North Central Mindanao College MODULE WEEK NO.

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Purok-Lemon Tree, Maranding, Lala, Lanao del Norte
Tel. No. (063) – 388 – 7213

College of Business Administration and Accountancy

BM7: Organizational Management
1st Semester of A.Y. 2021-2022

Topic: Cultural Diversity and International Management

Rationale

The internationalization of business and management exerts a major influence on the

manager's job. The impact of global integration is dramatized by the fact that many
complex manufactured products are built with components from several countries. The
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internationalization of management is part of the entire world becoming more global (the
world is flat). One challenge is to work well with organizations and people from other
countries.

Intended Learning Outcomes

At the end of this module, you should be able to:

 Appreciate the importance of multinational corporations in international business.
 Recognize the importance of sensitivity to cultural differences in international
enterprise.
 Identify major challenges facing the global managerial worker.
 Explain various methods of entry into world markets.
 Pinpoint success factors in the global marketplace, and several positive and
negative aspects of globalization.
 Describe the scope of diversity and the competitive advantage of a culturally
diverse workforce.
 Summarize organizational practices to encourage diversity.

Activity
Online Lecture Quiz

Discussion

International Management

The internationalization (or global integration) of business and management exerts

an important influence on the manager’s job.

The Multinational Corporation

The heart of international trade is the multinational corporation (MNC), a firm with
units in two or more countries in addition to its own. An MNC has headquarters in one

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country and subsidiaries in others. However, it is more than a collection of subsidiaries that
carry out decisions made at headquarters.

A multinational corporation sometimes hires people from its country of origin

(expatriates) for key positions in facilities in other countries .At other times, the MNC will hire
citizens of the country in which the division is located (host-country nationals) for key
positions. Most of the best-known companies are MNCs, including PepsiCo, IBM, and
Microsoft among hundreds of others.

 Transnational corporation- is a special type of MNC that operates worldwide without

having one national headquarters.

Trade Agreements among Countries

Trade agreements are important for understanding international management because
these agreements facilitate business in exporting, importing, and building goods in other
countries. These agreements have triggered considerable controversy, often leading to
anti-trade agreement demonstration.
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1. The North American Free Trade Agreement (NAFTA)

Establishes liberal trading relationships among the United States, Canada, And Mexico. The
pact also calls for the gradual removal of tariffs and other trade barriers on most goods
produced and sold in the United States. Effective as of January 1, 1994.

2. Central American Free Trade Agreement (CAFTA)

The United States-Dominican Republic-Central American Free trade Agreement (CAFTA) is
another free-trade agreement that the United States has joined with other countries in the
Western Hemisphere.

3. The European Union (EU)

The European Union is a 27-nation alliance that virtually turns member countries into a single
marketplace for ideas, goods, services, and investment strategies. The EU was a 15-nation
alliance for many years; it continues to incorporate new nations and has become the
world’s largest economic entity.

4. The World Trade Organization (WTO)

The World Trade Organization is the only international agency overseeing the rules of
international trade; it liberalizes trade among many nations throughout the world. The idea
is to lower trade barriers, thereby facilitating international trade. An important function of
the World Trade Organization is to settle trade disputes between two countries. The
decisions of the WTO are absolute, and all members must abide by its rulings.

Global Outsourcing as Part of International Trade

Outsourcing --refers to the practice of hiring an individual or another company outside the
organization to perform work.

Offshoring-- global outsourcing

The Case for Global Outsourcing

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Sending jobs overseas can create new demand for the lower-priced goods,
ultimately leading to new jobs in the United States. Consumer electronics is a germane
example.

The Case against Global Outsourcing

Many Americans believe that offshoring is responsible for the permanent loss of jobs
in the United States and for slow job creation. Yet, increased productivity through
information technology is responsible for the vast majority of the lost jobs.

Sensitivity to Cultural Differences

Cultural Sensitivity - is awareness of local and national customs and their importance if
effective interpersonal relationships. Cultural sensitivity can take the form of adapting your
behavior to meet the requirements of people from another culture.

Multicultural worker - an individual who is aware of and values other cultures.

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Cultural Mistakes to avoid in Selected Regions and Countries

EUROPE
 Great Britain - Asking personal questions. The British protect their privacy
 France- Expecting to complete work during the French two-hour lunch.

