1 international management mgt 480/680 - fall 2007 dr. yvonne stedham
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International Management
MGT 480/680 - Fall 2007
Dr. Yvonne Stedham
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Life, College, Business Degree
It’s all about making GOOD decisionsGood vs not so good decisions
Problem-solving
Quality of decisions depends on Decision-making process – logic, factors, variablesQuality of information used
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University Level Business Education
•Decision-making in specific areas of business
–Finance, Human Resource Management Accounting, Marketing
•Business Research – Philosophy: Love of wisdom - Study of the real but unseen nature and causes of things
• Viewpoint, way of life, values, beliefs
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Wisdom
• Knowledge and
• the ability to use it
• so as to be of value to
oneself and others
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How to become “wise”
Experience – Age
Formal Study – not a goal in itself - requirement
Only worthwhile if such knowledge and wisdom has a positive impact on oneself and others
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International Management
Sixteen weeks
Thirty-two classes
Forty hours
More than technical knowledge
Understanding, values, beliefs, philosophy
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International Management
• What do you expect to be
covered in this course?
• What do you expect to learn?
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Decision-Making
Good decision?
Information and knowledge and the quality of a decision
“blink” Malcolm Gladwell – the power
of thinking without thinking – the need for exposure and experiences
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International Management
Decision-making environment
External factors - external to the organization or the decision-maker
Internal factors – factors representing the internal environment of an organization
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Today
Purpose of this course
What do you know?
Syllabus
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PurposeWhat new management/business knowledge could you possibly learn in this class?
Why should we spend effort on that?
Who from country other than the U.S.?
Globalization, Democracy, Free Markets, and the Bottom Line
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Course Materials
http://www.scsr.nevada.edu/~ystedham/
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Current Developments
National Public Radio (NPR)
FM 88.7
FM 90.5
The Economist
Wall Street Journal
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For September 11
Global Update – Web/Handout
Questions to be handed out in class
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Internships and Student Groups
State of Nevada, Commission on Economic DevelopmentAl DiStefano, Director, Global Trade and InvestmentTel: (775) 687-4325, Ext. [email protected]
International Business Student Chapter (IBSC)
Cody Dean: [email protected]– IB Majors
Management Internships – Ask me!
NEWTRACNevada World Trade Council www.newtrac.org
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What do you know?
List the five largest countries based on population.
What is the world population?
What is “GDP”? What is the GDP/capita in the U.S.? What is a typical GDP growth rate for the U.S.?
Which three countries have the highest GDP/capita?
Which countries are culturally most similar to the U.S, which ones most dissimilar?
How many countries are there in the world?
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What do you know?China 1.3Bill
India 1BillU.S. 301Mill
Indonesia 220MillBrazil 190Mill
Japan 127.5MillWorld 6.6 Bill
GDP/capita: $44,000 U.S ($10,700 Mexico - Population ~109 Mill) – Growth
rate 4.8%
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What do you know?
Total number of countries: 191 -193
Vatican and Taiwan
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Some Data (2006)Japan China Brazil US Worl
d
Population
127.5 Mill
1.3Bill 190 Mill
301 Mill
6.6Bill
GDP growth
2.2% 10.7%
3.7% 3.2% 5.3%
GDP/Capita
$33,100 $7,700
$8,800 $44,800
$10,200
Industry
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International Management
Introduction Course •Content – Culture, Globalization, Cost-
Benefits-Risk (Review!)•Format - Syllabus
Personal – Background Sheet
Framework of an international organizationGlobalizationReasons for going internationalTypes of international organizations
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Course Content (Continued) Organizations and Organizational Effectiveness
What is an organization?
Why do organizations exist?
When is an organization effective?
Efficiency vs effectiveness?
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Organizations and Organizational Effectiveness
What is an organization? Why do organizations exist?
Organizations = PeopleMission, goals, objectives
When is an organization effective? Distinguish between efficiency and effectiveness. Distinguish effectiveness measures for the short, intermediate, and long run.
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Measurement of organizational effectiveness
Long run?
Intermediate run?
Short run?
A contingency approach to management
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Measurement of organizational effectiveness
Long run: Survival
Intermediate run: Adaptation, Responsiveness
Short run: Productivity, Efficiency
A contingency approach to management (as opposed to “administrative theory” of management) It is management’s task to create the best possible fit between the external and internal environments of the organization and must ensure internal consistency between the organization’s elements.
