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INTERNATIONAL

MANAGEMENT AND LEADERSHIP

IML 8092
STUDENT ID: - A6940
SUBMITTED BY: HIMANSHU SONI

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

1. What are the biggest management challenges for international firms? What can firms
do in response? What are some of the forms of political risks? What steps can firms take
in order to deal with this risk?
Answer: BIGGEST MANAGEMENT CHALLENGES FOR INTERNATIONAL FIRMS
CULTURE
Language Barriers
The biggest, most common managerial challenge when it comes to working internationally is
a language barrier. While most executives are fluent in a number of languages, there is no
guarantee an entire office will speak your language. Even if you have some foreign language
skills, it is different to try to conduct business in a foreign language than to merely have
casual conversation. Additionally, the nuances of other languages make it harder to
understand and be understood.
Cultural Differences
Every culture across the globe has its own unique set of cultural norms. In the U.S., managers
typically do much of their own administrative work, including answering phones, sending
mail, etc., but in many other countries, specifically in Asia, managers have several
administrative employees at their disposal to do everything from book travel to making a cup
of tea. The best way to get used to the differences is to be gracious.
TECHNOLOGY
Technical Development
Differences among the technical development and facility of markets--internationally or
within the United States--determine fundamentally the opportunities of production, sales and
marketing of the operating businesses. For example, you cannot sell the latest 4G mobile
phones in a market where there's no 4G network. You can build your advertising and
promotion strategy exclusively on the Internet if the majority of the national population or
local community uses the Web as its primary source of information.
BUSINESS ATTITUDE
Information and knowledge about the business etiquette, attitude and habits of a foreign
country are essential to successfully compete or cooperate with businesses in a market. These
attitudes also determine how businesses react to different situations in the market (whether
they act offensively or defensively). Small businesses can use the information about these
different international business attitudes while competing against foreign companies in their
domestic market.
Work Practices
To be successful as an international manager, ultimately it comes down to understanding the
work practices of the culture you are in. In many countries, it's common for managers and
employees to have lunch together at the same time. Also, some countries work half-days on
Saturday, whereas in the U.S., businesses operate on a Monday through Friday schedule. By
adopting the local work practices, you will continue to gain trust and overcome the challenges
of working abroad.
Trust and Understanding
Think about how you would feel if a manager from another country came in and started
changing the way you had been doing things in your office for as long as you could

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

remember. It might be hard to trust that person. Developing relationships with others is a
critical success factor for managers in international environments. If you can develop trust
and show you understand your employees' value to the organization, you will have conquered
a big hurdle.
Time Zone Challenges
A challenge to working with international employees is sometimes the time zone differences.
If you are based in the U.S. and work with offices in Europe or Asia, get ready for some offhour conference calls. Also, when emailing, remember you probably will not hear back from
the person you sent your message to until the next day. This can sometimes pose a challenge
when a decision needs to be made, but careful planning can help avoid any issues that arise.
WAYS TO OVERCOME MANAGEMENT CHALLENGES FOR INTERNATIONAL FIRMS
To take advantage of the opportunities that international business affords, businesses need to
understand these complexities in order to maximize efficiency and maintain their competitive
edge. Employers looking to improve global benefits management must establish a global
strategy; gather local, competitive information; and look for opportunities to ease
administration. Beyond the obvious jobspecific qualifications, an organization needs to
consider the following qualities and circumstances when selecting expatriates for positions in
foreign countries:

A willingness to communicate, form relationships with others, and try new things
Good crosscultural communication and language skills
Flexibility and openmindedness about other cultures
The ability to cope with the stress of new situations
The spouse's career situation and personal attributes
The existence of quality educational facilities for the candidate's children
Enthusiasm for the foreign assignment and a good track record in previous foreign
and domestic moves

