Professional Documents
Culture Documents
International Strategic Management
International Strategic Management
Chapter 11
CHAPTER
11
The Walt Disney Company is a $23 billion MNC that currently earns over $150
million a year in royalties and licensing fees.
Disney expanded its popular theme park concept in 1984 from its original two sites
in the United States to Japan. To limit its risk, Disney signed an agreement with the
Oriental Land Company, which financed and owns Tokyo Disneyland and pays
Disney royalties. Tokyo Disneyland proved to be an enormous success, and
prompted Disney to seek other foreign opportunities.
Disney chose Paris, France as the site for its next theme park in 1988. Paris was
selected because some 350 million people live within a two-hour plane ride of the
city, and because the French government offered numerous incentives, including
bargain-priced land and an extension of the Parisian rail system to the park. Disney
was permitted to retain up to 49 percent of the stock in the new theme park.
Euro Disneyland however, proved not to have the fairy tale success of its Japanese
counterpart. Critics feared that it would threaten the French culture, and likened it
to a cultural Chernobyl, farmers condemned the decision of the government to sell
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their land to Disney, and the company found itself under fire for its dress code,
training practices, and plans to ban alcohol from the park.
So far, although some 11 million people visit the park each year, the project has
been struggling financially. Construction costs were higher than expected, visitors
have spent less than anticipated on food and lodging, and the company has had to
increase its staff and number of computer reservation terminals.
The park reached a major financial crisis after just 18 months of operation. Disney
and its banks agreed to new financial arrangements in 1994, which included an
agreement by Disney to relinquish royalty payments and management fees paid by
Euro Disney. In addition, the project received an injection of much needed capital
from a Saudi Arabian investor.
Disney executives remain optimistic about the parks future, noting an anticipated
rise in discretionary spending in France. In fact, by 1997, the park had become the
number one tourist destination in Europe.
CHAPTER SUMMARY
Chapter Eleven explores the issue of international strategic management. The chapter
begins with a discussion of the basic components of international strategy, and then
moves on to consider the strategy formulation and implementation process. Finally,
strategy development is examined at the corporate level, the business level, and the
functional level.
I.
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Strategic planners responsible for both domestic and international strategies must
answer the same fundamental questions: what products and/or services does the
firm intend to sell? Where and how will it make those products or deliver the
services? Where and how will it sell them? Where and how will it acquire the
necessary resources? How does it expect to outperform its competitors? Discuss
Table 11.1 here.
International strategic planners must also contend with cultural, political, and
geographical differences among countries.
International companies are in a position to exploit three sources of competitive
advantage global efficiencies, multinational flexibility, and worldwide learning
that are unavailable to domestic firms. The text provides examples of each type of
competitive advantage.
STRATEGIC ALTERNATIVES
MNCs typically follow one of four strategic alternatives. The first, the home
replication strategy, utilizes the firms domestically developed core competency or
firm-specific advantage as its main weapon in the foreign markets it enters. The
second alternative, the multidomestic strategy, requires the firm to view itself as a
collection of relatively independent operating subsidiaries, each of which focuses on
a specific domestic market. The global strategy, in which the firm views the world
as a single marketplace and has a primary goal of creating standardized goods and
services that will meet the needs of customers worldwide, is the third alternative for
international firms. Finally, some firms may choose to follow the transnational
strategy in which an attempt is made to combine the benefits of global scale
efficiencies with the benefits of local responsiveness.
Master of the Furniture Universe
This section describes the Swedish furniture company, IKEA, its philosophy,
strategy, and global expansion. It currently has 70,000 workers and in 2001, 255
million shoppers visited its 150 stores worldwide. The firm has a strong culture
committed to affordable stylish furniture for people with thin wallets. IKEA has
struggled along the way (for example, trying to sell beds in the United States that
didnt match standard sheet sizes). IKEA is now venturing into suburban
development, designing and building entire communities of apartments that are
furnished with IKEA products.
The home replication strategy may be appropriate for firms when both the
pressures for global integration and the need for local responsiveness are low, while
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III.