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The Organization
The External Environment
Economy
Social
Environment
Technological Environment
Political Environment
The Internal Environment
People
Processes Structure
Business Strategy
Culture
Effectiveness
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The International Organization
The External Environment
CULTURE
Multiple Economies
Multiple
Societies
Multiple Technological Environment
Multiple Political
Environment
The Internal Environment
People
Processes Structure
Business Strategy
Culture
Effectiveness
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Course Format
SyllabusSept 4 – Questions for Global Market UpdateSept 6 – Quiz #1Sept 11 – Answers to Global Market Update are dueSept 13 – Case #1 due
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Personal Introductions
Students – background sheets
Introduction MajorTraveled internationallySpeak other language
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Quiz #1
DereskyChapter 1Chapter 2
Adler Chapter 1: pp 1-16
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Don’t confuse
APEC
OPEC
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APEC
Asia Pacific Cooperationpremier forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region. It is one of the world's most important regional groupings, encompassing 21 Member Economies who collectively represent over 2.6 billion people and account for approximately half of global GDP and trade. The primary focus of APEC is promoting trade and investment liberalization and business facilitation in the Asia-Pacific region.
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APEC Members Date of Joining
Australia
Brunei Darussalam
Canada
Chile
People's Republic of China
Hong Kong, China
Indonesia
Japan
Republic of Korea
Malaysia
Mexico
New Zealand
Papua New Guinea
Peru
Philippines
Russia
Singapore
Chinese Taipei
Thailand
United States
Viet Nam
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APEC Australia 2007™ Business Summit
The is a significant, invitation-only, annual meeting that provides unparalleled opportunities for strategic engagement and networking with prominent business leaders, international opinion setters, policy makers and leaders of Asia-Pacific Economic Cooperation (APEC) Member Economies. The two-day forum will form part of the APEC meetings hosted by the Australian Government in 2007, which culminate in APEC Leaders Week and the Business Summit in September in Sydney. The Business Summit, formerly the CEO Summit, has been held each year since 1996. It was instituted to enable business leaders to interact with APEC leaders during Leaders Week. The APEC Australia 2007™ Business Summit will play a key role in supporting APEC's work by bringing together a select group of influential business and government leaders with opinion setters and policy makers at a single event to examine some of the key issues facing the region.
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Current Issues
OPEC – Organization of Petroleum Exporting Countries
Eleven members – Algeria, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela (Hugo Chavez)
OPEC’s mission is to coordinate & unify the petroleum policies of Member Countries & ensure the stabilization of oil prices in order to secure an efficient, economic & regular supply of petroleum to consumers, a steady income to producers & a fair return on capital to those investing in the petroleum industry.
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Women World Leaders
G7 (G8) CountriesUS, Canada, Germany, France, Italy, UK, Japan, (Russia)
Never a female leader: US, Italy, JapanFemale leaders: First UK, then France, Canada, GermanyOther countries with female leaders: Finland, Ireland, India, Indonesia, Chile
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ReminderSyllabus – Questions?Termpaper Sign-up/Groups - September 11Global Market Update – September 11Extra Credit – HandoutIBSC Meetings
Potluck Dinner Sept. 13$15 to join IBSC
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Termpaper Sign-UpCountry Students (29 total/ 28
list)
Ireland Alex, Owen, Jim
Germany Cynda, William, Jade
Switzerland Ruth, Dan, Brian
Italy Jessica, Brandon, Luke
Croatia Mike, Jackie, Jennie
Brazil Justin, Mark, Jenifer
Chile Anne, Matt
Argentina Jeff, Jordan, Shannon
Singapore Tony, Tomas
India Michelle, Jenna, Alex
China ??????
Japan ??????
Australia Paul, Jeff, Matt
Jessica??
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Termpaper ListCountry Students Presentati
on Date
Ireland Alex Bybee, Owen Brolsma, Jim McCarthy
Nov. 20
Germany Cynda Velez, William Drewes, Jade Zahreddine
Nov. 27
Switzerland Ruth Bravo, Dan Self, Brian Tyler Nov. 27
Italy Jessica Wilcox, Brandon Zasio, Luke Rippee
Nov 29
Croatia Mike Lambeth, Jackie Kobelnyk, Jennie Yori
Dec. 4
Brazil Justin Triplett, Mark Denninger, Jenifer Martin
Dec. 4
Chile Anne Smith, Matt Stafford Dec. 6
Argentina Jeff Hill, Jordan Lang, Shannon Sevor Dec. 6
Singapore Tony Apodaca, Tomas Hamrik Dec. 11
India Michelle Fox, Jenna Curtis, Alex Chambers
Dec. 11
Australia Paul Young, Jeff Pogue, Matt Levinsky Dec.13
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Globalization
Thomas Friedman
Why change?
Characteristics of the global system
Previous system?