Planning: The first stage of international planning is to decide how to do business globally:
whether to export, to enter into licensing agreements or joint ventures, or to operate as a
multinational corporation with facilities in a foreign country. To develop forecasts, goals, and
plans for international activities, the manager must monitor environments very closely. Key
factors include political instability, currency instability, and competition from governments,
pressures from governments, patent and trademark protection, and intense competition.
Organizing: International firms should be sure that their plans fit the culture of the host
country. Many countries must plan with the assistance of governmental agencies.
International businesses must be organized so that they can adapt to cultural and
environmental differences. An international firm must be organized so that it can be
responsive to foreign customers, employees, and suppliers. The new organization must
establish a very open communication system where problems, ideas, and grievances can
quickly be heard and addressed at all levels of management. Without this, employees will not
get involved, and their insights and ideas are crucial to the success of the business. As foreign
operations become more important to the bottom line, decision-making becomes more
centralized at corporate headquarters. A functional product group, geographic approach, or a
combination of these approaches should be adopted. The firm unifies international activities
with worldwide decisions at world headquarters.
Staffing: Because obtaining a good staff is so critical to the success of any business, the
hiring and development of employees must be done very carefully. Management must be

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

familiar with the country's national labor laws. Next, it must decide how many managers and
personnel to hire from the local labor force and whether to transfer homebased personnel.
Directing: Cultural differences make the directing function more difficult for the international
manager. Employee attitudes toward work and problem solving differ by country. Language
barriers also create communication difficulties. To minimize problems arising from cultural
differences, organizations are training managers in crosscultural management. Crosscultural
management trains managers to interact with several cultures and to value diversity.
Controlling: Geographic dispersion and distance, language barriers, and legal restrictions
complicate the controlling function. Meetings, reporting, and inspections are typically part of
the international control system. Controlling poses special challenges if a company engages in
multinational business because of the farflung scope of operations and the differing
influences of diverse environments. In many countries, bonuses, pensions, holidays, and
vacation days are legally mandated and considered by many employees as rights. Particularly
powerful unions exist in many parts of the world, and their demands restrict managers'
freedom to operate.
POLITICAL RISKS: MEANING AND FORMS
Political Risks refers to the risk that a host country will make political decisions that will
prove to have adverse effects on the multinational's profits and/or goals. Adverse political
actions can range from very detrimental, such as widespread destruction due to revolution, to
those of a more financial nature, such as the creation of laws that prevent the movement of
capital.
Macro Political Risk: A type of political risk in which political actions in a host country can
adversely affect all foreign operations. Macro risk can come about from events that may or
may not be in the reigning government's control.
For example, any company that is engaging in foreign direct investment in a country that is on
the verge of switching to an anti-foreigner slanted government would be facing tremendous
macro risk, because the government is likely to expropriate any and all foreign operations,
regardless of industry.
Micro Political Risk: A type of political risk that refers to political actions in a host country
that can adversely affect selected foreign operations. Micro risk can come about from events
that may or may not be in the reigning government's control.
For example, diplomatic tension with Country A has caused the citizens of Country B to
vandalize all Country A based companies situated in Country B. In this example, only
operations from Country A were faced with adverse situations. Operations from other
countries were not affected.
STRATEGIES TO MINIMIZE POLITICAL RISK
Organizations make a serious mistake when they ignore or underestimate political
risk. Political risk may have different characteristics than other types of risk, but it can and
should be managed. Effective management of political risk can enable companies to enter
and navigate new markets and business environments, providing a potential for competitive
advantage.
A three-step process can enable companies to identify key political risks, measure their
potential impact on performance, and determine the best method to manage such risks:
Identify: In this first stage, risk managers identify the main political risks by geography. The
key question at this stage is: How can political actors or conditions directly affect our
objectives? Risk managers can develop an inventory of political risk types, ranging from
capital controls to increased taxation to strikes and protests to wars and terrorism, to scan the

