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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 predetermined 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 the achievement 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 diverse background Emotional intelligence. Manage emotions Long-term vision Manage change Motivate-able Negotiator Willingness to travel Foreign cultures aware
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, TNCs spread out their operations in many countries sustaining high levels of local responsiveness. An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralised headquarters
CFO - corporate officer primarily responsible for managing the financial risks of the business or agency. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management. CEO - administrator in charge of total management. 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.
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. especially among developing nations. (bad for developed) . 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.Positive: increases economic prosperity as well as opportunity.
Multinationals not only trade across borders with exports and imports but also build global networks that link R&D. EU an economic and political union or confederation of 27 member states which are located primarily in Europe. FREE trade . The latest amendment to the constitutional basis of the EU. These usually lead to more trade. ASEAN. cross-border ownership or FDI has been increasing significantly from the 90s. The Maastricht Treaty established the European Union under its current name in 1993. Free trade enables the free movement of goods and services without imposed tariffs on goods. Multinational management performed in the environment of global trading blocs. Regional trade agreements are agreements among group of countries to reduce tariffs and develop similar technical and economic standards. supply. wealthy global north. came into force in 2009. MERCOSUR. . SADC. Labor unions see migration of jobs from higher wage countries to lower wage ones. The three largest groups account for nearly half of the world’s trade (EU. Thus. formed by six countries in 1958. APEC). This is especially advantageous to countries in the global south who tend to find themselves 'priced out' of goods and services from the developed. Environmentalists note that free trade encourages large multinationals to move environmentally damaging production to poorer and often environmentally sensitive countries. NAFTA.Question 3. The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC). How to operate in protectionist environment.NAFTA. 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. production and sales units across the globe.trade that largely works in the mutual benefit of both parties. the Treaty of Lisbon.
abolition of all obstacles for movement of persons.With a combined population of over 500 million inhabitants. . Southern African Development Community (SADC) July 1992: Declaration and Treaty replacement of SADCC for the SADC. to reduce tariff of the products produced in ASEN countries Population .792 trillion (n/a) .4.5 billion .4 trillion in 2008 1967: ASEAN established in Bangkok. . 1994: official date of the launch of the bloc.2003: combined GDP of about US$700 billionthis GDP was growing at an average rate of 4% p. quantative restrictions for export and import. specially the Mexican one.486. Nominal GDP had grown to USD $1.3% of the world population. coal. natural gas.electricity. Paraguay and Uruguay founded in 1991.Total US$ 3. to establish free trade area in the member countries. Some implications of the Agreement: Free movement of goods. services. July 1992: Declaration and Treaty replacement of SADCC for the Southern African Development Community (SADC). Major products: electronic goods. the EU generated a nominal GDP of 16. Objectives of ASEAN: to encourage inflow of FDI in the region. Botswana. electricity.Per capita US$ 5.Per capita $35.335. Total elimination of customs tariffs 15 years In terms of combined purchasing power parity GDP of its members. It complements the role of the African Union.a. Southern Common Market (MERCOSUR) – is a Regional Trade Agreement (RTA) among Argentina.Per capita $2. as of 2007 the trade block is the largest in the world and second largest by nominal GDP comparison..583 3.8% of the world's population. NAFTA: 1988: beginning of negotiations between US and Canada.Total $16.962 GDP (nominal) 2008 estimate .Total $17. or 7. SADC .Per capita $35.5 million GDP (PPP) 2007 estimate . petroleum.5 millions inhabitants Main exports: energy. . establishment of common customs tariff and commercial policy.development of all economies. coal. 2.431. .Total US$ 1. Population 2003: 219. which represents an estimated 20% of the global GDP when measured in terms of purchasing power parity Activities of EU: elimination of customs duties. oil and wood.491 (n/a) GDP (nominal) 2008 (IMF) estimate . Population . Its goal is to further socio-economic cooperation and integration as well as political and security cooperation among 15 southern African states. Brazil. Benefits: .564 (18th) Association of Southeast Asian Nations (ASEAN) : is a geo-political and economic organization of 10 countries located in Southeast Asia. application of programmes in order to coordinate the economic policies 1. Working languages: English. 1991: negotiations were formalized. April 1980: Lusaka Declaration and creation of the Southern African Development Coordination Conference (SADCC).242 billion US dollars in 2010. 4. January 1st.2008 estimate 445.The Southern African Development Community (SADC) is an inter-governmental organization headquartered in Gaborone. August 1992: Mexico decided to join the bloc. French and Portuguese.091 (3rd) GDP (PPP) 2008 (IMF) estimate .5 million square kilometers.Main exports: energy. and factors of production elimination of customs duties and non-tariff restrictions on the movement of goods. services and capital.2 billion .153 trillion (n/a) .2007 estimate 575. natural gas.easier to compete with the Japanese economy and the EU Bloc. petroleum.
sealevel increase • ozone layer • acid rain • eutrophication • biodiversity erosion • demographic growth • world health problems • poverty and starvation • drinking water • agriculture • global waste Globalization is often accused to have been largely responsible for the increasing of world pollution levels in the last decades. precipitation change. Commitment among member States to harmonize their legislation on the relevant matters in order to strengthen the integration process. China. Philippines. Indonesia. South Korea.858 (70th1) 6. Brunei. They have pledged to liberalises trade among themselves by 2010 for developed countries and 2015 for de countries. It should have 18 representatives from each country by 2010 Mercosur does not have quantitative restrictions between its members. • Income Government can alter allowed pollution levels according to a balance between advantages and side damage deriving from polluting production processes . Establishment of a Common External Tariff (CET). Japan. Taiwan. Question 4. deriving from the opening of any individual country to world commerce. Russia. Its 21 members range account for 45% of world trade. United State The Asia-Pacific Economic Cooperation forum is a loose grouping of the countries bordering the Pacific O have pledged to facilitate free trade. it appears that the net effect on world pollution measures. Clean energy goals and its impact on the MNC environmental issues are intertwined with social/ cultural and socioeconomic issues Major environmental issues • climate change – global warming (―Greenhouse effect‖) • thawing of icebergs. Recently China has begun signing bilateral free trade deals with a number of Apec members.APEC Members: Australia. The founding of the Mercosur Parliament was agreed at the December 2004 presidential summit. Actually.616. Malay New Zealand. with the exception of the automotive sector. Papua New Guinea. Singapore. Canada. The biggest environmental challenges and possibilities for starting business for global competitors. Chile.895 trillion (5th1) .Per capita U$ 10. which are: • Environmental policies implemented by its government. droughts and floods. Population . Hong Kong.2006 estimate 266. is determined by the configuration of three basic factors within the country itself. Peru. Thailand.849 (4th1) GDP (PPP) estimate .Total U$ 2. • Comparative advantages.
and achieve human health protection.html : Four main sectors that use energy: Transportation. The challenges faced by governments become even more complex when transboundarymultinational issues come into play. The agricultural policies of every state have some impact on the global agricultural market. while protecting the environment. Rocky Mountain Institute http://www. (2. energy projects. Farming has a direct impact on the environment. United States would contribute a non-negotiable amount of $129bn to the expansion of renewable energy programmes. the EU set renewable energy goals for the next 12 years: to decrease carbon emissions by 20%. 25 million of which are in Asia Pacific Globalisation of agriculture: Agriculture makes up large portions of the economies of most developing nations. restore natural resources. “Reinventing the fire”. other natural resource exploitation. serving 125 million individuals. Integrate technology. This is a new approach after Bush’s legacy of reluctance in the arena of energy saving projects. Buildings. which is the case for issues ranging from global warming and invasive species. The mineral resource industries (mining and oil and gas) have generally embraced the concepts of sustainable development and preservation biodiversity. to marine transportation-oil spill accidents. safeguarding human health. It is the world‘s third largest water company providing service to 70 million people worldwide • Vivendi .Suez Lyonnaise: the world’s largest water and wastewater business operating in about 130 countries. At the center of major global environmental challenges for industry are energy strategies.371 companies with a 110 million customer base. ultra-strong materials like carbon fiber composites can make dramatic weight savings. Amory Lovins.Vivendi Environment: operates in about 100 countries through 3. These four using together can yield synergy and create disruptive business opportunities. One saved weight unit accounts for seven saved fuel units. Suez . Two thirds of energy that goes to move a typical car is caused by its weight. Similarly.com/talks/lang/en/amory_lovins_a_50_year_plan_for_energy. Industry and Elictricity. in January this year. Today ultra-light. and designing manufacturing life cycles to minimize future impacts. The two huge tasks facing governments are: (1. and preserving cultural/ social values.These three giant companies are: • Thames Water of England -Owned by the German conglomerate RWE.ted.) determining how to clean up legacy problems. For example. maintaining biodiversity. but putting sustainability and biodiversity concepts into play is a ―work-inprogress‖ for most companies. policy. design and business strategy.) designing strategies to allow for future growth. . oil costs to US economy 1/6 of the GDP.
Not scarce. Organizational culture: the set of important understandings that members of an organization share . This can bring a solution to: climate change. So price of the lighter cars will be the same while driving costs will be much lower. 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. and what are legitimate goals for life. not local. This makes electric propulsion affordable and driving electric cars prices down. acceptable ways to conduct business in a society). Cross-cultural communication environment. Culture represents pervasive and shared beliefs. Cultural values: what is good/beautiful/holy beautiful. beliefs.Lighter cars need less energy to move them so their engines become smaller. not costly and permanent. Three technologies: ultra-light materials. ---Companies hampered by old thinking won’t be a problem because they simply won’t be around longterm. values. values. Now there is a most profound transition in human history – inventing a new fire – not dug from below but flowing from above. Question 5. • • • Cultural norms: both prescribe and proscribe behaviors What we should do and what we cannot do. energy security. and beliefs that pertain to business in a culture (Tells people the correct. Occupational and organizational culture Occupational culture: the norms. making them into structures and electric propulsion. and symbols that guide everyday life. 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 ). The cultural context of international management. Business culture: norms. Hofstede`s and Trompenaar`s characteristics. values. Management philosophy of MNC in coordinating international operations. nuclear proliferation. norms. energy poverty. Three levels of culture: o o o National culture: the dominant culture within the political boundaries of the nation-state. and expected ways of behaving for people in the same occupational group.