Scope of Operations
The scope of operations answers the question where are we going to conduct
business? The response to the question may be in terms of geographic regions, or
in terms of market or product niches within one or more regions. The text illustrates
both types of responses using the Grupo Luksics, a conglomerate operation, and
Disneys theme parks as examples.
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Resource Deployment
Resource deployment answers the question given that we are going to compete
in these markets, how will we allocate our resources to them? Resources can be
allocated along product lines, geographical lines, or both. The text provides
examples of each type of resource deployment.
Synergy
IV.
Synergy answers the question how can different elements of our business benefit
each other? The text illustrates this concept by examining how Disney gains in its
operations.
Mission Statement
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Strategic Goals
Strategic goals are the major objectives the firm wants to accomplish through
pursuing a particular course of action. They should be measurable, feasible, and
time limited. The text provides examples of how Disney set goals for its European
operations.
Tactics
Tactics (specific tactical goals and plans) involve middle managers and focus on
the details of how to implement strategic plans. The text illustrates this concept with
an example of how Grand Metropolitan handled tactical issues during its recent
merger with Guinness.
Control Framework
V.
Corporate Strategy
Corporate strategy helps a firm define the domain of business in which it intends to
operate. A firm might adopt any of three forms of corporate strategy: single-business,
related diversification, or unrelated diversification.
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2. Related Diversification
The most common corporate strategy, related diversification, calls for the firm
to operate in several different, but related businesses, industries, or markets at
the same time. A firm employing this type of strategy can leverage a distinctive
competence in one market in order to strengthen its competitiveness in others.
The text provides an example of how Disney follows a strategy of related
diversification and also of Accors related diversification strategy.
The advantages of a related diversification strategy are numerous. First, a firm
is less vulnerable to competitive or economic threats since it does not depend
on a single product or service. Second, a firm may be able to achieve
economies of scale across its related units. Third, a firm may be able to use
technology or expertise developed in one market to facilitate entry into a second
market.
A main disadvantage of related diversification is the cost of coordinating the
operations of the related divisions. A firm may also find that all of its business
units are affected simultaneously by changes in economic conditions.
3. Unrelated Diversification
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Business Strategy
3. Focus
A focus strategy calls for a firm to target specific types of products for certain
customer groups or regions. Firms match the specific product features to the
needs of specific consumer groups. The text provides several examples of
companies pursuing this type of strategy.
Functional Strategies
Functional strategy answers the question, how will we manage the functions of
finance, marketing, operations, human resources, and research and development in
ways consistent with our international corporate and business strategies?
International financial strategy is covered in depth in Chapter 18. The topic of
Chapter 16 is international marketing strategy. International operations strategy is
the focus of Chapter 17, and international human resource strategy is emphasized
in Chapter 20.
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CHAPTER REVIEW
1. What is international strategic management?
International strategic management is a comprehensive and ongoing management
planning process aimed at formulating and implementing strategies that enable a firm to
compete effectively in the global marketplace.
2. What are the three sources of competitive advantage available to international businesses
that are not available to purely domestic businesses?
The three sources of competitive advantage available to international businesses are
global efficiencies, multinational flexibility, and worldwide learning.
3. Why is it difficult for firms to exploit these three competitive advantages simultaneously?
It is difficult to exploit the three competitive advantages simultaneously because each
advantage requires a different strategic perspective. For example, to exploit global
efficiencies, a firm often centralizes control; however, this limits its ability to exploit
multinational flexibility. Pursuing either global efficiencies or multinational flexibility may
inhibit a companys ability to promote worldwide learning, since in the case of global
efficiencies, the centralization of power may limit the ability to glean information from other
parts of the firm, while the decentralization of power that is associated with multinational
flexibility may also impair worldwide learning as units operate in isolation from each other.
4. What are the four basic philosophies that guide strategic management in most MNCs?
The four basic philosophies that guide strategic management include the home replication
strategy, the multidomestic strategy, the global strategy, and the transnational strategy.
5. How do international strategy formulation and international strategy implementation differ?
International strategy formulation involves the creation of a firms international strategies.
