Engineering

Management

Lesson No. 15 –
International Management
 Specific Objectives of
the Lesson

• At the end of the lesson, the students

should be able to:
• Define the essential terms of the subject matter.
• List three reasons why businesses establish
foreign operations
• Identify the characteristics of multinational
corporations.
• Describe components of the international
manager’s five environments.
 Relative Literature

• Related Article No. 23

BLOCKBUSTER MANAGEMENT
 The Nature and Scope of
International Business

• Businesses mirror a global economy, regardless of how

large or small they may be.
• Many small businesses employ a cross-cultural work
force.
• Most businesses find that some part of their inputs comes
from across national borders or from other countries.
• A significant portion of outputs, are exported to other
countries.
• Today companies need the flexibility to purchase inputs
from sources offering the highest quality, greatest
dependability, and lowest cost, whether they originate
overseas or down the street.
 Recent Changes in
International Business
• A probably never before in history, managers must pay attention to
what goes on in economies all around the globe.
• The world is changing more rapidly every day, and the changes are
monumental.
• The nations of the Europe has become like the United States with a
common currency (the “Euro”), banking systems, and removal of
most barriers to trade.
• China has opened its doors to new capitalist ventures. Mexico and
other countries in Latin and South America are moving toward a
more-open economic systems with the privatization of many
government-owned operations.
• Mexico, the United States, and Canada have recently created the
North American Free Trade Agreement (NAFTA).
• The Asia Pacific Region including the Philippines has also created
the Asia Pacific Economic Cooperation (APEC).
 Recent Changes in
International Business
• Organization in every country, need the freedom and
flexibility to act quickly to anticipation of, or in reaction to,
changes taking place around the world.
• Each day the values of countries’ currencies fluctuate,
offering advantages and disadvantages.
• As the value of the Philippine peso falls against the U.S.
dollar, imported raw materials increase in prices does
affecting manufacturers, retailers, banks and many other
business as well.
• Price of crude oil also goes up considering that the
Philippines is buying crude oil in terms of dollars.
 Recent Changes in
International Business

• Most large corporation from around the world,

like Blockbuster and Phillips have found it
necessary to join forces with others to share
research, develop new ventures, and promote
the sales of their products and services.
– Examples of Joint Ventures are:
• Banko De Oro and Equitable Bank
• Sony and Ericsson – Sony Ericsson
• Nokia and Siemens – Nokia Siemens Networks
 The Extent of
International Business
• Of the world’s 500 largest foreign corporations, 195 were
Japanese—including eight of the top 10, according to
Forbes International 500 Survey.
• Among the top 10 foreign global corporations appear
British Petroleum and Royal Dutch/Shell Group.
• The world’s seven largest economies called the G7 are
the: United States, Japan, Germany, France, Italy, the
United Kingdom, and Canada—produced 63% to 65% or
nearly 2/3s of the world’s goods and services.
• But many corporations rival other countries in economic
might.
• As a fact, “of the 100 economies in the world, 47 are
corporations, not countries”.
 The Extent of
International Business

• According to research, “General Motors

Corporation is not only the world’s largest
company, it also is the 20th-largest
economic unit on the planet, beating out
most of the world’s 130-plus nations.
• Sixteen of the top 100 economies in the
world are U.S. firms; Japan placed 11
corporations on the list.
 Globalization and its
Opportunities
• The trend for the near future is clear, as one sum it up, ‘
the Buzzword for the future clearly is globalization.
• Globalization embraces many activities: exporting
products and services; locating operations outside one’s
national borders; using foreign partners to help in
research and development and to sell products and
services around the world; and tailoring strategies,
management functions, and products and services to
meet the needs of customers worldwide.
• As discussed in the beginning of this lesson, Blockbuster
and its foreign partner, Phillips have formed a joint
venture with Den Fujita in Japan and are negotiating
others in France, Germany, and Italy in the video-rental
market.
 Globalization and its
Opportunities
• Globalization requires that managers think
beyond national borders and see all world
markets as part of one global economy.
• It was observed that: “It is most competitive
companies who are the quickest to take
advantage, and to use their resources globally.
• Those who are left behind may never catch up
and the only way company can really be certain
of its competitive position in this global market is
to be able to compete with its foreign competition
on their own turf as well as in other world
markets.”
 Globalization and its
Opportunities
• This is what Bausch & Lomb did with much success
throughout the mid 1980s and is still doing today.
• In 1991 more than half of all new designs for its Ray Ban
line were developed in the United States for international
market.
• In Asia the glasses were redesigned to better suit Asian
faces, and sales increased dramatically.
• In China and also in the Philippines where average
earnings are far below those of citizens in other markets,
Bausch and Lomb changed its strategy by lowering
prices and relying instead on high volume.
• It worked, and higher earnings were the result.
 The Reasons for
Globalization
• Companies may have little choice about going
global.
• Their markets may simply be saturated at home
and only chance for growth may lie outside their
borders.
• Blockbuster sees this happening, hence its
expansion to overseas markets.
• Or the best sources for needed inputs-labor, raw
materials, and state-of-the-art equipment—may
lie outside their home bases, making foreign-
based production and sales facilities a logical
choice.
 The Reasons for
Globalization