Slovakia) less powerful accept power relations that are more autocratic and paternalistic.g. o Low-context language: people state things directly and explicitly Most northern European languages including German. oculesics.A. Individualism. English. how to avoid mistakes based on faulty attributions (self-reference error). aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. titles. often extended families (with uncles. Major issues in crosscultural communication include: o o relationships between language and culture. Denmark. we find societies in which people from birth onwards are integrated into strong. refers to the distribution of roles between the genders. societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. Great Britain and Australia are the most individualistic cultures. and ceremony in prescribed social interaction non-verbal communication. assertiveness. On the collectivist side. 'masculine' cultures value competitiveness." . New Zealand) expect and accept power relations that are more consultative or democratic. whereas feminine cultures place more value on relationships and quality of life. Japan is considered by Hofstede to be the most "masculine" culture (replaced by Slovakia in a later study). Austria. o o o o o 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. Latin American cultures rank among the most collectivist in this category. o Direct communication: communication that comes to the point and lacks ambiguity o Formal communication: communication that acknowledges rank.S..International negotiation requires successful cross-cultural communication. and the accumulation of wealth and material possessions. Masculinity versus its opposite.g. Low power distance (e. Sweden the most "feminine. how to speak to non-native speakers of your language. femininity. and the Scandinavian languages o High-context language: people state things indirectly and implicitly Asian and Arabic languages cultural differences in communication styles. proxemics. haptics. Malaysia. o Kinesics. while Western countries such as the U. o Whorf hypothesis: theory that language determines the nature of culture differences between high and low context cultures. and olfactics when and how to use interpreters. ambition. cohesive in-groups. Israel. 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. In High power distance countries (e.
Thus profit is usually fully reinvested in the foreign country Full adaptation of strategy to local conditions Lack of synergy of the whole company network. Pulmutter’s EPRG theory of intl mgt styles. describes a society's "time horizon. 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. An indication of the extent to which individuals are expected to be fair. to improve their performance. 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. emotional (Do we display our emotions?) 4. Unique dimensions • Performance orientation. Long-Term Orientation. particularism (What is more important. Uncertainty avoiding cultures try to minimize the possibility of unstructured situations by strict laws and rules. safety and security measures. Specific vs. Ethnocentric. Global strategy. Same as polycentric whilst regions are viewed as countries Regional strategy (food and FMCG companies) Geocentric. collectivism (communitarianism) (Do we function in a group or as individuals?) 3. Refers to the degree to which the society encourages societal members to innovate. altruistic. Globalization of customer preferences and economies of scale Profits are directed to the potentially most profitable parts of the MNC . caring. Universalism vs. International Management “philosophy”. Subsidiaries operate as independent business units with their own business strategies." or the importance attached to the future versus the past and present Trompenaars. Neutral vs.Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity. and to strive for excellence (high in Russia and Greece) • Humane orientation. diffuse (Is responsibility specifically assigned or diffusely accepted?) 5. rules or relationships?) 2. Achievement vs. decisionmaking and financial mgt. Individualism vs. World viewed as a single market. Ethnocentric-Polycentric-Regiocentric-Geocentric. difficulties in central coordination Regiocentric. 1. and generous (high in Malaysia and Egypt).
MNC'. 2. an MNC is a parent company that… 1. Spatial Fragmentation (and its trade consequences) • Horizontal MNCs Firms replicate production process at home and abroad. » For example. controlled by British and Dutch interests. 3. exercises direct control over the policies of its affiliates. tax havens. implements business strategies in production.Question 6. These companies command enormous financial resources. by ownership test. Shell and Unilever. A corporation that has its facilities and other assets in at least one country other than its home country. Trade between affiliates of the same MNC (Accounts for one-third of total world trade) .off shoring. Most common between equally developed countries Vertical MNCs Firms divide production into stages and undertake each stage where it is relatively cheaper Most common between countries at different levels of development • Intra-firm trade. » Usually. Different criteria used for characteristic of MNC: 1. Trans-National Corporations (TNCs) sometimes referred to as multinational companies. The definition of MNC by different criteria. Business Strategy » Usually assumed to be global profit maximization » Franklin Root.its characteristics. managers of the headquarters are nationals of the home country. MNC. very few multinationals are multinational. engages in foreign production through its affiliates located in several countries. 2. possess vast technical resources and have extensive global reach. Thus vVery few companies pass this test currently. However. Ownership criterion: » MNC is when parent company is effectively owned by nationals of two or more countries. 3. marketing. Nationality mix of headquarter managers: if the managers of the parent company are nationals of several countries. finance and staffing that transcend national boundaries (geocentric). The biggest MNC according market capitalization. Multinational Corporation . Tax optimization. are good examples. are enterprises that control economic assets in other countries — generally this means controlling at least a 10% share of such an asset.
Market capitalization/capitalisation (aka market cap or capitalized/capitalised value) is a measurement of corporate or economic size equal to the share price times the number of shares outstanding of a public company Optimization of taxation involves organizational measures within the current legislation dealing with the choice of time. Cayman Islands. . hedge funds. 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. Bermuda. 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. Panama Reasons for offshore investment: Avoidance of forced heirship Asset protection Less regulated (for example. Protection of personal financial information Lack of transparency British Virgin Islands (40% of all offshare companies). Luxembourg. Individuals and/or firms can find it attractive to move themselves to areas with lower tax rates: • • • No or only nominal taxes. Monaco. Andorra. British Virgin Islands. principally the Cayman 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. Gibraltar. location and activities. which thrive in low regulatory environments due to their highly aggressive investments strategies thrive in offshore jurisdictions. Cyprus.
corporate culture usually involves the inclusions of some rites or rituals. its values. traditions and meanings that make a company unique. but also extend to symbols of power such as parking spaces and executive washrooms. There would be more reliance on individualism in a power culture. including the following: External environment Industry Size and nature of the organization‘s workforce Technologies the organization uses The organization‘s history and ownership . Rituals and Routines: Management meetings. Organizational Structures: Reporting lines. Corporate culture is the total sum of the values.Question 7 Corporate culture. At the foundation of any company culture are the standards that govern the operation of the business. as well as managerial behavior Senior management may try to determine a corporate culture. Power Structures: Who makes the decisions. its mission. hierarchies. The basic factors of corporate culture. The US and EU initiative and measures to cope with corporate governance. and the way that work flows through the business. This basic organizational culture makes it possible to develop other layers of corporate culture based on these foundational factors. They may wish to impose corporate values and standards of behavior that specifically reflect the objectives of the organization. how widely spread is power. a week in the summer when the entire company shuts down. what it does. This can be something as simple as the annual holiday bonus. The values of a corporate culture influence the ethical standards within a corporation. As with many types of cultures. Different layers of corporate culture. and on what is power based? Symbols: These include organizational logos and designs. Stories and Myths: build up about people and events. Managers and its role in creating it. These standards are usually expressed in terms of the policies and procedures that define how the company will operate. and convey a message about what is valued within the organization. This will include how different departments or functions relate to one another in the production process. and rules governing acceptable conduct of everyone who is part of the company. Control Systems: The processes in place to monitor what is going on. customs. board reports and so on may become more habitual than necessary. the line of communication established between management and departmental employees. Organizational culture is shaped by multiple factors. 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. Role cultures would have vast rulebooks.
laws. and ideally is reinforced throughout employment. shareholder protection. task and person). the massive bankruptcies (and criminal malfeasance) of Enron and Worldcom. management philosophies and all other aspects must be aligned with one another. a strong mentor programme contributes to that level of trust as well. _Principle-centered Leadership_implies that personal contribution is a great motivator consistency o Within an organization. Corporate governance is the set of processes. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. as a manager. but also empowerment and mentorship are based upon the foundation of trustworthiness and trust. administered or controlled.e. Regardless of the type of culture (i. do it.While many managers acknowledge the significance of culture. mission statement. Employees need to be able to have faith in what they are being told • • empowerment/delegation o Empowerment is the process of enabling others to do something. If you say you‘re going to do something. managers. . but don‘t even say. The intricated shareholding structures of keiretsus in Japan. These factors cannot standalone. shared values. don‘t say you will. and the community The European Union (EU) has achieved a great deal in terms of addressing disclosure. role. policies. this means that its structure. Make up any excuse. and likewise. . there is a considerable variation in corporate governance models around the world. The principal stakeholders are the shareholders/members. • mentorship o Socialization is often begun through orientation programmes. few realize the roles and responsibilities that they have in its development. customs. as well as lesser corporate scandals. suppliers. and the board of directors Although the US model of corporate governance is the most notorious. and institutions affecting the way a corporation is directed. Not only do they coexist. and board structures and responsibilities since the adoption of its Action Plan for Modernizing European Company Law and Enhancing Corporate Governance in the EU (2003). don‘t want to do it. the heavy presence of banks in the equity of German firms. management. you will try. It is during this time of orientation that the organization‘s values and principles can be communicated and instilled into the behaviours of new employees These factors contribute to the overall good of the organization. If you can‘t do it. 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. In the early 2000s. the four components– • Trust o In establishing trust. power. AOL. such as Adelphia Communications. the chaebols in South Korea and many others are examples of arrangements which try to respond to the same corporate governance challenges as in the US. customers.
