and though allow him to adapt to the current situation. I will explain the hofstede’s cultural values: Power Distance Index (PDI) focuses on the degree of equality, or inequality, between people in the country's society. A High Power Distance ranking indicates that inequalities of power and wealth have been allowed to grow within the society. These societies are more likely to follow a caste system that does not allow significant upward mobility of its citizens. A Low Power Distance ranking indicates the society de-emphasizes the differences between citizen's power and wealth. In these societies equality and opportunity for everyone is stressed. Individualism (IDV) focuses on the degree the society reinforces individual or collective achievement and interpersonal relationships. A High Individualism ranking indicates that individuality and individual rights are paramount within the society. Individuals in these societies may tend to form a larger number of looser relationships. A Low Individualism ranking typifies societies of a more collectivist nature with close ties between individuals. These cultures reinforce extended families and collectives where everyone takes responsibility for fellow members of their group. Masculinity (MAS) focuses on the degree the society reinforces, or does not reinforce, the traditional masculine work role model of male achievement, control, and power. A High Masculinity ranking indicates the country experiences a high degree of gender differentiation. In these cultures, males dominate a significant portion of the society and power structure, with females being controlled by male domination. A Low Masculinity ranking indicates the country has a low level of differentiation and discrimination between genders. In these cultures, females are treated equally to males in all aspects of the society. Uncertainty Avoidance Index (UAI) focuses on the level of tolerance for uncertainty and ambiguity within the society - i.e. unstructured situations. A High Uncertainty Avoidance ranking indicates the country has a low tolerance for uncertainty and ambiguity. This creates a rule-oriented society that institutes laws, rules, regulations, and controls in order to reduce the amount of uncertainty. A Low Uncertainty Avoidance ranking indicates the country has less concern about ambiguity and uncertainty and has more tolerance for a variety of opinions. This is reflected in a society that is less rule-oriented, more readily accepts change, and takes more and greater risks.  Long-Term Orientation (LTO) focuses on the degree the society embraces, or does not embrace long-term devotion to traditional, forward thinking values. High Long-Term Orientation ranking indicates the country prescribes to the values of long-term commitments and respect for tradition. This is thought to support a strong work ethic where long-term rewards are expected as a result of today's hard work. However, business may take longer to develop in this society, particularly for an "outsider". A Low Long-Term Orientation ranking indicates the country does not reinforce the concept of long-term, traditional orientation. In this culture, change can occur more rapidly as long-term traditions and commitments do not become impediments to change. Ed Schein has defined culture as: “A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way you perceive, think, and feel in relation to those problems.” He has also defined different levels of culture: Artifacts · On surface Sees Hears Feels · Visible products Language Technology Products Creations Style: clothing, manners of address, myths, stories · Easy to observe · Difficult to decipher · Symbols are ambiguous · Problems in classification Espoused Values · All group learning reflects original values · Those who prevail influence group: the leaders · First begins as shared value then becomes shared assumption · Social validation happens with shared learning. · Initially started by founder, leader and then assimilated. Basic Assumptions · Evolve as solution to problem is repeated over and over again. · Hypothesis becomes reality · To learn something new requires resurrection, re-examination, frame breaking · Culture defines us: What we pay attention to What things mean React emotionally What actions to take when · Humans need cognitive stability Defence mechanisms · Different cultures make different assumptions about others based on own values etc: see them with our eyes not theirs. · Third party may help solve differences between 2 cultures · Each new member comes with own assumptions. Trompenaars and Hampden-Turner (1997) classified cultures along a mix of behavioural and value patterns. Their research focuses on the cultural dimensions of business executives. In their book "Riding The Waves of Culture" (1997), Trompenaars and Hampden-Turner identify seven value orientations: Universalism versus particularism Communitarianism versus individualism Neutral versus emotional Defuse versus specific cultures Achievement versus ascription Human-Time relationship and Human-Nature relationship Some of these value orientations can be regarded as nearly identical to Hofstede's dimensions. Others offer a somewhat different perspective: Of these seven value dimensions, two reflect closely the Hofstede dimensions of Collectivism/Individualism and to a lesser extent power distance. Trompenaars and Hampden-Turner's communitarianism / individualism value orientation seems to be virtually identical to Hofstede's Collectivism/Individualism. Their achievement/ ascription value orientation, which describes how status is accorded, appears to be linked to Hofstede's power distance index, at least if one accepts that status is accorded by nature rather than achievement, and that this reflects a greater willingness to accept power distances. It is, however, not a complete match, as Hofstede's power index does not only relate to how status is accorded, but also to the acceptable power distance within a society, an area that is not touched upon by Trompenaars and Hampden-Turner.Trompenaars and Hampden-Turner's other dimensions seem to focus more on some resulting effects of underlying value dimensions. For example, their neutral/emotional dimension describes the extent to which feelings are openly expressed, i.e. a behavioural aspect rather than a value in itself. Their universalism/particularism value orientation, describing a preference for rules rather than trusting relationships, could be interpreted as part of Hofstede's uncertainty avoidance dimension on the one side, and to some extent the collectivist/individualist dimension. Their diffuse/specific value orientation, describing the range of involvement, seems to have no direct link to any of Hofstede's dimensions. E-Business System The Internet is creating a new economy where business must be won on price and service at every interaction. To compete effectively on the Web, each business must determine for itself how it will be an “Internet company” - how it will leverage its unique practices, processes, and expertise to add new value through digital commerce. Successful eBusiness also requires a new kind of commerce system that adapts to changing business conditions between one transaction and the next. The available information must be reinvented at each encounter, uniquely suited to the needs of the customer and the business situation. Webridge understands the business and technological issues of eBusiness. Thanks to technology, today’s marketplace is increasingly crowded. New production methods and technologies are eroding product differences and shortening product lifecycles, which, in turn, shortens the competitive life of each product. In the past, companies have competed on price, while maintaining profits through process automation. But now most companies have realized the benefits of simple process automation, and the Internet and the ease of on-line comparison shopping are undermining customer loyalty and increasing market pressures even further for both business-to-consumer and business-to-business commerce. Conclusion No comprehensive solution to the problems of cultural diversity has yet been conceived. As a matter of fact, I doubt that a solution will ever be found since diversity implies the fact that, what is right for one might be wrong for another. In that case, a management style might be efficient in a certain situation but totally ineffective in a different context, because everything depends on the environment. Understanding might be the key word for managing intercultural differences. Besides, this so called, “understanding” the others is not just a matter of training but also of experience and personal “reconsideration”. Yet it is clear that preparation for the successful management of such diversity in all its ramifications will be a vital component of long-term success in the global market. For while business is already global, management remains culture-bound. Understanding the importance of managing cultural differences is the key to building successful relationships. Cultural differences do not j