During this stage of the strategy process, the firm establishes its goals and the strategic
plan that will help it achieve the goals. International strategy implementation is the process
by which a strategy is achieved.
6. What are the steps in international strategy formulation? Are these likely to vary among
firms?
The key steps in international strategy formulation are developing a mission statement;
analyzing the firm and its environment to determine strengths, weaknesses, opportunities,
and threats; setting strategic goals; developing tactical goals and plans; and developing a
strategic control framework. These steps are used by most firms.
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4.
8. Describe the role and importance of distinctive competence in international strategy
formulation.
Distinctive competence is the first component of international strategy, and answers the
question what do we do exceptionally well, compared to our competitors? It is thought to
be a necessary condition for competing in international markets.
9. What are the three levels of international strategy?
among the levels?
The three levels of international strategy are corporate, business, and functional. It is
important to distinguish among the three levels because it helps to ease the complexity of
international strategic management.
10. Identify and distinguish among the three common approaches to corporate strategy.
The three common approaches to corporate strategy are single business, related
diversification, and unrelated diversification. A single business strategy requires firms to
rely on a single business for its livelihood. In contrast, a firm that has diversified into
related areas operates in several different but related businesses simultaneously. Finally, a
firm that has diversified into unrelated areas operates in several unrelated businesses at
the same time.
11. Identify and distinguish among the three common approaches to business strategy.
The three basic forms of business strategy are differentiation, overall cost leadership, and
focus. A firm following a differentiation strategy tries to establish and maintain the image
that its products/services are unique from competing products/services. An overall cost
leadership strategy involves focusing on achieving highly efficient operating procedures so
that a firms costs are lower than its rivals, and selling products/services at lower prices.
Finally, a focus strategy requires a firm to target specific types of products/services for
certain customer groups.
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12. What are the basic types of functional strategies most firms use? Is it likely that some
firms have different functional strategies?
The most common types of functional strategies include financial strategy, marketing
strategy, operations strategy, human resource strategy, and R&D strategy. While most
firms employ these basic functional strategies, some firms may emphasize certain areas
more than others.
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4. Study mission statements from several international businesses. How do they differ, and
how are they similar?
Depending on which companies are studied, students may find many differences in
mission statements, or just a few. Some factors that should be analyzed include target
customers and markets, principal products or services, geographical domain, core
technologies, concerns for survival, plans for growth and profitability, basic philosophy, and
desired public image.
5. How could a poor SWOT analysis affect strategic planning?
The purpose of a SWOT analysis is to identify a firms strengths, weaknesses,
opportunities, and threats. The SWOT then becomes a basis from which a companys
strategy is built. Therefore, a SWOT analysis that failed to correctly identify a companys
strengths, weaknesses, opportunities, and threats would potentially have a negative impact
on the companys competitiveness.
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6.
7. Why do relatively few international firms pursue a single-product strategy?
Companies that pursue a single-business strategy are more vulnerable to competition and
to changes in the external environment than firms following a diversification strategy. A
strategy of related diversification, however, allows a firm to leverage a distinctive
competency in one market and increase its competitiveness in others. In addition, a firm
pursuing a strategy of related diversification may be able to achieve scale economies. A
firm following a strategy of unrelated diversification may have an advantage in raising
capital, and may be less vulnerable to fluctuations in business cycles and competitive
threats.
8. How are the components of international strategy (scope of operations, resource
deployment, distinctive competence, and synergy) likely to vary across different types of
corporate strategy (single-business, related diversification, and unrelated diversification)?
A company that follows a single-business strategy will probably have a narrower scope of
operations than firms following either of the other two strategies. In addition, because a
single-business firm is focused on just one area, it can use all of its resources to
strengthen that particular business and improve its distinctive competence. Companies
following a single-business strategy will probably have fewer opportunities for synergy than
a firm following a strategy of related diversification. Firms following strategies of either
related diversification or unrelated diversification will probably have to make tradeoffs
between units when deploying resources and developing sustainable competitive
advantages.