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

horizon for potential risks. Some situations may create significant political or social
instability but few real implications for the business; they may, in fact, present an opportunity
to gain market share. The risk management team will then develop an evidence-based set of
risk scenarios, based on both well-defined and highly specific data directly relevant to the
companys objectives. A scenario set gives risk and business managers a basis upon which to
define their data requirements.
Measure: In the second stage, armed with a very specific set of political risk scenarios, risk
managers assess and quantify the potential impact of each scenario on the business.
Discounted cash flow (DCF) analysis can be used, for example, to estimate the financial
impact of specific events as an input to help organizations understand their tolerance
levels. Other tools, such as an organizational network analysis, can help determine the
estimated operational impact of specific risks. Here, risk managers create a model of the
company as a network of various inter-dependent business units; for example, a consumer
goods company might have manufacturing, packaging and distribution across countries. One
of the most important aspects of measurement is the translation of projected events into
readily identifiable and comprehensible metrics, such as dollar figures, an impact index, or an
ability-to-influence index. Using these metrics, risk managers can assess whether the risk
level surpasses the organizations risk appetite or tolerance.
Manage: Once risks have been identified and measured, an effective system for active
political risk management can be put in place. The first element in managing political risks is
to map potential risk management methods against the priority risks. Once the organization
establishes a course of action, the risk management team can assign responsibilities and
establish a schedule for consultation, reporting and review, as with other risk
controls. Companies actually have multiple options for addressing identified risks. A
company operating in a country where there are signs of corruption in trade practices, for
example, may seek to review its overall code of conduct and step up local training activities to
ensure that all rules are thoroughly understood.
As noted, organizations can gain significant benefits from managing political risk and ignore
this risk at their peril. Effective management of political risk can enable companies to tap
new revenue streams through access to markets and joint ventures that, without careful
management, might seem too risky. Clear identification, measurement and management of
risk can facilitate organizational buy-in for growth strategies that target emerging markets and
frontier markets, while improving the performance of existing businesses.
2.What are the steps in making international negotiations successful?
Answer: Meaning of International Business Negotiation: The business negotiation that
takes place between the interest groups from different countries or regions.
STEPS IN MAKING INTERNATIONAL NEGOTIATIONS SUCCESSFUL
International business deals not only cross borders, they also cross cultures. Culture
profoundly influences how people think, communicate, and behave. It also affects the kinds
of transactions they make and the way they negotiate them. Differences in culture between
business executivesfor example, between a Chinese public sector plant manager in
Shanghai and a Canadian division head of a family company in Toronto can create barriers
that impede or completely stymie the negotiating process.
Negotiating abroad requires the ability to meet special challenges and deal with the unknown.
Even those experienced in cross-cultural communication can sometimes work against their
own best interests during international business negotiations. Skilled negotiators know how to
analyze each situation, set up negotiations in ways that are advantageous for their side, cope
with cultural differences, deal with foreign bureaucracies, and manage the negotiation process
to reach a deal.

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

The great diversity of the worlds cultures makes it impossible for any negotiator, no matter
how skilled and experienced, to understand fully all the cultures that may be encountered. The
top ten elements of negotiating behavior constitute a basic framework for identifying
cultural differences that may arise during the negotiation process. Applying this framework in
the international business negotiations may enable one to understand your counterpart better
and to anticipate possible misunderstandings.
The negotiation process
1.Preparation: negotiator must familiarize themselves with the entire context and
background of their counterparts.
There should be the specific subjects to be negotiated.
They must be aware of the differences in culture, language, and environment.
Managers must have an understanding of there on negotiating style.
Managers should find out as much as possible about:
The kinds of demands that might be made
The composition of the opposing team
The relative authority that the members possess
Develop a profile of their counterparts.
They consider different variables during this process as well.
2. Relationship building: taking time to build mutual trust before starting business
discussions
May require go-betweens
Be prepared to wait for the other party to start business negotiations
3.Exchanging task related information during this stage each side makes a presentation
and states its position, normally followed by a question and answer session.
Role reversal: showing an understanding of the other partys vie points and needs
4. Persuasion during this stage both parties try to persuade the other to accept more of their
position while giving up some of their own; there are recognizable tactics for this stage
Stressful tactics
5. Concessions and agreements at this point each side will make various concessions so
that an agreement can be reach and signed.
Managing negotiation
Successful management of intercultural negotiations requires the manager
- To gain specific knowledge of the parties in the upcoming meeting
- To prepare accordingly to adjust to and control the situation
- To be innovative
A problem solving approach is essential to successful cross- cultural negotiations
- Treat everyone with respect, avoid making anyone feel uncomfortable, dont criticize
or blame others in a personal way such that they lose face
Using the Web to support Negotiation
Negotiation support systems (NSS) can provide support for the negotiation process
by:

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

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92

Increasing the likelihood that an agreement is reached when a zone of agreement


exists (solutions that both parties would accept)
Decreasing the direct and indirect costs of negotiations such as costs caused by
time delays (strikes, violence), and attorneys fees among others
Maximizing the chances for optimal outcomes