interest in culture) • Stress tolerance • Language ability • Emotional intelligence Importance of these factors depend on • assignment length. interested in other cultures) • Relational abilities (communication.Arthur Andersen. children’s education requirements) • International motivation (willingness to accept expatriate position. This is reflected in the passage of the Sarbanes-Oxley Act of 2002. Tyco. All HRM functions. ability to adapt) • Family situation (spouse’s willingness. Motivational factors for accepting international assignment. skills. including financial rewards. Key factors of assigning an expatriate to an international position: • Technical and managerial skills • Personality traits (open to new and changes. adapted to the international setting. flexible. • cultural similarity.international human resource management. • Recruitment: process of identifying and attracting qualified people to apply for vacant positions • Selection: process of filling vacant positions in the organization • Training and development: giving employees the knowledge. Global Crossing. • required interaction and communication. led to increased political interest in corporate governance. Question 8 IHRM . and abilities to perform successfully • Performance appraisal: system to measure and assess employees‘ work performance • Compensation: organization‘s entire reward package. selecting and training of international managers. benefits. • job complexity and responsibility . 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 assignee’s annual salary (more than $1 mln). cultural tolerance. Two added complexities compared to domestic 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 the organization. A process of recruiting.
personal care. Taxes. home furnishing. Besides these. Basic compensation procedures and its application for HCN and TCN. The basic factors for creating compensation package. Pension and healthcare 85% of MNCs use Balance-Sheet Approach for determining compensation packages. Avoiding double taxation Benefits. • • • 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. transportation. Adjust the compensation levels so that the expatriate suffers no loss from relocation Housing. recreation. MNC provide extra allowances and benefits: .Question 9 The compensation scheme for expatriates. Provides a compensation package that equates purchasing power. and medical care. housing. 90% of expatriate failures are family related Factors: • • • • Local market cost of living. food. education. clothing. Includes allowances for cost of living.
and salary scales are used Compensation trends. Home-leave allowances. performance appraisal methods.• • • • Foreign service premiums. Risk assessment. Strategic implementation. environmental assessment. 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. 10-20% of base salary increase for the individual and family challenge of expatriate assignment Hardship allowance. Mission and objectives. Equal-pay-for-equal-work with extra payments to expats Question 10. Extra for poor and high risk living conditions Relocation allowances. The strategy formulation for international markets. Type of strategy for penetrating foreign markets. Timely development. add allowances&bonuses. Paying HCNs the same salaries as their domestic counteparts which permits worldwide consistency. .
Strategy: the central. 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 country to enter and when) . 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.
adding new features. Most popular is the market growth-share BCG matrix. 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. Key Success Factors) Company’s competitive position in the industry (SWOT) o Opportunities and threats faced by their company o Company’s strengths and weaknesses On corporate level major issue is which businesses to invest in and which businesses to divest.Popular analysis techniques • • • Environment analysis (PESTEL) Competitive dynamics of the industry (Porter’s five forces model. or going after poorly served markets o End-run offensives: seeking unoccupied markets o 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 competitor’s lower prices Counter-parry: fending off a competitor’s attack in one country by attacking in another country . 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 of competitive scope.
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. 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 - - - . marketing. production.
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 Management Contract .
Increasingly popular strategy to develop new product and to expand into new markets • However.Question 11 Cross – border alliances. Mergers and acquisitions. The problems with evaluations of synergy. merge talents. The type of mergers and acquisitions. strategic alliances are very risky and unstable • Failure rate of 30% to 60% Alliance combining same value-chain activities are to gain efficiencies. Joint ventures. Synergy effect. 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 . Equity and non-equity alliances.
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.when placing larger orders.To stay competitive. achieving synergy is easier said than done . The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Two companies together are more valuable than two separate companies at least. Synergy takes the form of revenue enhancement and cost savings. Sure. one and one add up to less than two.Companies buy companies to reach new markets and grow revenues and earnings. target companies will often agree to be purchased when they know they cannot survive alone. but sometimes a merger does just the opposite. Improved market reach and industry visibility . This rationale is particularly alluring to companies when times are tough. giving them new sales opportunities. Mergers also translate into improved purchasing power to buy equipment or office supplies . marketing and other departments. A merge may expand two companies' marketing and distribution. who typically leaves with a compensation package.will try to create an image of enhanced value. In many cases. By merging. a large company can maintain or develop a competitive edge. size matters. Because of these potential benefits.it is not automatically realized once two companies merge. Strong companies will act to buy other companies to create a more competitive. Where there is no value to be created. By buying a smaller company with unique technologies. Synergy Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Job cuts will also include the former CEO. Acquiring new technology . there ought to be economies of scale when two businesses are combined. Whether it's purchasing stationery or a new corporate IT system. companies need to stay on top of technological developments and their business applications. 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. Sadly.Yes. companies have a greater ability to negotiate prices with their suppliers. Economies of scale .As every employee knows. The market. a bigger company placing the orders can save more on costs.who have much to gain from a successful M&A deal . Consider all the money saved from reducing the number of staff members from accounting. . eventually sees through this and penalizes the company by assigning it a discounted share price. cost-efficient company. mergers tend to mean job losses. synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. the CEO and investment bankers . the companies hope to benefit from the following: Staff reductions . That said. however. that's the reasoning behind M&A.
Stay away from companies that participate in such contests. often. the sharing of capabilities and opportunities.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. And external transaction advisers—usually investment banks—are seldom involved in the kind of detailed. channel partners. they usually have little data about the target company.A customer and company or a supplier and company. Horizontal merger . on the other hand. companies have a bad habit of biting off more than they can chew in mergers. Vertical merger .Two companies that sell the same products in different markets. Acquirers must undoubtedly cope with an acute lack of information. suppliers. so investors should look for acquiring companies with a healthy grasp of reality McKinsey http://mkqpreview1. and customers. bottom-up .Companies that pay in cash tend to be more careful when calculating bids and valuations come closer to target.Two companies selling different but related products in the same market. To find mergers that have a chance of success. Sadly. When stock is used as the currency for acquisition.A premium of. Mergers are awfully hard to get right.Two companies that are in direct competition and share the same product lines and markets. Synergy is hard to create from companies in disparate business areas. Cash transactions . It's hard for investors to know when a deal is worthwhile.2 These synergies can come from economies of scale and scope. investors should start by looking for some of these simple criteria: A reasonable purchase price . it takes only a very small degree of error in estimating these values to cause an acquisition effort to stumble. the stimulating effect of the combination on the individual companies. Market-extension merger . best practice. requires synergy of stellar proportions for the deal to make sense. Think of a cone supplier merging with an ice cream maker. Product-extension merger .Two companies that have no common business areas. The burden of proof should fall on the acquiring company. discipline can go by the wayside. However. Sensible appetite – An acquiring company should be targeting a company that is smaller and in businesses that the acquiring company knows intimately. and. 10% above the market price seems within the bounds of level-headedness. To help them assess synergies and set targets. Even highly seasoned buyers rarely capture data systematically enough to improve their estimates for the next deal. say. and insufficient experience. Conglomeration .qdweb. limited access to its managers. A premium of 50%.
in about a quarter of all cases they are overestimated by at least 25 percent. 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). . 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. they were 5 per cent higher than a year before (figure I. The inflow and outflow of FDIs. This moderate growth was mainly the result of higher flows to developing countries. following the large declines of 2008 and 2009.1).estimation of synergies that would be needed to develop meaningful benchmarks before a deal. At $1. when premerger estimates come face-to-face with reality.24 trillion in 2010. The role of FDIs in emerging economies. The measurement of effects of FDIs. The attractiveness of FDIs for MNCs. 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. Global foreign direct investment (FDI) inflows rose modestly in 2010. which together with transition economies – for the first time – absorbed more than half of FDI flows. Fewer still get involved in the post-merger work.
UNCTAD predicts FDI flows will continue their recovery to reach $1.4 –1.9 trillion in 2013. the peak achieved in 2007. In the first quarter of 2011. or the pre-crisis level.2). FDI inflows rose compared to the same period of 2010.6 trillion. They are expected to rise further to $1.7 trillion in 2012 and reach $1. . although this level was lower than the last quarter of 2010 (figure I. in 2011.
the technological range of host country enterprise. different countries and places have followed active policies to attract FDI. They showed that many countries like China. The factors that consider as the full benefits of FDI in some developing countries include the level of education and health. In many empirical evidences reveals that FDI plays a key role in contributing to economic growth. networks. In the host countries. In general. However. India and Uk use FDI as a advanced business for making economic growth. training of the labour force. the benefit of FDI are not limited to promote use of its sources. the level of development of local financial markets is crucial for these positive impacts to be absolved. Due to the “growth-development” benefits FDI assumes to conduct. insufficient openness to trade. but also branch from the introduction of new processes to domestic market. and other spillovers and externalities. weak competition and inadequate regulatory . learning-by-observing. a multinational company „s decision to develop production to another is driven by lower cost and higher deficiency consideration.Most of FDI scientists believe that FDI has a positive impact on the economic growth in the receiving countries.
For instance. and time) – Toyota in US .frameworks. transaction costs. On the other hand. the level of technological. Attrativeness. Why is FDI so common in international business? • Production or distribution facilities in a country can reduce costs of trade (transportation. in developing countries. vertical FDI is assumed to motivate trade whereas horizontal FDI is expected to substitute for trade. tariff and nontariff barriers. equip it better to benefit from a foreign presence in its markets. educational and infrastructure achievement are things being equal. Impacting foreign direct investment on export depends on the type of FDI.