9. The new Disney theme park in Hong Kong is slated to open in 2006. Develop a list of at
least five ways other units of the Disney Corporation can help promote and publicize this
park as the grand opening nears.
Students will probably have a range of ideas as to how Disney should promote its new
venture. Many students will probably focus on efforts at existing Asian operations as a
starting point, and then explore options for promoting the Hong Kong park within the
companys U.S. parks, stores, and TV station.
10. Is a firm with a corporate strategy of related diversification more or less likely than a firm
with a corporate strategy of unrelated diversification to use the same business strategy for
all SBUs? Why or why not?
Both firms that are pursuing strategies of related diversification and firms that are pursuing
strategies of unrelated diversification tend to group businesses into SBUs. In the former
situation, the products and services of each SBU are alike in some ways, while in the latter
case, the products and services of each SBU are not alike. The type of strategy,
differentiation, overall low-cost producer, or focus chosen for each SBU will reflect the
environment within which the SBU operates. In some cases, the same basic strategy is
chosen for all SBUs; in other cases, strategies will differ.
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11. Identify products you use regularly that are made by international firms that use the three
different business strategies.
Responses to this question will vary according to the products and companies chosen by
students. However, some common products and associated strategies include Bic pens
(overall low-cost leadership), Levi's jeans (differentiation), and Honda Accord station
wagons (focus).
12. Related and unrelated diversification represents extremes on a continuum. Discuss why a
firm might want to take a mid-range approach to diversification, as opposed to being purely
one or the other.
Firms may take a mid-range approach to diversification in an effort to capitalize on the
benefits of both strategies, while minimizing the disadvantages. For example, firms often
pursue related diversification strategies in an effort to gain economies of scale, or profit
from a firm-specific advantage. However, a firm may find its operations in jeopardy if
economic conditions change. In contrast, a strategy of unrelated diversification would
protect a firm to some extent from this sort of situation. Hence, a mid-range strategy may
be a good option for some MNCs.
13. What are some of the issues a firm might need to address if it decides to change its
corporate or business strategy? For example, how would an MNC go about changing from
a strategy of related diversification to a strategy of unrelated diversification?
There are a number of issues to consider when changing strategy. For example, a firm
that changes its strategy from related diversification to unrelated diversification would have
to consider whether it had the resources (capital and human) to operate its new ventures.
It would also need to consider coordination and organizational structure issues.
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2. Evaluate the extent to which there are any bases of relatedness among any of the four
existing businesses.
Most students will probably suggest that the four areas are basically unrelated. However,
some students may focus on issues such as target customers, and argue that there is
indeed some degree of relatedness among the four lines of business.
3. Using the criterion your group prefers, select any single business and assume that you will
recommend that it be kept and the other three sold.
This is an area where students will find that a good SWOT analysis comes in handy (see
additional application below).
4. Identify existing competitors for the business you chose to keep, including both domestic
and international firms.
Again, students who have taken the time to create a good SWOT analysis should be aware
of who the firms competitors are and their likely reaction to changes in the business
environment.
5. Identify three other countries where there might be potential for business expansion.
Explain why.
Responses to this question will vary, depending on which line of business a group has
chosen to keep. Students should again refer to their SWOT when answering this question,
and should consider not only market size and growth, but also issues such as the
competition and trade barriers.
6. Think of at least two other businesses that are related to the business you will keep and
which might be targets for acquisition.
As in the previous question, responses to this will vary depending on which area students
have decided to keep. Students may find it beneficial to discuss their responses with other
groups that have chosen to keep the same line of business.
Other Applications
This exercise requires students to identify various pieces of information and make
recommendations based upon that information. Much of the information required to make
these decisions would be found in a companys SWOT analysis. Students can be asked to
develop an extensive SWOT analysis as a starting point for this exercise. Many students
find that it is helpful to work in a group format when developing this information.
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CLOSING CASE
The New Conquistador
The closing case explores the activities of Telefonica de Espana, discussing the
deregulation of the Spanish telecommunications market and concentrating on
Telefonica's aggressive expansion into South American markets.