3. Identify and explain the cultural causes of conflict in international management.


ANSWER: CULTURAL CAUSES OF CONFLICT IN INTERNATIONAL BUSINESS
Meaning: When business people from different cultures interact, they sometimes come into
conflict because of different worldviews, manners, taboos and social mores. In an
increasingly global market place, business people can avoid conflict through awareness of
these differences.
Function: Culture can include race, ethnicity, nationality and language. It can also include
economic class, religion, gender and sexual orientation. Culture shapes many aspects of life
such as worldview, relationships and self-identity.
Type: Business-related cultural conflict can arise from difference in time orientation,
nonverbal communication, spatial orientation, gender roles and similar factors. These factors
affect areas of business such as negotiation, marketing and management.
A key to being successful in business internationally is to understand the role of culture in
international business. However, on the one hand where it is important to be aware of cultural
differences of different countries, on the other, it is also hard to be aware of every single
aspect of each countrys organizational culture. Therefore, you should be aware of the key
factors that have a direct impact on business. These are:

Communication is the key to success for any business, whether you are operating
nationally or internationally, but when operating internationally it becomes even more
important due to language barriers. Passport to Trade 2.0 project aims to remove this
barrier by providing training materials in the languages of the country you are
operating.
Being aware of basic customer needs is an important aspect, as this will give the
advantage of conveying your message. In simple terms, if you are aware of the
customers cultural background, then you will be able to adopt better and more
suitable advertising methods.
Body language is another key factor in cultural difference. As different countries
have different ways to convey or share their message, for instance in Germany people
tend to speak loudly when sharing ideas, whereas in Japan people speak softly, it very
important to know what your body language should be doing when interacting with
people whether its your business partner or an interviewer.
Before launching a marketing campaign, always conduct research to become aware
of your target audience since customer demand, decision-making, gender views and
ideologies greatly vary in cultures.

In the business world, communication is imperative for the successful execution of daily
operations. Understanding cultural differences and overcoming language barriers are some of
the considerations people should have when dealing with business with people of various

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

cultures. Often business deals are lost because the parties involved did not take the time to
learn about their each others cultures prior to interacting.
Advertising Conflicts
Businesses that either market to, or negotiate with, foreign cultures should research cultural
differences in order to avoid situations that could create conflict. Advertising to foreign
culture should be carefully reviewed, especially if it is translated into another language.
Negotiating Conflicts
Conflict in international negotiations can result from differences in language as well, but
often, foreign cultures also have different attitudes about negotiating. For example, the
intellectual property website FPO says some European countries don't have a culture of
negotiation. In these cases, buyers or sellers who propose prices far off from what they are
willing to accept in order to build room for negotiation are seen as untrustworthy.
Workplace Conflicts
Even small businesses that don't trade overseas can be faced with cultural conflict issues. In
some cases, cultural and ethnic diversity in the workplace can create conflict and affect
employee moral if not managed properly. But through communication and leadership, small
businesses can avoid these conflicts and reap the benefits that a workforce of diverse views
and talents offers.
Customs
When doing business with an affiliate from another country, consider the cultural differences
that may be presented. This includes basic customs, mannerisms and gestures. For example, If
a salesperson approaches a meeting with knowledge of a customers cultural background,
then his words, body language and actions can all be adapted to better suit those of the
customers. This in turn may lead to being better liked by the customer, ultimately increasing
the salesperson's opportunity to close the deal.
Language Barriers
In some countries, like the United States and Germany, it is common for people to speak
loudly and be more assertive or aggressive when sharing ideas or giving direction. In
countries like Japan, people typically speak softly and are more passive about sharing ideas or
making suggestions. When interacting with people from different cultures, speaking in a
neutral tone and making a conscious effort to be considerate of others' input, even if it is
given in a manner to which you are not accustomed, can help foster effective business
communication.
Target Audience
When launching a marketing campaign or advertising to members of a different culture,
always research the target market prior to beginning the campaign. Levels of conservatism,
gender views and ideologies can vary greatly between cultures. Presenting a campaign that is
not in line with specific cultural norms can insult the target audience and greatly hinder the
campaign. Being aware of cultural norms can also help your company narrow down the target
audience. For instance, in Japan and Austria, men usually are in control of decision-making,
but women make the majority of purchasing decisions in Sweden.
Technology
Due to globalization, people from various cultures and countries increasing conduct business
with each other. Technology enables people to easily connect with people around the world in
a moment's notice, but there are a few rules to remember before doing so. If making an
international phone or video conferencing call, be conscious of the time zone differences and
make sure to set a reasonable time for all involved parties to interact. It is important to

