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International
Management
CHAPTER 6

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 Learning Objectives
6-1 Discuss what integration of the global economy means for
companies and their managers.
6-2 Describe how the world economy is becoming more integrated
than ever before.
6-3 Define the strategies organizations use to compete in the global
marketplace.
6-4 Compare the various entry modes organizations use to enter
overseas markets.
6-5 Explain how companies can staff overseas operations.
6-6 Summarize the skills and knowledge managers need to manage
globally.
6-7 Identify ways in which cultural differences between countries
influence management.

© McGraw Hill
 Managing in Today's (Global) Economy
• The world’s economic output grew and the volume of
exports grew much faster.
• Foreign direct investment (FDI) plays an ever-increasing
role in the global economy.
• Imports penetrate more deeply into the world’s largest
economies.
• Growth of world trade, FDI, and imports means
companies around the globe find their home markets are
under attack from foreign competitors.

© McGraw Hill
 Exhibit 6.1 Top 10 Global Firms

Access the text alternative for slide image

© McGraw Hill Source: “Global 500,” Fortune, January 26, 2019, http://fortune.com/global500/.
 Outsourcing and Jobs
Outsourcing
• Contracting with an outside
provider to produce one or more of
an organization’s goods or
services.
Offshoring
• Moving work to other countries.
Inshoring
• Moving work from other countries
back to the headquarters country.
Insourcing
• Producing in-house one or more of
an organization’s goods or
services.
© McGraw Hill Rolex Dela Pena/EPA/Shutterstock
 Factors to Consider for Offshoring

Managers should not start out with the assumption

that it will be cheaper for them to offshore.
• What competitive advantage do the products offer?
• Is the business in its early stages of life?
• Can production savings be achieved locally?
• Can the entire supply chain be improved?

© McGraw Hill
 The Geography of Business
• The global economy is more integrated than ever
before.
• The global economy is dominated by countries in
three regions: North America, western Europe,
and Asia.
• Other developing countries and regions represent
important areas for economic growth.

© McGraw Hill
 Exhibit 6.2 Key Aspects of the
Global Environment
Economic environment Foreign investment; growth of developing
nations; rising wages in developing nations
Technological environment Internet, artificial intelligence, augmented reality,
and cloud computing
Legal/regulatory environment Free trade agreements; anticorruption laws
Demographics Aging population in developed nations; growing
population worldwide, especially in the
developing world
Social issues Cultural differences; bribery concerns
Natural environment Intensifying demand for resources, including oil,
water, and food; growing desire for sustainable
products and operations; increasingly
endangered species; climate change

© McGraw Hill
 Western Europe
• With 28 members, the EU has population of more
than 513 million and a GDP of US$17.3 trillion.
• Brexit is creating uncertainty regarding the future
strength of the EU.
• The EU presents a regulatory challenge to
certain companies from the United States.

© McGraw Hill
 Asia: China and India

China is world’s largest consumer of basic raw

materials and the largest exporter of goods into the
United States.
• Greatest impact as an exporter.
• Competitive edge in manufacturing.
India is still developing and has the second largest
population in the world.
• Provides online support for many companies.

© McGraw Hill
 The Americas

North American Free • Other agreements

Trade Agreement between the U.S. and
(NAFTA) Central and South
• An economic pact America:
between the United • CAFTA-DR.
States, Canada, and
Mexico. • Mercosur.
• Currently under
renegotiation: USMCA.

© McGraw Hill
 Africa and the Middle East

Middle East Africa

• Supplies by far the most • Africa has long been
oil to the world’s buyers. seen only as a place of
• dire poverty and many
Saudi Arabia is the
unstable political
United States’ main
situations.
supplier of oil from that
region. • Progress and growth in
the middle class have
• The United States'
provided opportunities
dependence on foreign for businesses.
oil has decreased due
to increased domestic
production.

© McGraw Hill
 Social Entrepreneurship
Student Social Entrepreneurs
Compete for $1 Million

The Hult Prize Foundation is a student business

competition and start-up accelerator that awards $1
million to social entrepreneurs from universities
around the world.
• Of the four recent award-winning start-ups mentioned in
the case, which do you find the most likely to succeed?
• Why do you think the competition has a global focus?