Organizational design represents how organizations structure subunits and coordination and control mechanisms to achieve strategic goals Export department. they switch to more complex structures such as international division. divisions.company • Uses the same technology and producing the same products as the parent company Transnational subsidiary: has no companywide form or function • Each subsidiary contributes what it does best . Created when exports become a significant percentage of company sales Export managers control pricing and promotion of products for international markets. area structure. Choice of organizational form. Virtual structures The main organizational strategies. Coordination and reporting for global operations. deal with export management companies. components.. foreign customers and may coordinate foreign sales force.14 Evolution and change in MNC organizational structures. worldwide matrix structure and the transnational-network structure. Foreign subsidiary. highly-skilled labor. worldwide geographic and products structures.export department. . functional and multinational matrix. subsidiaries. global product. Types of foreign subsidiaries: Minireplica subsidiary: smaller version of the parent . and proximity to resources • Reduce costs of trade from import/export Question 13. As companies evolve beyond initial participation strategies of exporting and licensing.• Production within a country takes advantage of domestic sourcing of parts. Mixed structures. 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. foreign distributors.
international sales. Most smaller organizations have functional structures. 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. 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.g. products or combination of these choices.Diverse products overwhelm capacities of multinational . The prime reason for this structure is to implement a multidomestic or regional strategy (e. Toyota). Functional structure: Departments perform separate business functions such as marketing or manufacturing Is the simplest form of organizational structures. and product units Worldwide geographic structure.International Division Larger and has greater responsibilities compared to the export department Responsible for managing exports. geographic.Not close enough to local markets . geography.Cannot take advantage of global economies of scale or global sources of knowledge Organizations usually divide work into departments or divisions based on functions. . 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 .
product. The backside has units based on product groups to capture global economies of scale in R&D and production. and geographic subunits. coordinate product. The front side has units based on geography to provide multi-domestic/regional focus. It represents a symmetrical organization: equal authority for product and geographic groups. Its network links different types of transnational subsidiaries. upstream activities are global and downstream activities are local (e. Nodes.g. Citibank) To balance benefits of hybrid structure.g. Matrix structure to be successful requires extensive resources for communication among managers who have two bosses. Unilever). The front-back hybrid structure divides the organization into two line sub-organizations. Has no symmetry or form. a worldwide matrix structure is used. Tetra Pack. Ford Motor) Most large multinationals have hybrid structures (Sony Corp. In worldwide product structures each product division assumes responsibility for producing and selling its products throughout the world. 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. Philips which has 8 product divisions with more than 60 subgroups). functional and geographic information (e.g. 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.Country-level divisions exist only when a country’s market size is sufficiently large or important to support a separate organization. units at the center of the network. (e. 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. Other characteristics: Dispersed subunits (location anywhere in the world where subsidiaries can benefit the company the most) Specialized operations Interdependent relationships .
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 evolved – Micro-multinational Operate everywhere around the globe Use state-of-the-art technology for communication purposes Hire workers around the world .Next org structure to evolve might be a metanational one. technology. Large entrepreneurial multinational that can tap into pockets of innovation.
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 . up and down the organizational hierarchy Basic functions of control system: Help focus activities of the company’s 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.Control Systems Control system: helps link the organization vertically. 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 system o Focuses on managing behaviors within the organization.
The value activities of a company. memos) Direct contact (face-to-face communication. sales and marketing) Teams (strongest coordination mechanisms. . reports. production.Design Options for Coordination Systems: Textual communication (e. product managers coordinate development of product with design teams.g. Outsourcing and its role in increasing of MNC effectiveness. can be distributed among different countries.g. whether they are primary or secondary. unlike taskforces are permanent. teleconferences) Liaison roles (part of manager’s 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. Production branches. also come from several company subunits – e. Service industries. Breaking down a company into its individual value activities makes it possible to identify the current and potential contribution of each activity to the company‘s competitive position.g. e-mails. Financial institutions. a new product development team) *Question 15 The creation of global business network in specific industries.
One reason for the speeding-up of the whole globalisation process is the rapid emergence of ―global value chains‖. . 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. The whole process of producing goods.
Value chain for financial institutions: http://www. The importance of MNEs in today‘s global economy is linked to their strengths in a range of knowledge-based assets. which allow them to take advantage of profitable opportunities in foreign markets by setting up subsidiaries and affiliates abroad. While manufactured goods still account for the largest share of international trade. but have also become essential links in global value chains as they serve other (neighbouring) markets and provide inputs for other affiliates in the multinational‘s network.duke. training of personnel. but not all manufacturing industries are affected to the same extent. globalisation increasingly extends to FDI and trade in services. As suppliers. mainly because hightechnology firms no longer have all the required knowledge in-house and increasingly have to look outside. although they also face important challenges in reaching international markets: management. standardisation. Economic globalisation has resulted in a growing openness of the manufacturing sector. it increasingly involves foreign direct investment (FDI) and trade in services.shtml : . High technology industries are generally more internationalised than less technology-intensive industries. In particular. Improvements in technology. Cross-border trade between multinational firms and their affiliates. accounts for a large share of international trade in goods. finance and the ability to upgrade and protect in-house technology can all be hurdles. and through tele. infrastructure growth and decreasing data transmission costs have all facilitated the sourcing of services from abroad. Affiliates under foreign control not only serve local markets. such as management and intellectual property. control over firms in lower levels of the chain.edu/NC_GlobalEconomy/banks/value. Multinational firms (MNEs) play a prominent role in globalised value chains. Information and communication technologies (ICT) have made it possible to base services such as customer call centres anywhere in the world. This places them under increasing pressure to merge with other firms in order to achieve the critical mass required to support R&D.soc.and video-conferencing. ―knowledge work‖ such as data entry or research and consultancy services can easily be carried out via the Internet and e-mail. regardless of where the customers are. SMEs are often given more responsibilities in the value chain and more complex tasks than in the past. The development of global value chains also offers new opportunities to small and medium enterprises (SMEs).But globalisation is no longer only about goods and products. and to fulfil requirements in terms of standards and quality. often referred to as intra-firm trade.
Automotive industry: Selected external factors that affect the configuration of international value chains Engineering and construction industry: .
eu/) triggered remarkable industry leadership: Industry-led initiative to maintain. Odette and its national organisations plan to issue auto-gration as best-practice recommendation. namely BATA.000 enterprises were touched by dissemination actions. major automotive manufacturers (VW. the tourism industry. leading sectoral associations and ICT vendors. while over 4. to further promote the results and stimulate real market roll-out. some reference brands.e.ebiz-tcf. from 20 European countries participated in digital supply chains. An MoU was signed among key industry stakeholders and leading sectoral associations. Over 150 small companies from the textile and footwear sector. speedier and affordable integration of SMEs in global value networks. http://www. promote and extend the auto-gration framework by a joint auto-gration forum consisting of CLEPA. with significant efficiency gains. high segment menswear world wide. After the end of the pilot project. Altogether some 20 000 small enterprises have been involved in all of these projects. through the official standardisation bodies. http://www. during the action. integrated IT solutions in their daily business transactions. the fashion industry. So far. extend. a CEN workshop agreement was established to further maintain. Marco Polo. broad participation of SMEs. involvement of reference names in the sectors and prospects for mass market adoption through the European standardisation organisations and consortia. but lies also in the creation of new models that can be adopted to have a major impact in the real market. FIGIEFA and Odette.eu/) demonstrated impressive potential for concrete business benefits and led to promising industry follow-up actions: . thus ensuring interoperability between them. and the agro-food supply-chain. engaged to adapt their commercial solutions to become "Auto-Gration compliant". First results are remarkable. clothing retail.discwise. validate and promote the interoperability framework. the transport and logistics sectors. The rate of errors in order processing dropped from a 10% average to null. ZEGNA. The added value is not limited to the number of direct beneficiaries. Skoda Auto) engaged to implement auto-gration in their daily business processes. The demonstration action for the transport and logistics industry (DiSCwise. The demonstration action for the automotive industry (Auto-gration. representing 50% of the automotive industry in Europe) issued an official recommendation to adopt auto-gration for their SME eInvoicing solution. VDA (the German Automotive association.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 demonstration action for the fashion industry (http://www. i. Renault. BMW. Among those.autogration. The average response time for an order dropped by 50%.eu) figured significant business benefits and SMEs involvement: The costs related to order management dropped by 65% in one year. An MoU was signed among key industry stakeholders. shoes and accessories world wide. Significant number of B2B marketplaces and ICT vendors specialising in the automotive industry. to further promote the results and stimulate real market roll-out.
access to specialized expertise. Large companies (like Procter & Gamble and General Motors) decided to outsource substantial elements of their IT services (Beulen et. user-friendly and affordable for SMEs. to vendors who develop these functions as their core competences. with a view to ensure its further maintenance. Organizations find that costs can be cut down by outsourcing of one or more business processes. Strategic dimension is however not less important in outsourcing decision making. The Common Framework helped to lower the technical boundaries. they strategically orient to focusing on the improvement of their core competences (e.al. Facilitated and accelerated co-modal transport organisation notably for smaller businesses. This efficiency effect implies a lower price of outsourcer‘s product which provides a better market positioning of the company. help desk. customer service refinement and technological innovations) and transfer some of their secondary functions. instead purchasing it as a service.. This profit margin benefits both the company as well as the consumer. Finally. A typical example for SEE countries is IT outsourcing targeted in cost reduction. and ceasing to perform that function or process internally. A variety of key reasons for an organization to outsource can be financial savings. Faster roll-out of new services. through offering web-based switch-on-off services. activation of new users and reduction of implementation costs by 70%.g. Foreign companies – e. etc. By outsourcing non-core processes the managers expect to provide conditions to focus on higher value-added functions. On this basis. telemarketing. extension and industry uptake through the standardisation processes. since outsourcers acknowledge that they are not able to pursue supremacy in all internal business processes. The cheaper prices lead to an increase a company‘s economy. clients of an outsourced service – have an option to react more adequate in case that the vendor makes attempts to overcharges them. Outsourcing is the process of contracting an existing business function or process of an organization to an independent organization. the essential sources of competitive advantages are .. 2005). An additional motive is to provide for a more flexible cost control. It usually concerns software development operations performed by highly specialized personnel located in this low-cost environment. improved service levels. Although losing jobs hurts the economy because more citizens become unemployed. and organizational politics There is no doubt that the main reason for the outsourcing decision is costs reduction. access to advanced technology. Advantages Companies are able to provide services and products to consumers at a cheaper price while still having a large margin for profit. Speeded up SMEs integration to large logistics networks from 35 days to 3 days. Active liaison has been established with the standardisation bodies and consortia. and reduced transport costs. strategic focus. such as back office. the cheaper prices allows customers to purchase more products and services which helps to rebuild an economy Various authors outline as a key drivers of international outsourcing the cost savings incentive and globalization. Increased effectiveness and speed of billing to customers and eased working capital requirements.g.