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

remember that cultural differences can also affect availability. For instance, just because you
schedule a conference call for the middle of the business day does not mean that the time will
be favorable for the people you are conducting business with. Many Spanish cultures have
longer lunch breaks than Americans are accustomed to, which means there may be a two- to
three-hour time period during the day in which the person you would like to meet with is
unavailable. Asking for availability prior to making the call is the best way to avoid any
confusion. Once you are able to connect, speak clearly and slowly.
Politics
Political influences, both past and present, can potentially affect the way a person or company
does business. Some cultures have a very strong sense of nationalism and government pride,
and therefore, are more comfortable and willing to purchase from companies with some sort
of government backing. Conducting business with those of differing cultures can also impact
negotiations if there are on-going political disputes between the involved parties' countries of
origin. To avoid conflict, it is best to avoid discussing any political matter that does not
directly pertain to the business at hand. This is also true for inter-office interactions.
4.Explain the five steps in the process of developing international strategy. Outline the
advantages and disadvantages of various foreign market entry options.
Answer: The strategic management process is more than just a set of rules to follow. It is a
philosophical approach to business. Upper management must think strategically first, then
apply that thought to a process. The strategic management process is best implemented when
everyone within the business understands the strategy. The five stages of the process are goal
setting, analysis, strategy formation, strategy implementation and strategy monitoring.
Goal-Setting
The purpose of goal-setting is to clarify the vision for your business. This stage consists of
identifying three key facets: First, define both short- and long-term objectives. Second,
identify the process of how to accomplish your objective. Finally, customize the process for
your staff; give each person a task with which he can succeed. Keep in mind during this
process your goals to be detailed, realistic and match the values of your vision. Typically, the
final step in this stage is to write a mission statement that succinctly communicates your goals
to both your shareholders and your staff.
Analysis
Analysis is a key stage because the information gained in this stage will shape the next two
stages. In this stage, gather as much information and data relevant to accomplishing your
vision. The focus of the analysis should be on understanding the needs of the business as a
sustainable entity, its strategic direction and identifying initiatives that will help your business
grow. Examine any external or internal issues that can affect your goals and objectives. Make
sure to identify both the strengths and weaknesses of your organization as well as any threats
and opportunities that may arise along the path.
Strategy Formulation:
The first step in forming a strategy is to review the information gleaned from completing the
analysis. Determine what resources the business currently has that can help reach the defined
goals and objectives. Identify any areas of which the business must seek external resources.

HIMANSHU SONI

ID NO. A6940

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

The issues facing the company should be prioritized by their importance to your success.
Once prioritized, begin formulating the strategy. Because business and economic situations
are fluid, it is critical in this stage to develop alternative approaches that target each step of
the plan.
Strategy Implementation
Successful strategy implementation is critical to the success of the business venture. This is
the action stage of the strategic management process. If the overall strategy does not work
with the business' current structure, a new structure should be installed at the beginning of this
stage. Everyone within the organization must be made clear of their responsibilities and
duties, and how that fits in with the overall goal. Additionally, any resources or funding for
the venture must be secured at this point. Once the funding is in place and the employees are
ready, execute the plan.
Evaluation and Control:
Strategy evaluation and control actions include performance measurements, consistent review
of internal and external issues and making corrective actions when necessary. Any successful
evaluation of the strategy begins with defining the parameters to be measured. These
parameters should mirror the goals set in Stage 1. Determine your progress by measuring the
actual results versus the plan. Monitoring internal and external issues will also enable you to
react to any substantial change in your business environment. If you determine that the
strategy is not moving the company toward its goal, take corrective actions. If those actions
are not successful, then repeat the strategic management process. Because internal and
external issues are constantly evolving, any data gained in this stage should be retained to
help with any future strategies.
FOREIGN MARKET ENTRY OPTIONS: TYPES, ADVANTAGES AND DISADVANTAGES
Foreign market entry modes differ in degree of risk they present, the control and
commitment of resources they require and the return on investment they promise.
1. Exporting
2. Licensing
3. Franchising
4. Turnkey Projects
5. Wholly owned subsidiaries
6. Joint venture
Exporting: It is the process of selling of goods and services produced in one country to other
countries.
Advantages of Direct Exporting
Control over selection of foreign markets and choice of foreign representative
companies
Good information feedback from target market, developing better relationships with
the buyers
Better protection of trademarks, patents, goodwill, and other intangible property
Potentially greater sales, and therefore greater profit, than with indirect exporting