© McGraw Hill
 Exhibit 6.3 Cross-National
Organizational Models

Access the text alternative for slide image

SOURCES: Bartlett, C. A. and Ghoshal, S., Managing across Borders: The Transnational Solution. Boston, MA: Harvard Business School Press, 1991; Harzing, A. W., “An
© McGraw Hill Empirical Analysis and Extension of the Bartlett and Ghoshal Typology of Multinational Companies,” Journal of International Business Studies 31, no. 1 (2000), pp. 101–20.
 Global Strategy 1

Pressures for Global Integration

• Products that serve universal needs require little
adaptation.
• Competitive pressures to reduce costs may cause
managers to integrate manufacturing globally.
• Competitors that engage in global strategic coordination
create pressure to integrate globally.

© McGraw Hill
 Global Strategy 2

Pressures for Local Responsiveness

• Customer tastes and preferences differ significantly.
• Differences in traditional practices among countries.
• Economic and political demands of the host-country
government.

© McGraw Hill
 Choosing a Global Strategy 1

The International Model

• An organizational model that is composed of a company’s
overseas subsidiaries and characterized by greater control
by the parent company over local product and marketing
strategies than is the case in the multinational model.
The Multinational Model
• An organizational model that consists of the subsidiaries in
each country in which a company does business and
provides a great deal of discretion to those subsidiaries to
respond to local conditions.

© McGraw Hill
 Choosing a Global Strategy 2

The Global Model

• An organizational model consisting of a company’s overseas
subsidiaries and characterized by centralized decision making
and tight control by the parent company over most aspects of
worldwide operations; typically adopted by organizations that
base their global competitive strategy on cost considerations.
The Transnational Model
• An organizational model characterized by centralizing certain
functions in locations that best achieve cost economies; basing
other functions in the company’s national subsidiaries to
facilitate greater local responsiveness; and fostering
communication among subsidiaries to permit transfer of
technological expertise and skills.

© McGraw Hill
 Exhibit 6.4 Comparison of Entry Modes
blank Advantages Disadvantages

Exporting • Scale economies • No low-cost sites

• Consistent with pure global
strategy
Licensing • Lower development costs
• Lower political risk
Franchising • Lower development costs
• Lower political risk
Joint Venture • Access to local knowledge
• Shared costs and risk may
be the only option
Wholly Owned • Maintains control over
Subsidiary technology
• Maintains control over
operations
• High transportation costs
• Tariff barriers
• Loss of control over
technology
• Loss of control over quality
• Loss of control over
technology and conflict
between partners
• High cost
• High risk

© McGraw Hill
 Licensing / Franchising

International licensing Franchising

• An arrangement by • Company sells limited
which a licensee in rights to use its brand
another country buys the name to franchisees in
rights to manufacture a return for a lump-sum
company’s product in its payment and a share of
own country for a the franchisee’s profits.
negotiated fee (typically,
royalty payments on the
number of units sold).

© McGraw Hill
 Joint Ventures and Subsidiaries
Joint venture benefits
• Local partner knowledge
of the host country.
• Sharing of risks with the
local partner.
© McGraw Hill
Wholly owned
subsidiary benefits
• Reduces the risk of
losing control over the
technology.
• Gives a company tight
control over operations in
other countries.
 Working Overseas

Expatriates Third-country nationals

• Parent-company nationals • Natives of a country other
who are sent to work at a than the home or the host
foreign subsidiary. country of an overseas
subsidiary.
Host-country nationals
Inpatriates
• Natives of the country
where an overseas • Foreign nationals brought in
subsidiary is located. to work at the parent
company.

© McGraw Hill
 Skills of the Global Manager

It is estimated that 15 Both the expatriate and

percent of all employee the spouse require:
transfers are to • Flexibility.
international locations. • Emotional stability.
Failure rate is higher for • Empathy for the culture.
Americans. • Communication skills.
• Resourcefulness.
Two-thirds of failures
• Initiative.
may be due to family
• Diplomatic skills.
issues.
• Coping strategies.