which facilitate the trading of commodities. and people are building electronic systems for these as well. corporate actions (merger. Commodity markets. Secondary markets allow investors to buy and sell existing securities.g. The term "market" is sometimes used for what are more strictly exchanges. while any two companies or people. The capital markets may also be divided into primary markets and secondary markets. Drivers of consolidation. BSE. spinoff) are outside an exchange. This may be a physical location (like the NYSE. Question 16 International financial markets. Futures markets. e. The role of IMF and World Bank. and enable the subsequent trading thereof. which provide financing through the issuance of shares or common stock. may agree to sell stock from the one to the other without using an exchange. Derivatives markets. similar to stock exchanges.. Money markets. which provide standardized forward contracts for trading products at some future date. such as during initial public offerings. Management of foreign currencies portfolio. Insurance markets. see also forward market. a stock exchange or commodity exchange. which facilitate the redistribution of various risks. For example. Financial markets can be domestic or they can be international.not the products themselves but the managerial capabilities to strengthen and to combine skills and technology into competences for adaptation to changing business environment. Newly formed (issued) securities are bought or sold in primary markets. which provide short term debt financing and investment. which provide instruments for the management of financial risk. International stock exchange network. the core competence of companies like Nike and Benetton is the product design and they practice outsourcing in respect of most of the other business processes. which provide financing through the issuance of bonds. for whatever reason. o Bond markets. Investors . Securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Foreign exchange markets. organizations that facilitate the trade in financial securities. Liquidity refers to the ease with which a security can be sold without a loss of value. and enable the subsequent trading thereof. Liquidity is a crucial aspect of securities that are traded in secondary markets. Trading of currencies and bonds is largely on a bilateral basis. Much trading of stocks takes place on an exchange. while in secondary market transactions exist among investors. still. which facilitate the trading of foreign exchange. NSE) or an electronic system (like NASDAQ). The transactions in primary markets exist between issuers and investors. although some bonds trade on a stock exchange. Types of financial markets The financial markets can be divided into different subtypes: Capital markets which consist of: o Stock markets.
The risk management functions are aimed at ensuring development of sound governance structure in line with the best international practices. viz. which represent debt obligations of highly rated sovereigns and supranational entities. a culture of risk awareness across all operations and efficient allocation of resources for development of in-house skills and expertise. Sound risk management is an integral part of efficient foreign exchange reserves management. The broad strategy for reserve management including currency composition and investment policy is decided in consultation with the Government. etc. liquidity risk and operational risk and the systems employed to manage these risks are detailed in the following paragraphs. do not give rise to any substantial credit risk. multi-market portfolios. the approximate currency profile of the reserves in line with the changing external trade profile of the country. The strategy for reserves management places emphasis on managing and controlling the exposure to financial and operational risks associated with deployment of reserves. Management of foreign currencies portfolio: for company level use hedging techniques (see finance) The Bank manages the country‘s foreign exchange reserves according to well-established guidelines relating to: The preservation of the capital value of reserve assets. The maintenance of adequate liquid foreign assets to make debt service and other payments on behalf of the central government and for the Central Bank‘s own account. The risks attendant on deployment of reserves. an illiquid security may force the seller to get rid of their asset at a large discount. .benefit from liquid securities because they can sell their assets whenever they want. credit risk. These are addressed as under: Currency Risk: Currency risk arises due to uncertainty in exchange rates. market risk. The Reserve Bank has been extremely sensitive to the credit risk it faces on the investment of foreign exchange reserves in the international markets. Investments in bonds/treasury bills.and long-term (eg. improved accountability. maintenance of major portion of reserves in the intervention currency. Foreign exchange reserves are invested in multi-currency. benefit of diversification. Market risk arises on account of exchange rate and interest rate movements. Achieving an optimum rate of return on investments within well-defined risk parameters..).. Decisions are taken regarding the long-term exposure on different currencies depending on the likely movements in its exchange rate and other considerations in the medium.
official international reserve assets allow a central bank to purchase the domestic currency. The focus of the investment strategy revolves around the overwhelming need to keep the interest rate risk of the portfolio reasonably low with a view to minimising losses arising out of adverse interest rate movements. Mixed exchange rate regimes ('dirty floats'. In a flexible exchange rate system. Liquidity risk involves the risk of not being able to sell an instrument or close a position when required without facing significant costs.Interest Rate Risk: The crucial aspect of the management of interest rate risk is to protect the value of the investments as much as possible from the adverse impact of the interest rate movements. target bands or similar variations) may require the use of foreign exchange operations (sterilized or unsterilized[clarification needed] ) to maintain the targeted exchange rate within the prescribed limits . and a decrease lower). . these operations occur automatically. The lack of such international cooperation is also a big concern for the replacement of US Dollar in this role of reference currency in foreign exchange reserves The quantity of foreign exchange reserves can change as a central bank implements monetary policy. This coordinated strategy was used to replace pound sterling with US dollar as the world reference currency during the 20th century. In a flexible exchange rate regime. with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. if any. which is considered a liability for the central bank (since it prints the money or fiat currency as IOUs). A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher. This action can stabilize the value of the domestic currency Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates. The reserves need to maintain a high level of liquidity at all times in order to be able to meet any unforeseen and emergency needs.
derivatives. bonds. Role of stock exchanges Raising capital for businesses Mobilizing savings for investment Corporate governance Creating investment opportunities for small investors Barometer of the economy . and capital events including the payment of income and dividends. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments. A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks. pooled investment products and bonds. unit trusts.64 central banks across the globe have adopted the Special Data Dissemination Standards (SDDS) template of the IMF for publication of the detailed data on foreign exchange reserves. and other securities. Securities traded on a stock exchange include shares issued by companies. Such data are made available on monthly basis on the Bank's website.
Private international capital markets function imperfectly and many countries have limited access to financial markets. their function became one of ―surveillance‖ of the overall macroeconomic performance of its member countries. without which many countries could only correct large external payment imbalances through measures with adverse effects on both national and international economic prosperity. its two primary functions were: to oversee the fixed exchange rate arrangements between countries. and exchange matters. whereas the former incorporates these two in addition to three more: International Finance Corporation (IFC). in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). provide the justification for official financing. . Functions The IMF works to foster global growth and economic stability. thus helping national governments manage their exchange rates. The IMF could help countries correct balance of payments difficulties by providing temporary financing to smooth the required adjustment and limit the impact on economic activity at home and abroad. Rather than maintaining a position of oversight of only exchange rates.IMF Member countries of the IMF have access to information on the economic policies of all member countries. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. fiscal affairs. the opportunity to influence other members’ economic policies. financial support in times of payment difficulties. together with balance of payments financing. It shifted to examining the economic policies of countries with IMF loan agreements to determine if a shortage of capital was due to economic fluctuations or economic policy. The IMF‘s role was fundamentally altered after the floating exchange rates post 1971. The World Bank's official goal is the reduction of poverty. and to provide short-term capital to aid balance-of-payments. and increased opportunities for trade and investment In addition to monitoring country policies through surveillance. Such market imperfections. The Fund was also intended to help mend the pieces of the international economy post the Great Depression and World War II. All of its decisions must be guided by a commitment to promote foreign investment. Multilateral Investment Guarantee Agency (MIGA). lending to countries that suffered balance of payments problems. This assistance was meant to prevent the spread of international economic crises. international trade and facilitate capital investment The World Bank differs from the World Bank Group. Upon initial IMF formation. the Fund was set up to work as a sort of credit union. technical assistance in banking. and International Centre for Settlement of Investment Disputes (ICSID).
offering them new opportunities to exploit workers and natural resources. The original purpose of the World Bank was to lend money to Western European governments to help them rebuild their countries after the war.tax increases combined with cuts in social spending such as education and health care. harbors etc that are considered necessary for ‗economic growth‘ in a developing country. and policies to weaken trade unions and worker‘s bargaining power.The IMF and World Bank were both created at the end of world war II in a political climate the is very different from that of today.privatization of public sector enterprises. served corporations superbly. such as utility companies and public transport . It focuses on development loans for specific projects. Despite almost two decades of Structural Adjustment Programs. it imposes conditions on that country. The institutional structures of the IMF and World Bank were framed at an international conference in Bretton Woods. Examples of SAP prescriptions include: . roads.financial liberalization designed to remove restrictions on the flow of international capital in and out of the country coupled with the removal of restrictions on what foreign corporations and banks can buy. Before the IMF grants a loan. Initially. In later years.an increase in ‗labor flexibility‘ which means caps on minimum wages. however. The power of the IMF becomes clear when a country gets into financial trouble and needs funds to make payments on private loans. Nevertheless. New Hampshire. These conditions are called ‗Structural Adjustment Programs‘ (SAPs) and are designed to increase money flow into the country by promoting exports so that the country can pay off its debts. the primary focus of the IMF was to regulate currency exchange rates to facilitate orderly international trade and to be a lender of last resort when a member country experiences balance of payments difficulties and is unable to borrow money from other sources. but works tightly within the stringent SAP framework imposed by the IMF. the World Bank shifted its attention towards development loans to third world countries. many third world countries have not been able to pull themselves out of massive debt. to free up funds for debt repayment. requiring it to make structural changes in its economy. The Thistle believes that massive world poverty and environmental destruction is the result of the appalling concentration of power in the hands of a small minority . such as the building of dams. The World Bank plays a qualitatively different role than the IMF. It is important to realize that the IMF and World Bank are tools for powerful entities in society such as trans-national corporations and wealthy investors. The SAPs have. . . their roles and modalities have been suitably updated to serve the interests of those that benefit from neoliberalism.