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Globalization
Thomas Friedman
The Lexus and the Olive Tree
The World is Flat
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Globalization
Globalization is not just an economic fad and it is not just a passing trend. It is an international system that replaced the Cold War System after the fall of the Berlin wall
The World is ten years old (1999)
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Characteristics of the new system
Separation and independence VS integration and interdependence
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Characteristics of the new system
Free market capitalism
Homogenization of culture – Americanization
Defining technologies: computerization, miniaturization, digitization, satellite communications, fiber optics, the Internet
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Characteristics of the new system
Defining measurement: weight (missles)
VS
speed .. Of travel, innovation, communication, commerce
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Characteristics of the new system
Defining economists: Karl Marx and Keynes
VS Schumpeter (capitalism, creative
destruction)
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Characteristics of the new system
Defining political views: Friends and enemies
VS
Competitors
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September 11Termpaper Sign-up/GroupsGlobal Market Update Extra Credit – HandoutIBSC Meetings
Lunch will be served$15 to join IBSC
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The International Organization
The External Environment
Culture
Multiple Economies
Multiple Social
Environments
Multiple Technological Environments
Multiple Political
Environments
The Internal Environment
People
Processes Structure
Business Strategy
Culture
Effectiveness
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Groups
Why do organizations go international?
List at least 3 reasons
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Reasons for becoming international
1. A desire for continued growth.
2. Domestic market saturation
3. The potential to now exploit a new technological advantage
4. Preferable suppliers (quality, cost)
5. Labor market (supply, quality, cost)
6. Government involvement/restrictions
7. Reducing distance to customers (cost)
8. Tariff barriers
9. Increased foreign competition in home country
10. Reduce general business risk by diversifying into other countries
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Reasons for becoming international
Profit = Revenue – Cost
Profit = (Volume*Price) - Cost
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Reasons for becoming international
Profit = Revenue – Cost = (Volume*Price) - Cost
1. A desire for continued growth. VOLUME
2. Domestic market saturation VOLUME
3. The potential to now exploit a new technological advantage
4. Preferable suppliers (quality, cost) PRICE, COST
5. Labor market (supply, quality, cost) PRICE, COST
6. Government involvement/restrictions COST
7. Reducing distance to customers COST
8. Tariff barriers COST
9. Increased foreign competition in home country VOLUME, PRICE
10. Reduce general business risk by diversifying into other countries
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Internationalization
Process by which firms
increase their awareness
of the influence of international activities on their future
and establish
and conduct
transactions with firms from other countries.
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An International Organization
operates in multiple environments,
home country and one or more host countries,
has foreign sales,
and a nationality mix of managers and owners.
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Types of "international" organizations
Multi-domestic organization
Multinational organization
Global or transnational organization
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Types of "international" organizations
Multi-domestic organization
Any organization that exports to/imports from organizations in other countries with primarily domestic production.
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Types of "international" organizations
Multinational organization
An organization with operations in different countries but each is viewed as a relatively separate enterprise.
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Types of "international" organizations
Global or transnational organization
An enterprise structured so that national boundaries become blurred. The best people are hired irrespective of national origin.
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Graphic Representation
Headquarters – Subsidiary Relationship
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Stages Model of Internationalization
Outward looking perspective: activities/issues related to the other countries (e.g., exporting) vs an inward perspective (e.g., importing)
Descriptive
Reflects the commonly observed pattern of increased commitment to international business
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Four stages of internationalization
Stage 1:Indirect/ad hoc exporting - perhaps from
unsolicited export orders
Stage 2:
Active exporting and/or licensing
Stage 3:
Active exporting, licensing, and joint equity investments in foreign manufacture
Stage 4:
Full-scale multinational marketing and productionSee also: Adler Chapter 1 pages 8 and 9
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International Orientation
EthnocentricPolycentricGeocentricRegiocentric
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International Orientation
PCN – Parent Country NationalHCN – Host Country NationalTCN – Third Country National
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The Relationship between Level of Internationalization and Firm Performance
What is the relationship?
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The Relationship between Level of Internationalization and Firm Performance
There is a strong relationship between the degree of internationalization and organizational performance
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The Relationship between Level of Internationalization and Firm Performance
Degree of internationalization:
"sales generated by foreign affiliates"
MNE (multinational enterprise) performance:
"profit to sales" or "profit to assets".
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The Relationship between Level of Internationalization and Firm Performance
Performance is at a max. at a level of internationalization of 60 to 80% and then decreases with continuing internationalization
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Kenya and TanzaniaKenya
34 Mill; 6.7% HIV; 85% literacy; $1,200 GDP/capita; growth 5%; UE 40%
Tanzania37 Mill; 8.8% HIV; 78% literacy; $700 GDP/capita; growth 6%
USA301 Mill; .6% HIV; 95% literacy; $48,600; 3.2%
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Corruption
Transparency International Corruption Perceptions IndexRelevance?Risk and Cost of doing business in a country
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New Internet SourcesIndex of Economic Freedom
www.heritage.org/research/features/index/countries
What is economic freedom? Economic freedom is defined as the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, people are free to work, produce, consume, and invest in the ways they feel are most productive.