© McGraw Hill
 Exhibit 6.6 Identifying International Executives 1

End-State Dimensions Survey Items

1. Sensitivity to cultural differences. When working with people from other cultures, works
hard to understand their perspective.
2. Business knowledge. Has a solid understanding of the company’s products
and services.
3. Courage to take a stand. Is willing to take a stand on issues.
4. Brings out the best in people. Has a special talent for dealing with people.
5. Acts with integrity. Can be depended on to tell the truth regardless of
circumstances.
6. Is insightful. Is good at identifying the most important part of a
complex problem.
7. Is committed to success. Clearly demonstrates commitment to seeing the
organization succeed.
8. Takes risks. Takes personal as well as business risks.

SOURCE: Spreitzer, G. M., McCall, M. W. and Mahoney, J. D., “Early Identification of International Executive Potential,” Journal of Applied Psychology 82, no. 1
© McGraw Hill
 Exhibit 6.6 Identifying International Executives
Learning-Oriented Dimensions
1. Uses feedback.
2. Is culturally adventurous.
3. Seeks opportunities to learn.
4. Is open to criticism.
5. Seeks feedback.
6. Is flexible.
© McGraw Hill
2
Survey Items
Has changed as a result of feedback.
Enjoys the challenge of working in countries
other than his or her own.
Takes advantage of opportunities to do new
things.
Does not appear brittle—as if criticism might
cause him or her to break.
Pursues feedback even when others are
reluctant to give it.
Doesn’t get so invested in things that he or she
cannot change when something doesn’t work.
 Exhibit 6.7 How to Prevent Failed
Global Assignments
• Structure assignments clearly: Develop clear reporting relationships
and job responsibilities.
• Create clear job objectives.
• Develop performance measurements based on objectives.
• Use effective, validated selection and screening criteria (both personal
and technical attributes).
• Prepare expatriates and families for assignments (briefings, training,
support).
• Create a vehicle for ongoing communication with expatriates.
• Anticipate repatriation to facilitate reentry when they come back home.
• Consider developing a mentor program that will help monitor and
intervene in case of trouble.

© McGraw Hill
 Understanding Cultural Issues

Ethnocentrism
• The tendency to judge others by the standards of one’s
group or culture, which are seen as superior.
Culture shock
• The disorientation and stress associated with being in a
foreign environment.

In this era, when people

from all over the globe are
collaborating on business
issues, it is vital to learn
about and respect different
cultures.

© McGraw Hill Rawpixel.com/Shutterstock

 Hofstede’s Cultural Dimensions
Power distance
• The extent to which a society accepts the fact that power
in organizations is distributed unequally.
Uncertainty avoidance
• The extent to which people in a society feel threatened by
uncertain and ambiguous situations.
Individualism/collectivism
• The extent to which people act on their own or as a part of
a group.
Masculinity/femininity
• The extent to which a society values quantity of life over
quality of life.

© McGraw Hill
 Helping Employees Adjust

Whether working in a foreign country or returning to

your native country after working in another, good
managers should help their employees with
differences in . . .
• Meetings.
• Work schedules.
• Email.
• Fast-trackers.
• Feedback.

© McGraw Hill
 Ethical Issues in International Management

Actions that are right or wrong in one culture may be

acceptable in another.
Global operations must be active in identifying,
establishing, and enforcing ethical standards.
Five core values of all people:
• Compassion.
• Fairness.
• Honesty.
• Responsibility.
• Respect for others.

© McGraw Hill
 Management in Action
Controlling Alibaba’s Problem with Counterfeits

Counterfeit goods have long plagued Alibaba’s retail

platforms.
In 2018 Alibaba’s Taobao site was (again) placed on
a U.S. government watch list of “notorious markets”.
• What is Alibaba’s ethical responsibility for controlling the
sale of counterfeit goods on its websites?
• What cultural issues can you identify in this example?

© McGraw Hill
 In Review
1. Discuss what integration of the global economy means for
companies and their managers.
2. Describe how the world economy is becoming more integrated
than ever before.
3. Define the strategies organizations use to compete in the global
marketplace.
4. Compare the various entry modes organizations use to enter
overseas markets.
5. Explain how companies can staff overseas operations.
6. Summarize the skills and knowledge managers need to manage
globally.
7. Identify ways in which cultural differences between countries
influence management.

© McGraw Hill
 End of Main Content

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© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.