impact on local social institutions. CSR is closely related to business ethics. Customers – product safety. safety of working conditions Employees – child labor. paying for the education of workers’ children. It refers to the idea that businesses have a responsibility to society beyond making profits. The rebuilding of a contract between business and society. color. using the following criteria as a start: the significance of the effect of the firm in the view of the stakeholder (for example. suppliers) in addition to stakeholders. Company thus has to take into account the welfare of other constituents (customers. customers and key suppliers) the risk of getting incomplete information by excluding a group (for example. Secondary stakeholders are media. to get an operating licence in certain areas in Canada. The main stakeholders and their role.but the firm had better be prepared to actually change its approach) the requirements of regulators or permit-issuing bodies (for example. Will the role of stakeholders be advisory or participatory? Is the firm prepared to change its plans significantly based on what it learns? The demands on some stakeholder groups to participate in consultation processes have become so great that sophisticated stakeholders are not willing to contribute much energy to processes in which they have little influence. layoffs at the only plant in town will be very significant to workers. employees and shareholders. becoming aware of stakeholders and their significance will benefit future business planning. suppliers. Thinking broadly about stakeholders often results in a list that is much too long to be of any practical use. Without committing any resources. . Engagement for performance measurement and accountability An important development in stakeholder engagement since the early 1990s has been the rapid growth in reporting to stakeholders on environmental performance. a firm may be required to engage Aboriginal peoples) It is important to be clear about where each engagement fits into the big picture. race. their families and other residents) the importance of the stakeholder group to operations (for example. trade associations and special interest groups. Examples are monitoring working conditions. fair wages. The steps leading to turn business into branded ethical behavior. fair price. To avoid engagement burnout (trying to talk to too many stakeholders) consider setting priorities. it will be difficult to learn the concerns of local workers or residents) the opportunity to access new ideas (for example. donating money to local communities. Host country – following local laws. environmental protection Society in general – depletion of raw materials Primary stakeholders are directly linked to a company’s survival and include customers. then social performance and now sustainability performance. proper disclosures and information Stockholders – fair return on investment. discrimination by sex.Question 17 The corporate social responsibility. when a foreign subsidiary's only contacts are with government officials. engaging a group that is likely to challenge current practices may provide fresh insight into a difficult problem -.
academics. Price Waterhouse. increased retention. improved recruitment. more loyalty. consumers.e. regulators. and the media. Key external stakeholders include customers.Increasingly. security and privacy. Examples of excellent companies (BAXTER. Involving employees at all levels Setting and monitoring goals Effective integration in business processes Open discussion of ethics Question 18 Cross – cultural leadership. etc. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i. Leadership styles and its application in different cultural environment. liberty. higher productivity. non-discrimination) Maintain high standards of local political environment (not paying bribes) Transfer technology (to developing countries) Protect the environment Consumer protection Best practices steps to build CSR: Leading by example (managers need to adhere first to the code of ethics) Making ethics part of the corporate culture. Code of conduct: Respect basic human rights and freedoms (life. Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the inclusion of all groups or constituents (rather than just shareholders) in managerial decision making related to the organization‘s portfolio of socially responsible activities. communities in the areas where the corporation operates its facilities. and so on). corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Pragmatic managerial styles. investors (particularly institutional investors). This normative model implies that the CSR collaborations are positively accepted when they are in the interests of stakeholders and may have no effect or be detrimental to the organization if they are not directly related to stakeholder interests.) Leadership: process of influencing group members to achieve organizational goals Excellent leaders motivate their employees to achieve more than minimal requirements Global Leadership: The New Breed: One who has the skills and abilities to interact with and manage people from diverse cultural backgrounds Characteristics of a global leader .
Perspectives on Leadership Behaviors: Two major types of leadership behaviors Task-centered leader: focus on completing tasks by initiating structure o Gives subordinates specific standards.S. Cosmopolitan Skilled at intercultural communication Culturally sensitive Capable of rapid acculturation Global Leadership: Knowledgeable about cultural and institutional influences on management Facilitator of subordinates’ intercultural performance A user of cultural synergy A promoter and user of the growing world culture A commitment to continuous improvement in self-awareness and renewal Global Leadership: Emotional intelligence: refers to the ability of the global leader to accurately perceive his or her emotions and to use those emotions to solve problems and to relate to others Three basic models of leadership Leadership traits o Great-person theory: idea that leaders are born with unique characteristics that make them quite different from ordinary people o Contemporary views of leadership traits do not assume that leaders are born Leadership behavior Leadership behavior Contingency leadership Traits of Successful U. and tasks Person-centered leader: focus on meeting the social and emotional needs of employees Leader Decision Making Styles Autocratic leadership: leaders make all major decisions themselves Democratic leadership: leader includes subordinates in decision making Consultative or participative leadership: leader’s style falls midway between autocratic and democratic styles Contingency Theory .S. schedules. Leaders: Higher intelligence and self-confidence More initiative More assertiveness and persistence Greater desire for responsibility and the opportunity to influence others A greater awareness of the needs of others Leadership Behaviors: U.
Assumption that different styles and different leaders are more appropriate for different situations Two North American contingency theories of leadership: Fiedler’s theory of leadership o Effective leadership occurs when the leadership styles match the situation o Theory suggests that task-centered leadership works best when situation is favorable or not favorable for leader Path-goal theory o Four leadership styles that a manager might choose depending on the situation: Directive Supportive Participative Achievement-oriented
GLOBE (Global Leadership and Organizational Behavior Effectiveness) The very latest research on cross-national differences in leadership Study contains insights regarding crucial leadership styles to navigate successfully through a maze of cultural settings
Leadership styles vary by countries. • Team-oriented leaders are preferred in Latin European and Southern Asian countries. • Anglo and Germanic cultures prefer participative leaders. • South Asian cultures prefer humane leader. • All countries agree that autonomous leaders and self-protective leaders universally impeded leadership
Influence tactics: tactical behaviors leaders use to influence subordinates - U.S managers favor seven influence tactics: • • • • • • • Assertiveness Friendliness Reasoning Bargaining Sanctioning Appeals to a higher authority Coalitions
Contemporary Leadership Perspectives: Two basic forms of leadership Transactional leadership: managers use rewards or punishments to influence their subordinates Transformational Leadership: • Managers go beyond transactional leadership by: o Articulating a vision o Breaking from the status quo o Providing goals and a plan o Giving meaning or a purpose to goals o Taking risks
o Being motivated to lead o Building a power base o Demonstrating high ethical and moral standards Succeed because subordinates respond to them with high levels of performance, devotion and willingness to sacrifice Same leadership traits may not lead to transformational leadership in all countries
Question 19 (p 401) The managerial skills for managing workforce diversity. Building international team. Stages in team building. Motivating multicultural work teams. Maximizing effectiveness of performance. Three points to keep in mind when building a global team anywhere in the world. Step 1: Self-awareness The first step is to understand yourself. What is your style? How do you communicate, and how do you lead? "You need to know yourself before you interact with other people
Step 2: Develop cultural competence You can develop cultural competence by learning about another culture, developing the ability to observe and understand that people do things differently. You have to be able to do this without saying this is right and this is wrong. This is just the way things are is probably a good attitude to adopt.
Step 3: Cultural adaptability Now you must take the information you've learned about the other culture, include selfawareness, and adapt your communications style.
Working with team members remotely, perhaps from different functions, different cultures and in different time zones often presents major challenges. In addition to best practices of successful team management in general, for the virtual team it is particularly important that the team addresses the challenges of virtuality, technology, cultural and time differences at he initial stage of working together. After having established the norms, culture and expectations for the team, regular monitoring is required. The program focuses on establishing credibility, building trust and relationships, motivation and feedback, decisionmaking and conflict handling
As more multinational companies are facing the pressures to meet both local and global customer needs through the integration of design and development expertise spread around the world, they are making increased use of teams. Teams give global companies the ability to better coordinate the work and expertise of individuals located around the world, to develop and launch new products, and to become more flexible. Global teams face difficulties with having team members with diverse cultural backgrounds located in different countries. Problems are: • • • • Difference in languages Differences in culture Team collaboration – lack of face-to-face meetings less trust and cohesion Difficult to keep team members focused and disciplined as they are located in different parts of the world.
Steps to improve team collaboration: • • • • Build relationships and trust Devote significant attention to project planning and hold project progress meetings regularly Cultural, language and active-listening training Be aware of team-development stage. Teams go through various stages as the progress to higher productivity.
At the forming stage team leader should provide ample opportunity for the team members to get to know each other. At the storming stage there’s a higher likelihood of conflict and the global team leader should find ways to address such conflict which can be magnified because of the use of impersonal technologies to communicate.