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Disadvantages of Direct Exporting


Higher start-up costs and higher risks as opposed to indirect exporting
Requires higher investments of time, resources and personnel and also organizational
changes
Greater information requirements
Longer time-to-market as opposed to indirect exporting
Licensing: An international licensing agreement allows foreign firms, either exclusively or
non-exclusively to manufacture a proprietors product for a fixed term in a specific market.
Advantages of Licensing
Obtain extra income for technical know-how and services
Reach new markets not accessible by export from existing facilities
Quickly expand without much risk and large capital investment
Pave the way for future investments in the market
Retain established markets closed by trade restrictions
Political risk is minimized as the licensee is usually 100% locally owned
Is highly attractive for companies that are new in international business.
Disadvantages of Licensing
Lower income than in other entry modes
Loss of control of the licensee manufacture and marketing operations and practices
leading to loss of quality
Risk of having the trademark and reputation ruined by an incompetent partner
The foreign partner can also become a competitor by selling its production in places
where the parental company is already in.
Franchising: A system in which semi-independent business owners (franchisees) pay fees
and royalties to a parent company (franchiser) in return for the right to become identified with
its trademark, to sell its products or services, and often to use its business format and system.
Advantages of Franchising
Low political risk
Low cost
Allows simultaneous expansion into different regions of the world
Well-selected partners bring financial investment as well as managerial capabilities to
the operation.
Disadvantages of Franchising
Franchisees may turn into future competitors
Demand of franchisees may be scarce when starting to franchise a company, which
can lead to making agreements with the wrong candidates
A wrong franchisee may ruin the companys name and reputation in the market
Comparing to other modes such as exporting and even licensing, international
franchising requires a greater financial investment to attract prospects and support
and manage franchisees.
Turnkey Projects: A project when clients pay contractors to design and construct new
facilities and train personnel. A turnkey project is way for a foreign company to export its
process and technology to other countries by building a plant in that country. Industrial

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companies that specialize in complex production technologies normally use turnkey projects
as an entry strategy.
Advantages of Turnkey Projects
Possibility for a company to establish a plant and earn profits in a foreign country
especially in which foreign direct investment opportunities are limited and lack of
expertise in a specific area exists.
Disadvantages of Turnkey Projects
Risk of revealing companies secrets to rivals, and takeover of their plant by the host
country. Entering a market with a turnkey project CAN prove that a company has no
long-term interest in the country which can become a disadvantage if the country
proves to be the main market for the output of the exported process
Wholly owned subsidiaries (WOS)
Advantages of Wholly owned subsidiaries (WOS)
The monetary influence of a parent company cannot be overemphasized.
The parent has the means of providing buying power, research and development
funds, marketing money and know-how, employees, technical expertise and other
features the smaller company could not afford or accomplish alone.
The parent can provide the monetary means and capability to jump start new
companies and products. The marketing power of the parent, such as the ability to
place products in stores, can be a boon to a smaller company seeking to expand.
It is easier for a smaller subsidiary to form joint ventures and partnerships with other
companies if a larger corporate bureaucracy does not hinder it.
Subsidiaries can borrow money and issue their own debt.
Disadvantages of Wholly owned subsidiaries (WOS)
Integrating two organizations can be quite difficult due to different organization
cultures, control system, and relationships. Integration is a complex issue, but it is one
of the most important things for organizations.
By applying acquisitions, some companies significantly increased their levels of debt,
which can have negative effects on the firms because high debt may cause
bankruptcy.
Too much diversification may cause problems. Even when a firm is not too over
diversified, a high level of diversification can have a negative effect on the firm in the
long term performance due to a lack of management of diversification
5.What are the pros and cons associated with various organizational structures used by
international firms?
Answer: PROS AND CONS ASSOCIATED WITH VARIOUS ORGANIZATIONAL STRUCTURES USED
BY INTERNATIONAL FIRMS