• In general, companies go international and

global because of two basic motivations:
– Proactive motives – includes the search for new
customers and expanded markets, necessary raw
materials and other resources, tax advantages, lower
costs, and economies of scale. The drive to reduce
costs has led to setting up operations in such
countries as Malaysia, Indonesia, China, Mexico, and
the Philippines, which offer lower wages and fewer
restrictions on business.
 The Reasons for
Globalization
– Reactive motives – include the desire to escape from
trade barriers and other government regulations. (GM
has moved production facilities from Mexico City to
northern Mexico to escape that city’s tough
environmental laws); to better serve a customer or
group of customers (many Japanese auto parts
suppliers, for instance, have moved to the United
States to be near the Japanese auto car companies
they supply); and to remain competitive.
• The most important reason for expanding
globally is that it provides a powerful additional
source of growth.
 The Impact of Globalization
on Business

• Going global—doing business outside one’s

home country through integrated operations—
means dealing with political, legal, sociocultural,
economic, and technological environments that
are unfamiliar and unique.
• As a result, the kind of managers needed to staff
foreign and home-office operations will change.
• Their education and experience should prepare
them to live and work in those countries or
cultures in which they will do business.
 The Impact of Globalization
on Business

• Marketing, production, finance, and all other business

functions will change, taking on a flavor and style
appropriate for the foreign environment.
• The movement of goods, money, and people across
borders regularly calls for skills the company may not
ordinarily possess.
• Stakeholders’ interests must be protected from the
threats posed by foreign governments and environments.
Products and services must be tailored to the needs of
foreign customers.
• Globalization means change. It also means a drive
among businesses to achieve world-class products and
services with competitive quality and productivity.
 The Multinational
Corporation
• Companies can do business in foreign countries in many
ways.
• Some simply maintain sales offices in other lands; others
only buy materials form companies in other countries.
• Those companies with operating facilities, not just sales
offices, in one or more foreign countries are called
multinational corporations.
• In general, there are two kinds of multinationals: those
that market products and services in relatively unaltered
states throughout the world (standardization); and those
that modify their products or services and adjust their
marketing to appeal to specific groups of consumers in
specific geographical areas (customization).
 The Multinational
Corporation
– For example: For the 1st category: sporting goods,
softdrinks, cigarettes, chemicals, oil products, liquors,
certain types of clothing (Lee jeans for examples),
and transportation services. Both Pepsi and Wrigley’s
chewing gum are sold around the world, with only
their packaging, promotion, and labeling altered to
suit foreign tastes.
– For the 2nd category: it includes computer software
programmed to work in foreign languages; cars
manufactured to meet different countries’ safety and
pollution regulations and driver preferences; fast food
menus altered to cater to cultural tastes; and
cosmetics formulated to complement skin tones and
coloring of different populations.
 Characteristics of
Multinationals