The five stages:
Stage 1: Forming Stage 2: Storming Stage 3: Norming
making it difficult to get the project completed. and settle into roles and responsibilities on the team. effectively. the team members compete with each other for status and for acceptance of their ideas. this is a difficult stage to go through.ensuring the team members learn to listen to each other and respect their differences and ideas.which causes conflict within the team. The team leader will need to coach some team members to be more assertive and other team members on how to be more effective listeners.most especially a new team who has never worked together before . For team members who do not like conflict. Usually teams comprised of members who are professionally immature will have a difficult time getting past this stage. They respect each other's opinions and value their differences. At this point. They share information about their backgrounds. team members are introduced to each. but still stay involved to resolve any conflicts as quickly as possible. it is important for the team leader to be very clear about team goals and provide clear direction regarding the project. Some teams. interests and experience and form first impressions of each other.goes through this part of developing as a team. they are beginning to work more effectively as a team. During this initial stage of team growth. They have different opinions on what should be done and how it should be done . They are. They learn about the project they will be working on. every team . with the guidance of the team leader. The team leader should ensure that all of the members are involved in determining team roles and responsibilities and should work with the team to help them establish how they will work together ("team norms". They are no longer focused on their individual goals. discuss the project's objectives/goals and start to think about what role they will play on the project team. Working . This stage will come to a closure when the team becomes more accepting of each other and learns how to work together for the good of the project. "feeling each other out" and finding their way around how they might work together. they learn how to solve problems together. This stage is not avoidable. In this stage.) The team is dependent on the team leader to guide them. Stage 4: Performing Stage 5: Adjourning Stage 1: Forming The "forming" stage takes place when the team first meets each other. function both independently and together as a team. This includes not allowing any one team member to control all conversations and to facilitate contributions from all members of the team. They are not yet working on the project. In this first meeting. they move into the "storming" stage. They begin to see the value in those differences on the team. Stage 2: Storming As the team begins to work together. do not move beyond this stage and the entire project is spent in conflict and low morale and motivation. Stage 3: Norming When the team moves into the "norming" stage. however. As they go progress through this stage. but rather are focused on developing a way of working together (processes and procedures). The team leader needs to be adept at facilitating the team through this stage . the team leader should start transitioning some decision making to the team to allow them more independence.
The team has greater self-direction and is able to resolve issues and conflict as a group. The focus is on reaching the goal as a group. it is possible for the team to revert back to an earlier stage until they are able to manage through the change. the team members can work through it and come to consensus without interrupting the project's progress. teams are functioning at a very high level. there is a possibility that the team may revert back to another stage. If there are significant changes that throw a wrench into the works. Even in this stage. the team leader may not be as involved in decision making and problem solving since the team members are working better together and can take on more responsibility in these areas. the team has agreed on their team rules for working together. The team members work effectively as a group and do not need the oversight that is required at the other stages. problem solving or other such activities involving the day-to-day work of the team. Not every team makes it to this level of team growth. On occasion. In this stage. and what tools and processes they will use to get the job done. Rather than compete against each other. In this stage. This stage looks at the team from the perspective of the well-being of the team rather than from the perspective of managing a team through the original four stages of team growth. The team members also start to make significant progress on the project as they begin working together more effectively. (Or. the team leader is not involved in decision making. The team leader should ensure that there is time for the team to celebrate the success of the project and capture best practices for future use. For example. the team could revert back to the "forming" stage if a new member joins the team. it is possible for the team to revert back to the "storming" stage if one of the members starts working independently. some teams stop at Stage 3: Norming. trust each other and rely on each other. When they disagree. The highly performing team functions without oversight and the members have become interdependent.to evaluate what happened and capture lessons learned for future projects. The team leader should always ensure that the team members are working collaboratively and may begin to function as a coach to the members of the team. the team leader may step in to move things along if the team gets stuck.together as a team seems more natural. If there needs to be a change in team processes . The team members have gotten to know each other. how they will share information and resolve team conflict.) This also provides the . They can make decisions and problem solve quickly and effectively. they are now helping each other to work toward a common goal.the team will come to agreement on changing processes on their own without reliance on the team leader. Or. In this stage. if it was not a successful project . The team leader will continue to monitor the progress of the team and celebrate milestone achievements with the team to continue to build team camaraderie. Stage 4: Performing In the "performing" stage. The team leader will also serve as the gateway when decisions need to be reached at a higher level within the organisation. The team members begin to trust each other and actively seek each other out for assistance and input. The team is highly motivated to get the job done. however. Stage 5: Adjourning In the "adjourning" stage the project is coming to an end and the team members are moving off into different directions.
Team members are frequently absent thereby causing slippage in the timeline and additional work for their team members. the more likely the project is to end successfully. Regular brainstorming session with all members participating. No clear roles and responsibilities for team members. Commitment to the project and the other team members. rarely sharing information and offering assistance. Is the Team Effective or Not? There are various indicators of whether a team is working effectively together as a group. Team members do not support others on the team. successful teams include: Clear communication among all members. Problem solving done by the group. Team members work alone. It is likely that any group that reached Stage 4: Performing will keep in touch with each other as they have become a very close knit group and there will be sadness at separating and moving on to other projects independently. The sooner the team leader addresses issues and helps the team move to a more effective way of working together. Teams that are not working effectively together will display the characteristics listed below. These have come to be known: Shaper Coordinator Teamworker Completer Finisher Implementer Monitor Evaluator Plant Resource Investigator Specialist . Consensus among team members. Team members blame others for what goes wrong. From research conducted over many years Dr Meredith Belbin has discovered that teams work most effectively when they contain members with a range of preferred roles. The team leader will need to be actively involved with such teams.team the opportunity to say good-bye to each other and wish each other luck as they pursue their next endeavour. Lack of communication among team members. Timely hand off from team members to others to ensure the project keeps moving in the right direction. Regular team meetings are effective and inclusive. Team members "throw work over the wall" to other team members. no one accepts responsibility. supportive working relationships among all team members. with lack of concern for timelines or work quality. The characteristics of effective. Positive.
2) export via direct channels in China. WFOEs are exempt from the 10% tax on dividends. Market entry via direct channels in China is probably more difficult and time consuming than entry via a Hong Kong distributor. Sichuan and Anhui provide cheaper labor while coastal Shanghai and Guandong are having skilled labor shortages. WFOEs have exclusive management control for investors. Another type of enterprise structure is the Wholly Foreign-Owned Enterprise. Local contacts (with officials) Local laws • • There are three fundamental strategies that can be used to enter the China market: 1) export via a Hong Kong distributor. both sides (the foreign firms and the Chinese party) could gain the most benefit. there is no need to compromise with partners. This option may be a good mid-term strategy.g. Utilizing this strategy. and 3) set up a joint venture. The risks and its evaluation. Specifics of Chinese economy. Difference to India and EU market. China’s recent economic growth and its easing of rules and regulation mean that more companies are considering outsourcing to China. Market entry via a Hong Kong Distributor is probably the easiest and quickest way to enter China but may be the least desirable in terms of overall market penetration. Each strategy has advantages and disadvantages. Disadvantages . but in time may be better off for a firm's overall penetration. but probably yields the best overall penetration of China's market.Question 20 The MNC and entering strategy for China. Advantages • • • Foreign investor has tighter control of proprietary interests. Market entry via a joint venture of some kind may be more difficult and time-consuming than the other two export strategies just mentioned. But before doing so it is important to understand: • • The local business environment (it is a huge country with large variations in business conditions and customs) Availability and cost of resources (labor and energy supply varies greatly from location to location in China – e. Such an enterprise is a limited liability entity solely owned and operated by a foreign investor. Many MNCs consider shifting manufacturing to China because of cost savings. The stages of screening.
Approx size of its X & M: $3 trillion China is the EU‘s. Unit: Yuan (CNY) Fixed exchange rates USD = 6.8%). The corporate tax rates for WFOEs are higher than for equity joint ventures. foreign firms can easily see the real needs of end-users.4% 2011 In 2010. 2012 est.87 trillion. 2011) GDP per capita $5. G-20 and others GDP $7. As previously discussed. joint ventures will allow the foreign firm to avoid tariff and quota issues.458843 RMB Trade organisations WTO. 2011) GDP by sector Industry (46. There are stricter foreign exchange requirements for WFOEs. APEC.74 trillion (nominal: 2nd. and prices should be more competitive as a result of local manufacturing. There is no Chinese partner to tap for a trained workforce and for established sourcing and distribution networks. Market Entry: Joint Ventures Versus Market Entry Via Exports If a company can determine that there is a large growing market for its products and is willing to work to set up a joint venture.5% (major economies: 2nd. then a joint venture is probably the best long-term strategy to penetrate the Chinese marketplace. services (43.6%) Inflation (CPI) 5. There are few precedents to rely on during negotiations and operations. the USA‘s and many other countries‘ largest trade partner Biggest beneficiary from globalization during the past 3 decades . China could become the world's largest economy (by nominal GDP) sometime as early as 2020 China is the largest creditor nation in the world and owns approximately 20.47 trillion. By physically being in China. CHINESE ECONOMY Rank 2nd (nominal) / 2nd (PPP) Currency Renminbi (RMB). Such advantages may override the complexities of setting up joint ventures. Joint ventures in China that can benefit both the foreign entity and the Chinese party help motivate both parties to have a long term strategy. China's GDP was valued at $5.S.• • • • • • Implementing regulations have not been promulgated.6%).184 (nominal: 90st. the time it takes to establish a joint venture and the associated risks involved. surpassed Japan's $5.) $12. 2012) GDP growth 9.8% of all foreign-owned US Treasury securities • • • China is the world‘s largest trading nation. agriculture (9. There is no Chinese partner with a stake in the success of the investment to assist with problems. to gain more focus and control of product distribution and service in China and hence probably ensure penetration of a larger share of the Chinese marketplace.46 trillion (PPP: 2nd. and became the world's second largest economy after the U. has overtaken Germany.