ASIA
 China – using black borders on stationary and business cards. Black is associated
with death.
 India- telling Indians you prefer not to eat with your hands. If the Indians are not using
cutlery when eating, they expect you to do likewise.

CHALLENGES FACING THE GLOBAL MANAGERIAL WORKER

Managerial workers on assignment in other countries, as well as domestic managers

working on international dealings, face a variety of challenges.

Developing Global Leadership Skills

Managerial workers occupying leadership positions must develop global leadership skills,
the ability to effectively lead people from other cultures. Global leadership skills are a
combination of cultural sensitivity and general leadership skills.

Challenges Facing the Global Managerial Worker

 Developing Global Leadership Skills.

 Currency Fluctuations.
 Balance of Trade Problems.
 Human Rights Violations.
 Cultural Shock.
 Differences in Negotiation Style.
 Piracy of Intellectual Property Rights and other Merchandise.
 Coping with defective and dangerous products.
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Currency Fluctuations- a frequent challenge to the international manager is adjusting

business practice in response to changes in the value of currencies in the home country
and elsewhere.

Balance of Trade Problems- the difference between exports and imports in both goods and
services. Many people believe that it is to a country’s advantage to export more than it
imports.

Human Rights Violations, Corruption, and Violence

International managers face potential ethical problems when their customers and
suppliers reside in countries where human rights are violated.

Cultural Shock- many managers and professionals on overseas assignments face culture
shock. The condition refers to a group of physical and psychological symptoms that may
develop when a person is abruptly placed in a foreign culture.
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Differences in Negotiating Style

A recurring challenge in other countries, as indicated in Exhibit 2-1, is that the
international managerial worker may have to use a different negotiation style.

Piracy of Intellectual Property Rights and other Merchandise

In international business, considerable revenue is lost when firms in other countries
illegally copy and sell products. These imitations might be sold in the domestic market as
well, depriving the firm of additional revenue.

Coping with Dangerous and Defective Products- yet another potential risk for the
international worker is the need to cope with dangerous and defective imported products.

METHODS OF ENTRY INTO WORLD MARKETS

Firms enter the global market in several different ways, and new approaches continue to
evolve. Now many home-based businesses sell worldwide through an established website.
Six methods of entry into world markets are described next.

1. Exporting- goods produced in one country are sold for direct use or resale to one or
more companies in foreign countries.
2. Licensing and franchising- companies operating in foreign countries are authorized
to produce and market products or services with specific territories on a fee basis.
3. Local assembly and packaging- in this arrangement, components rather than
finished products are shipped to company-owned facilities in other countries. There
assembly is completed and the goods are marketed.
4. Strategic alliance and joint ventures- instead of merging formally with a firm of
mutual interest, a company in one country pools resources with one or more foreign
companies.
5. Direct foreign investment- the most advanced stage of multinational business
activity takes place when a company in one country produces and markets
products through wholly owned facilities in foreign countries.
6. Global start-up- is a small firm that comes into existence by serving an international
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market. Founders of global start-ups have one key characteristic in common: some
international experience before going global. Selling through the internet facilities
creating a global start-up because customers can be reached directly without a
distributor.

SUCCESS FACTORS IN THE GLOBAL MARKETPLACE

Success in international business stems from the same factors that lead to success art home.
The ultimate reason for the success of any product or service is its ability is its ability to satisfy
customer needs.
 Think Globally, Act locally- a competitive enterprise combines global scale and
world- class technology with deep roots in local markets. Local representatives of the
firm behave as though their primary mission is to serve the local customer. A major
aspect of thinking globally, yet acting locally is for the multinational corporation to
compete successfully against well-established, well-managed domestic companies.
 Recruit and Select Talented Nationals- a major success factor in building a business in
another country is to hire talented citizens of that country to fill important positions.
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 Hire or Develop Multicultural Workers- a contributing factor to success in global

markets is to hire multicultural workers. Multiculturalism enhances acceptance of a
firm by overseas personnel and customers. Included in multiculturalism is the ability to
speak the language of the target country.
 Research and Assess Potential Markets- another basic success strategy in
international markets is to acquire valid information about the firm’s target market.
Trade statistics usually provide a good starting point.
 The Advantages and Disadvantages of Globalization- many managers and scholars
believe that globalization of business is both inevitable and highly desirable. Yet for
other managers, business owners, and individual workers, the internationalization of
the workplace has created more problems than opportunities.