Organizational structure is the formal arrangement of roles, responsibilities, and


relationships within an organization and is a powerful tool with which to implement strategy.
A companys choice of structure depends on many factors, including the configuration of a

HIMANSHU SONI

ID NO. A6940

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INTERNATIONAL MANAGEMENT AND


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companys value chain in terms of the location and type of foreign facilities, as well as the
impact of international operations on total corporate performance.
Global Functional Model
The simplest model for multinational firms.
Works especially well for companies where there are few customer differences in
taste but there are highly specialized skills used in creating the product.
Advantages
Efficiencies- because each functional set is coordinated globally, each functional
group is efficient
Costs are kept low because there is little need to duplicate skill sets
Economies of scale- developed in one place and quickly spread to all the other
subsidiaries
Rapid transfer of skills- easier to see what others are doing and learn from it
Disadvantages
Inflexibility: Some people resist helping each other
Local dysfunctions: Each function becomes frustrated with the others
Market rejection- Local market preferences tend to get ignored and if those market
preferences are important, the product ends up being rejected in the local market
Bureaucracy-Discourage initiative- decide their ideas are not really wanted
Geographic model
Used in companies with one operating division and in companies that would prefer
fairly simple organizational structure
Highest levels of managers are regional specialist's not functional specialists
Works well for companies in which customers have substantial demands for
customization to their region.
Advantages
Flexibility- each country manager can adapt the company's products to make it
successful.
Local needs- can target local needs. Products are a much better match to local
consumers desires
Quickly adapts to markets- the country manager has all the internal expertise needed
to make changes. That means adaptations occur quickly.
Disadvantages
Diseconomies of scale- Very expensive. It also lacks coordination between functional
skill sets.
Duplication- Information is often not shared between countries which means every
invention made or process must be remade or rediscovered in every country
Poor at serving global customers- It can't easily deliver one consistent product at a
consistent price to a consumer all around the world.
Single Matrix Model
Strong regional customer preferences and highly technical skills needed within the
company.
Have one functional manager and one geographic manager.

HIMANSHU SONI

ID NO. A6940

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INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

Advantages
Global efficiencies- all the local marketing or operations managers are connected to
each other through their functional managers so decisions occur globally
Local responsiveness- Managers pay more attention to local needs which allows
grater customization and adaptiveness on the local level
Disadvantages
Power struggles- Constantly faced with opposing goals.
Role Ambiguity- due to constant power struggles, people are left not knowing what to
do.
Dilutions of responsibility- Managers point the finger at each other.
Cost Inefficiencies- a lot of time spent politicking, often little else accomplished.
Cost of compromise- the solution in between solves neither problem and produces a
market failure.
Multi-business global product division
The multi division makes a company more profitable and more powerful in the
industry.
Technology oriented companies with highly specialized skills require but fewer
customer requirements for localization are likely to use this model.
Advantages
Flexibility- by selling several related products, a company can learn more about
customer needs
Local needs- Various product divisions can combine their offerings in different ways
to meet local standards
Global Coordination- Have better resources for global coordination
Disadvantages
Duplication of effort- Each functional group is repeated in each division
Lack of local responsiveness- when integrated well, multiple product divisions make
bureaucracy much worse and the company can become blinded by local needs.

REFERENCES:
1.Downloaded 23/4/2014) different international firms and political risk
http://www.investopedia.com/
2. (Downloaded 23/4/2014), steps of international negotiation
http://www.wikihow.com/
3. (Downloaded 24/4/2014), cultural causes of conflict
http://www.gmu.edu/
4. (Downloaded 24/4/2014), advantages and disadvantages of various market entry
http://www.fao.org/

HIMANSHU SONI

ID NO. A6940

14

INTERNATIONAL MANAGEMENT AND


LEADERSHIP

80
92

5. (Downloaded 25/4/2014), pros and cons of various organizational structure


http://gbr.pepperdine.edu/
6. (Downloaded29/4/2014) International Management Challenges
http://smallbusiness.chron,com
7. (Downloaded29/04/2014) how firms should deal with political risk
Class notes and http://www.investopedia.com
8. (Downloaded29/04/2014) international finance risk.
http.//www.investopedia.com
9. (Downloaded29/04/2014) advantages of various market entry.
http://www.fao.org/

HIMANSHU SONI

ID NO. A6940

15