• Even though multinationals around the world

differ in sales volumes, profits, markets
serviced, and number of subsidiaries, they do
share some common characteristics.
– One common trait or characteristics is the creation of
foreign affiliates, which may be wholly owned by the
multinational or jointly held with partners from foreign
countries.
• For example: Blockbuster owns almost all of its
outlets in Britain and Austria and half those in Canada; most
of the others are franchises or joint ventures that grant
foreign nationals the right to do business under the
company’s name.
 Characteristics of
Multinationals
• The relationship of multinationals to their affiliates
are describe this way:
• The foreign affiliates are linked with the parent
company and with each other by ties of common
ownership and by a common global strategy to
which each affiliate is responsive and committed.
• The parent company controls the foreign affiliates
via resources which it allocates to each affiliate---
capital, technology, trademarks, patents and
[people]—and through the right to approve each
affiliate’s long- and short-range plans and budgets.
 Characteristics of
Multinationals
– Another common characteristics of multinationals is
that their management operates with global vision
and strategy, seeing the world as their market. Top
managers coordinate long-range plans and usually
allow the foreign affiliates to work with great
autonomy, leaving the day-to-day management up to
those on the spot and closest to the problems in
foreign markets.
• Bausch and Lomb is but one example. Affiliate operations
are integrated and controls are exercised through
management reports, frequent meetings and
communications between headquarters and affiliates, and
the setting of objectives both independently and in
conjunction with headquarters.
 Characteristics of
Multinationals
– A third characteristic is the tendency of multinationals to
choose certain types of business activities. Most multinationals
are engaged in manufacturing. The rest tend to cluster around
petroleum industry, banking, agriculture, and public utilities.
– A fourth characteristics is the tendency to locate affiliates in the
developed countries of the world –Western Europe, Canada,
South Korea, Taiwan, Japan, and the United States.” It is
estimated about two-thirds of the world’s direct investments are
in the developed countries. Less-developed countries tend to
be seen as sources of raw materials and cheap labor, and as
markets for fairly inexpensive consumer that can be mass-
produced to standardized designs.
 Characteristics of
Multinationals
– A fifth characteristic is the adoption of one of three of three
basic strategies regarding staffing. The first is a high-skills
strategy in which the company exports products, not jobs.
“Rather than push pay to the lowest common denominator,
companies such as Ford and Motorola are training workers to
improve their skills, boost productivity (and quality)—and keep
jobs at home”. The second is to “dumb-down jobs” and shift the
work to cheap-labor countries. This has been the choice for the
majority of companies around the world. The third strategy is to
mix the first two: “for every Motorola or Ford, a trendsetter such
as AT&T is turning high-paying jobs into low-wage ones. Even
those that upgrade worker skills, such as Ford Motor Co. and
General Electric, still shift work to cheap-labor countries – thus
pursuing both approaches.”
 The International
Manager
• The managers of these businesses that are part of international
trade have become engaged in International Management—
managing resources (people, funds, inventories, and technologies)
across national borders and adapting management principles and
functions to the demands of foreign competition and environments.
• The demands of such managers have never been greater that they
are today.
• They must love a challenge—the challenge of working in the ever-
changing contexts of international trade.
• Managers must thrive on the unexpected, the new, the different, and
the unique. If they are to work abroad, people need a love of or
sincere interest in the host country’s people, culture, tradition, and
history.
• They must have adequate knowledge of the host country’s language,
business customs, economy and commercial laws. Above all, they
need to be open, flexible, and patient human beings.
 The Environments of the
International Manager

• The environment in which managers in an

international company function is far more
complex than domestic management settings.
• The key task for top management in a
multinational company is to develop and maintain
an in-depth understanding of the environments of
every country in which it has to operations,
affiliates, suppliers, and customers.
 Five basic environments
must be monitored:

• POLITICAL ENVIRONMENT

Form of government
Political Ideology
Stability of government
Strength of opposition parties and group
Social unrest
Political strife and insurgency
Government attitude toward foreign firms
Foreign Policy
 • LEGAL ENVIRONMENT

Legal tradition
Effectiveness of legal system
Treaties with foreign nations
Patent and trademark laws
Law affecting business firms
 • ECONOMIC ENVIRONMENT

• Level of economic development

• Population
• Gross national product
• Per-capita income
• Literacy level
• Social infrastructure
• Natural resources
• Climate
• Membership in regional economic blocks
• Monetary and fiscal policies
• Nature of competition
• Currency convertibility
• Inflation
• Taxation system
• Interest rates
• Wage and salary levels
 • SOCIOCULTURAL ENVIRONMENT
• Custom, norms, values, and beliefs
• Languages
• Attitudes
• Motivations
• Social institutions
• Status symbols
• Religions
• Demographics and Psychographics
 • TECHNOLOGICAL ENVIRONMENT
• State of the art in various industries
• Research and development
• Recent innovations
• Robotics
• CAD, CAM, CIM
• Host countries’ levels of acceptance and utilization
• Presence of educated workforce in host countries
• Potential partners around the globe
• There are some legal customs managers should learn in
cross-cultural assignments, here are just some:
– Never discuss business over dinner in France.
– Don’t pass documents with the left hand in Saudi Arabia (where
the left hand is used for bathroom functions).
– Don’t expect written contracts in most Muslim countries; a
handshake is considered binding on the parties.
– Don’t expect the contract with South Korean business people to
spell out all the details. Written contracts are typically documents
that change as conditions do.
Quote of the Day