The Pros and Cons of Globalization

Advantages:
 By sending jobs overseas, a country such as the United States is better able to
compete globally, thus saving jobs in the long run. A company frequently cannot
get the contracts it needs to survive it cannot reduce prices, so global outsourcing
becomes a necessity.
 Productivity grows more quickly when countries produce goods and services in
which they have a comparative advantage. Living standards go up faster
.Productivity in high wage companies also increases because they are forced to
reduce the cost of production to survive world-wide competition.

Disadvantages:
 Millions of Americans have lost jobs due to imports or production shifts abroad. Most
find lower-paying jobs. One-quarter of laid-off workers are still job-hunting three years
later.
 Millions of others fear losing their jobs, especially at companies operating under
competitive pressure. Workers are forced to compete against foreign workers in
countries such as Pakistan and Malaysia, where workers are paid on average one-
tenth as much as their American counterparts.
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THE SCOPE, COMPETITIVE ADVANTAGE, AND POTENTIAL PROBLEMS OF MANAGING DIVERSITY

The globalization of business means that managerial workers must be able to deal
effectively with people from other countries.

Diversity—a mixture of people with different group identities within the same work
environment.

Demographic diversity- refers to the mix of group characteristics of the organization’s

workforce. Demographic characteristics include such factors as age, sex, religion, physical
status, and sexual orientation.

Cultural diversity- refers to the mix of cultures and subcultures to which the organization’s
workforce belongs .Among these cultures are Hispanic culture, the deaf culture, the Muslim
culture, the Jewish culture, the Native American culture, and the Inuit (Eskimo) culture.
Diversity in the workplace from five perspectives: (1)the scope of diversity, (2) its
competitive advantage, (3) potential disadvantages, (4) organizational practices for
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capitalizing on diversity, and (5) an analysis of how the English language is used to unify
people in business.

The Scope of Diversity

Improving cross-cultural relations includes appreciating the true meaning of diversity. To
appreciate diversity, a person must go beyond tolerating to treating people from different
racial and ethnic groups fairly.

The Competitive Advantage of Diversity

Encouraging diversity within an organization helps an organization's achieve social
responsibility goals. Diversity brings a competitive advantage to a firm, but before diversity
can offer that competitive advantage it must be woven into the fabric of the organization.
The potential competitive benefits of cultural diversity, as revealed by research and
observations, are described next:
1. Managing diversity well offers a marketing advantage, resulting in increased sales
and profits.
2. Effective management of diversity can reduce cost.
3. Companies with a favourable record in managing diversity are at a distinct
advantage in recruiting talented people.
4. Workforce diversity can provide a company with useful ideas for favourable publicity
and advertising.
5. Workforce diversity, including the services of a culturally diverse advertising agency,
can help reduce cultural bloopers and hidden biases.
6. Workforce heterogeneity may offer a company a creativity advantage.

Potential Problem Associated with Diversity

Cultural diversity initiatives are usually successful in assembling heterogeneous
groups, but the group members do not necessarily work harmoniously. The potential for
conflict is high. In general, if the demographically different work group members are
supportive toward each other, the benefits of group diversity, such as more creative
problem solving, will be forthcoming.

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ORGANIZATIONAL PRACTICES TO ENCOURAGE DIVERSITY

Three representative practices that enhance diversity management (1) corporate

policies about diversity, (2) the establishment of employee network groups, and (3) diversity
training.

1. Corporate Policies Favouring Diversity- many companies formulate policies that

encourage and foster diversity .A typical policy: “We are committed to recruiting,
selecting, training, and promoting individuals based solely on their capabilities and
performance.
2. Employee Network Groups- a common approach to recognizing cultural differences
is to permit and encourage employees to form employee network groups. The
network group is composed of employees throughout the company who affiliate on
the basis of group characteristics such as race, ethnicity, gender, sexual orientation,
or physical ability status.
3. Diversity Training- cultural training, as described in the section about international
business, aims to help workers understand people from another culture .It has a
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slightly different purpose. It attempts to bring about workplace harmony by teaching

people how to get along better with diverse work associates.

The English Language as a Force for Unity

Although differences among people are important to businesses everywhere,
international workers must communicate effectively with each other. To compete globally,
more and more European businesses are making English their official language.