Key Points
Telefonica de Espana was a state-owned phone company in Spain for most of its
existence.
Telefonica's management decided to target Latin America for expansion, feeling its
linguistic and historical ties gave it a competitive advantage.
Case Questions
1. Go back in time to 1986. Do a SWOT analysis for Telefonica de Espana. Does
your analysis lead to the same conclusions as Telefonica's managers?
Not entirely. In 1986 Latin America was a long way from its move toward
privatization in the 1990's. Thus, the opportunity to move aggressively into Latin
America could not be foreseen. The threat of increased competition from other
European competitors, however, could be expected as Spain joined the EU, and
barriers to trade and investment across Europe began to fall. One of Telefonica's
strengths would have been its government ownership in 1986 (no longer a strength
today), and its greatest internal weakness would have been inefficiency -- a
weakness addressed in the late 1990's.
2. How would you characterize the corporate strategy adopted by Telefonica?
Related diversification through acquisition. They expanded in industries traditionally
related to the telephone industry (cellular service, Internet).
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The following are some suggestions on how best to utilize the CultureQuest materials to
achieve these objectives.
1.
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questions as well as participate in suggested activities and discussion noted later in this
section.
2.
Review the case in the text at the end of the chapter and use it as an
example to initiate additional discussion and activities
Additional Exercises
1. Student Activity and Discussion:
After the students have read the chapter end case and reviewed the online
materials, discuss the following questions and statements.
Use Table 11.1 on page 310 and identify each of the factors an American firm may
encounter in Brazil versus the U.S.
Discuss the cultural nuances of doing business in Brazil and how that has impacted the
country.
What regional considerations and cultural nuances should companies review before
deciding where to establish business operations in Brazil?
What factors do you think the company considered when they selected to have
operations in Brazil?
Assess whether these considerations will continue to be advantageous for the
company in the coming decades.
Additional test questions on this information can be found in the Test Item File.
Chapter 11:
Test Questions
1. Which of the following best describes Jeitinho in Brazil?
a.
b.
c.
d.
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B. The hallmark of Brazilian business culture is a creative approach known simply as jeitinho.
Jeitinho means to find a way. For Brazilians, theres always another way to get something
done. An individual who needs a document, for example, might take the bureaucratic steps
necessary to obtain it. Unfortunately, because of rules and regulations, obtaining it might
become impossible. However, by using personal connections, bending the rules, making a
contribution, or simply approaching the problem from a different angle, he or she might be
able to find a way. In other words, the individual would use jeitinho.
(For more details, please refer to the online CultureQuest lessons for Chapter 11.)
2. True or False.
Companies assessing new markets for their products and services should also take into
account the cultural attitude towards ambiguity.
True. A key cultural measuring stick is tolerance for ambiguity. How does your culture deal with
uncertainty? Does it favor risk taking? Does it value loyalty to superiors? Does it favor or
discourage change?
In all cultures, understanding where the individual stands can be quite an effort. Thats where
rules and rituals come in. In most Asian cultures, for example, greetings can be highly ritualized
and learning these rituals is important to gaining acceptance. It may not suffice to say "hello"
without stating your name, title, and occupation.
Similarly, people in Asia may take a long time before disclosing personal details and accepting
strangers into their groups. The degree of sincerity and openness they show reflects how
much the outsider has been accepted. If youre accustomed to quicker acceptance of others,
you might find this a bit of an adjustment.
People who have a low tolerance for uncertainty generally prefer to steer clear of conflict and
competition. They tend to appreciate clear instructions. At the office, sharply defined rules and
rituals are used to usher tasks to completion. Japan is often considered an example of such a
society.
Conversely, Northern Europeans and Americans accept a relatively high threshold of
uncertainty. Judging by the degree of dissent and risk they indulge in, they generally log lower
stress levels in their relationships. Yet their relationships tend to be more superficial and less
committed. Friendships form quickly, but relationships, even between them and their 300 best
friends, are not necessarily binding or enduring. Members of these cultures require less formal
rules to interact.