in the 12th Five-Year Plan adopted in March 2011. The dollar values of China's agricultural and industrial output each exceed those of the US. having surpassed Japan in 2001. to continue reforming the economy and emphasizes the need to increase domestic consumption in order to make the economy less dependent on exports for GDP growth in the future. increased autonomy for state enterprises. and opening to foreign trade and investment. in July 2005 China revalued its currency by 2." explicitly looking to foster globally competitive national champions. the global economic downturn reduced foreign demand for Chinese exports for the first time in many years. fiscal decentralization. The government vows. (c) reducing corruption and other economic crimes.Since the late 1970s China has moved from a closed.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. outperforming all other major economies in 2010 with GDP growth around 10%. China has implemented reforms in a gradualist fashion. when Beijing allowed resumption of a gradual appreciation. China is second to the US in the value of services it produces. Still. In 2009. rapid growth of the private sector. and expanded to include the gradual liberalization of prices. creation of a diversified banking system. China in 2010 stood as the second-largest economy in the world after the US. The Chinese government faces numerous economic challenges. (b) sustaining adequate job growth for tens of millions of migrants and new entrants to the work force. Reforms began with the phasing out of collectivized agriculture. but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010. After keeping its currency tightly linked to the US dollar for years. and (d) containing environmental damage and social strife related to the economy's rapid transformation. per capita income is below the world average. centrally planned system to a more marketoriented one that plays a major global role . but China rebounded quickly. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. including: (a) reducing its high domestic savings rate and correspondingly low domestic demand. From mid 2005 to late 2008 cumulative appreciation of the renminbi against the US dollar was more than 20%. CHINA vs INDIA .in 2010 China became the world's largest exporter. In recent years. China has renewed its support for state-owned enterprises in sectors it considers important to "economic security. development of stock markets. Measured on a purchasing power parity (PPP) basis that adjusts for price differences.
we can see that there are a number of factors that has made China a better economy than India. from the very beginning.3123 trillion GDP of India. Compared to the estimated $1.3123 trillion 8. the country enjoyed a planned economic model which made it stronger.16 million China around 4909.1% 813.5% $12. Facts GDP GDP growth Per capital GDP Inflation Labor Force Unemployment Fiscal Deficit Foreign Direct Investment Gold Reserves Foreign Exchange Reserves World Prosperity Index Mobile Users Internet Users India around $1.518 of the latter.4 % 5. However. If we make the analysis of the India vs. China has an average GDP of around $4909.28 billion 9. First things first.5 million 4. On the other hand. In case of per capital GDP. India was under the colonial rule of the British for around 190 years.65 trillion 58th Position 687.40 15% $2. China economy. there was no such instance of colonization in China.71 million 81 million. China occupies the second position surpassing Japan. the economy of China is more developed than that of India.28 billion. As such. It forms a major economic sector in both the countries.48 % 467 million 9. we need to have an idea of the economic facts of the countries.5% $9. To make a basic comparison of India and China Economy.90% $1124 7. This drained the country's resources to a great extent and led to huge economic loss. India lags far behind China with just $1124 compared to $7.60% $7. While India is the 11th largest economy in terms of the exchange rates. the agricultural sector of China is more developed than that of .20 % 21. Agriculture Agriculture is another factor of economic comparison of India and China.41 billion 88Th Position 842 million 123.518 5.Going by the basic facts.7 billion 11% $2.
Difference in infrastructure and other aspects of economic growth Compared to India. health care facilities and services. China started towards the liberalization of its market economy much before India. where farmers still use the traditional and old methods of cultivation. unemployment. In addition to this the Chinese government is the major stake holder of most of its State-owned organizations hence the listed firms have to run according to the rules and regulations laid down by the government.7 trillion with 849 listed companies and the BSE has US$1 trillion with 4.76 billion. communication. the agricultural techniques used in China are very much developed. it is still plagued by problems such as poverty. India's earnings from the BPO sector alone in 2010 is $49. Seven Indian cites are ranked as the world's top ten BPO's while only one city from China features on the list Liberalization of the market In spite of being a Socialist country. India has Asia's oldest stock exchange which is the BSE or the Bombay Stock Exchange. . The Chinese capital market lags behind the Indian capital market in terms of predictability and transparency.7 billion while China earned $35. On the other hand. Some of the important factors that have created a stark difference between the economies of the two countries are manpower and labor development. civic amenities and so on. All these aspects are well developed in China which has put a positive impact in its economy to make it one of the best in the world. Although India has become much developed than before.India. namely the Shenzhen and Shanghai stock exchange. Whereas China is home to two stock exchanges. In fact unlike India. China is still investing in huge amounts towards manpower development and strengthening of infrastructure. Unlike India. China welcomed foreign direct investment and private investment in the mid 1980s. This leads to better quality and high yield of crops which can be exported. While India's liberalization policies started in the 1990s. The Indian capital or stock market is both transparent and predictable.833 listed companies. This strengthened the economy to a great extent. This made a significant change in its economy and the GDP increased considerably. But more than the size what makes both these stock exchanges different is that the BSE is run on the principles of international guidelines and is more stable due to the quality of the listed companies. India was a little slow in embracing globalization and open market economies. lack of civic amenities and so on. China has a much well developed infrastructure. Hence India is ahead of China in matters of financial transparency. As far as capitalization is concerned the Shanghai Stock Exchange is larger than the BSE since the SSE has US$1. IT/BPO One of the sectors where Indi enjoys an upper hand over China is the IT/BPO industry. Company Development Tax incentives are one area where China is lagging behind India. water management.
Indian Pharmaceutical giant Ranbaxy's acquisition of Romania's Terapia etc.6% (2011) GDP per capita US$35. China's Import & Export (2010/11) As far as exports of both the countries are concerned both the countries managed to do pretty well in 2010. Currently. you will see significant differences in these economies. . The United Kingdom is the second largest economy in the continent. of European countries. saw the fastest growth it has seen in the last 12 years in the first quarter of 2008.28 billion at the end of November 2010. Tata Steel's $13.6 Billion Acquisition of Corus.821 trillion(2011) GDP growth rate 1.578 trillion (2011) GDP (PPP) US $15. On the other hand Indian companies are rapidly expanding mergers and acquisitions. As compared to China India has better managed companies. It was not Chinas exports that drove the economy instead it was the export products of outsiders. EU economy Statistics GDP ranking 1st (2011) GDP (Nominal) US $17. Germany is the largest and ranked third in a global study of the economies. with a growth of 4.116 (nominal) GDP by sector (2006) 70.1% agriculture Inflation 3. India's exports grew by 26.5% services 27.8% and imports increased by 11. the European economic growth is considered stable. the European's leading economic power. Tata Tea's purchase of a controlling stake in Britain's Tetley for US$407 million.3% industry 2. The growth there is spurred by construction. Below is presented details about China's import and exports for the year 2010. Europe. Germany. One of the major reasons for this is that management reform training in China began 30 years ago and sadly the subject has still not picked up as a matter of interest by the citizens of the country. It is the 5th largest in terms of purchasing power parity or PPP. it would be the largest economy in the world.2%. Some of the recent examples include. India also leaves China behind as far as management abilities are concerned.5 percent increase. Another important factor behind China not doing well in the business forefront is that most of the countries came to China and manufactured their goods. If you look at the China economic growth vs. For example. which is fifth largest in the world in nominal GDP and falls to sixth rank in PPP. Overall.1% (2011) If the European Union was in fact one country. Even in the case of mergers and acquisitions China still has not managed to do too well.Company Management Capabilities It is said that Indians have great managerial skills.China's total imports and exports stood at US $2677. with growth that may be lower than other countries.
particularly with regard to food and energy. Consumer food prices in China have risen dramatically over the past year. citing wage and price inflation. China is acutely vulnerable to commodity price inflation. Health risks from China’s pervasive and severe environmental degradation. when compared to that of Europe. A recent report by the Organization for Economic Cooperation and Development (OECD) predicts the end of China‘s competitive advantage in manufacturing. the European economic growth levels cannot match that of China. In Beijing alone. Rising transportation costs have already prompted the relocation of some foreign-owned factories out of China — factories that have moved closer to US and European consumer markets — and this trend is expected to intensify as long as oil prices (and. half the water of China‘s seven largest rivers is completely useless. global food prices have risen 65% since 2002. The average gross domestic product growth rate currently is well above 10 percent in China. China economic growth vs. The rate of increase of China’s petroleum consumption and the dependency of China’s export manufacturing sector on petroleum imports. shipping costs) remain high. China’s RISKs Dependency on export manufacturing in the face of rising global transportation costs. and the prospect of a prolonged economic slowdown of China’s primary export markets As a producer nation and net importer of oil.In fact. In the current situation. Since 1978. after the US. one-fourth of Chinese citizens lack access to clean drinking water. and its economic and political stability is dependent upon hard currency earnings derived from export manufacturing. adding to the potential for domestic unrest and resultant political instability . While Europe is seeing economic growth. The country also has a per capita income that is growing at an average rate of 8 percent. China investments will likely see a significantly higher rate of return. This emerging market is significant because it is been seeing this type of tremendous growth for several years. Europe can be summed up quite simply. and one-third of the urban population is breathing polluted air. China is now the world‘s second largest consumer of oil. between 70% and 80% of all deadly cancer cases are related to the environment. it is at a much smaller pace and with less risk for many investors. Global commodities price inflation and China’s domestic consumer price inflation. A recent study conducted by the World Bank identified the human health risks associated with China‘s environmental contamination One-third of the Chinese mainland suffers from exposure to acid rain. and is dependent on imported petroleum for nearly half of its domestic oil consumption. important economic reforms have helped to drive China's growth and this has made it a very strong investment opportunity. China has one of the fastest growing economies in the world. thus. but with higher levels of risk. According to the United Nations food and agriculture organization (FAO).
‖ comprised of a small and relatively prosperous urban class and a vastly more populous rural poor class Population demographics and shrinking labor surplus. Chinese factory managers have recently complained of labor shortages. . and wages have been rising more rapidly than in the past. China‘s wage and income inequality is responsible for the emergence of ―two Chinas.Social instability stemming from income inequality and wealth disparity.
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