3. True or False.
Two key aspects of Brazilian life and culture are soccer and Carnaval
True. Brazilians are deeply passionate about Carnaval and soccer and it impacts the culture.
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4. Identify two regional considerations or cultural factors a company should review before
deciding where to establish business operations in Brazil?
As with many aspects of Brazilian life, corporate culture varies somewhat by region and
industry sector. The ages, educational backgrounds, and international experience of the
employees and employers also are significant factors. Further, foreign multinationals often
introduce elements of their own corporate cultures into their Brazilian operations.
Regional Differences
When it comes to doing business in Brazil, the most important city is So Paulo. It is
cosmopolitan in every respect, and the business culture reflects this. Many people speak
several languages and have lived abroad, or work for the numerous foreign corporations
whose Brazilian headquarters are in the city. International business practices are prevalent,
and the focus is on the final product. Yet cultivating relationships, as elsewhere in the country,
remains important. As you move farther away from the large cities of So Paulo and Rio, the
pace slows, decision making takes longer, and a far more relaxed attitude prevails.
Fellow Brazilians often chide Paulistanos, as natives of So Paulo are called, for being so
serious and business-minded. Its not uncommon to find a Paulistano working long hours and
investing in extra training to enhance his or her career opportunities. People in the southern
regions of the country, with their largely European heritage, are also viewed as more
industrious and organized. This southern area includes the states of Paran, Santa Catarina,
and Rio Grande do Sul.
Rio de Janeiro
Cariocas, or people from Rio de Janeiro, do not share the Paulistanos reputation for diligence.
Rather, theyre seen as pleasure seekers, and jokes abound about Cariocas skipping work on
good beach days.
International Influence
There is a clear hierarchy among Brazilian companies with respect to their international
exposure. Those that have multinational operations have adopted international business
practices; smaller companies with mainly Brazilian operations are still very traditional. Often
multinationals based outside Brazil contract with local companies with far less international
experience, leading to clashes of corporate cultures.
Likewise, older managers are more likely to follow more traditional Brazilian business norms
than younger managers. Many young Brazilians have studied or worked abroad. In addition,
younger employees tend to have been exposed to more international practices through the
Internet and the media and by working for foreign companies. Theyre eager to be on the
cutting edge and very eager to adopt the business practices and products of their counterparts
in North America and Europe.
As the Brazilian economy has become more international in scope, the need for people
experienced in dealing with foreign companies and countries has increased dramatically.
This trend is reflected in the much greater attention to detail, to punctuality, and to output.
Hierarchy of Credentials
At all levels its common to find employees attending night school. Many Brazilians join
companies at a young age and complete their degrees while working full time. Many also
choose to augment their rsums (currculo) with additional courses, often weekend seminars
known as postgraduate degrees.
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In status-conscious Brazil, a prestigious degree is the absolute prerequisite for career success.
Only rarely will a Brazilian join a company in an entry-level position and rise through the ranks.
Brazilian companies mirror the hierarchical nature of the culture at large.
Adaptability
Being forced to deal with uncontrollable circumstances, from poor phone service to economic
uncertainty, has been a day-to-day challenge for Brazilians. It has tended to make them an
adaptable people. Rather than becoming frustrated by all they cannot control, theyve learned
to live with these limitations. In recent years, though, improvements in the infrastructure,
particularly telecommunications, have enabled Brazilian companies to operate more efficiently
and more in line with international norms and practices.
But attitudes can be ingrained, and, because of the constant need to adapt, Brazilian workers
may strike you as more content than many people to accept good enough. Form the way
things are done often takes precedence over content and quality. As a result, you may be
surprised by less-than-perfect, sometimes even mediocre, standards. They accept what they
consider small problems (probleminhos). For example, although a business letter he wrote
contained several typos, a Brazilian was about to mail it. When his American boss questioned
him about the errors, the Brazilians response was So what if I made a few mistakes?
However exasperated you may be by their relaxed standards, youre likely to be impressed by
the Brazilians ability to cope with rapidly changing conditions. Also remember, the situation is
improving. Many Brazilians, especially those in the younger generation, are both ambitious and
entrepreneurial.