How do you measure economic freedom? To measure economic freedom and rate each country, the authors of the Index study 50 independent economic variables. These variables fall into 10 broad categories, or factors, of economic freedom:
Trade policy , Fiscal burden of government, Government intervention in the economy, Monetary policy, Capital flows and foreign investment, Banking and finance, Wages and prices, Property rights, Regulation, Informal market activity.
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New Internet Sources
Emerging markets/ economies in transition
http://ddcn.prowebis.com/
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External Environment Theory – Competitive Advantage
Competitiveness
International Competitiveness
Porter Diamond
The major determinants of national competitive advantage - why some nations succeed and others fail in international competition. Porter's research is based on studying 100 industries in 10 nations.
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PORTER DIAMOND
National Competitive Advantage
Why a nation achieves success in a particular industry?
•Why Japan -- automobile, cameras•Why CH (Switzerland) -- precision instruments, pharmaceuticals
•Why Germany -- engineering
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Porter Diamond
Four broad attributes of a nation
that shape the environment in which local firms compete, and
these attributes promote or impede
the creation of competitive advantage
(Diamond of four mutually reinforcing factors)
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Porter Diamond
1. Factor Endowments or Conditions-- Basic, Advanced (Nokia, Ericsson)
2. Demand Conditions -- Quality, Innovativeness
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Porter Diamond3. Related and Supporting Industries --
Suppliers (U.S. - semiconductor/comp)
4. Firm Strategy, Structure, Rivalry -- Executive background
<=> Domestic environment encourages the development of characteristics that make company internationally competitive
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References for Porter
1. Michael Porter, 1990. The Competitive Advantage of Nations. Free Press
2. M. Grant, 1991. The Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12, 535-548
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Rugman-Verbeke Model:Firm specific advantages
relative to competitors -- technological experience, salesforce, customer loyalty
Country specific advantages
source of advantage lies outside the firm -economic (labor - qual., quan., cost; natural resources); - non-economic (social, cultural); -governmental (property rights, free enterprise)
Compare to Porter’s model
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Review Types of international organizations
• Criterion -- Level of Global Participation• International/Multi-Domestic• Multinational• Transnational/Global
Stages of Development to an International O.• Descriptive Model
Effectiveness of Internationalization• Relationship between extent of internationalization
and performance
-External Enviro – Theory• National Competitive Advantage
– Porter Diamond– Rugman-Verbeke
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Preparation
Read Harry and Sally for next Tuesday
Quiz #2Ch.3 in Deresky: p. 82; 86; 87; 89; 93; 103; 106; 117Adler Ch1 pp 15-37
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Theory - Trade Agreements
Why?
Protectionism?
Pro /Con
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Types of Trade Agreements
Trade AreaCommon tariffs among members -- individual tariffs with non-members. NAFTA, ASEAN (Brunei, Indonesia, Malaysia, Philippines, Singapore,
Thailand, Vietnam - 420 Mill)
Customs UnionCommon tariffs for non-members. ANDEAN (Bolivia, Ecuador, Peru, Columbia, Venezuela)
Common MarketFree flow of goods and labor. Mercosur (Brazil, Paraguay, Uruguay, Argentina, Chile)
Economic Union Common currency, common overseeing institutionsEuropean Union -- 15 Members; Euro; European Parliament; Court of
Justice
Political Union
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External Environment
Current Developments
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The ISA Global Update
Please answer the following questions using the ISA Global Market Update handout (see website) as well as other internet sources listed on your syllabus. The Global Update report provides a useful overview of current political and economic issues.
1. Which countries have the world’s three largest economies? Compare these countries (make a table) with respect to population size, GDP/capita, GDP growth, corruption perceptions index, economic freedom.
– USA, Japan, Germany (see page 12)
1. Which countries have emerging markets and are likely to be included in the top ten largest economies in the near future?
– Brazil is 10th
– India and Russia
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Data
US Japan Germany
Population
301 Mill 127.5 Mill 82.5 Mill.
GDP growth
3.2% 2.2% 2.7%
GDP/Capita
$44,800 $33,100 $31,900
CPIECF
7.3 (20)82 (4)
7.6 (17)73.6 (18)
8.0 (16)73.5 (19)
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IndiaWhere India is making an impact and where it is going next:
SOFTWARE - India is now a major base for developing new applications for finance, digital appliances, and industrial plants
CALL CENTERS - Thousands of Indians handle customer service and process insurance claims, loans, bookings and credit-cards bills.
CHIP DESIGN - Intel, Texas Instruments, and many U.S. startups use India as an R&D hub for microprocessors and multimedia chips.
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IndiaWhere India is making an impact and where it is going next:
INDUSTRIAL ENGINEERING - India does vital R&D for GE Medical. GM, engine maker Cummins, Ford and other manufacturers plan big engineering hubs.
ANALYTICS - U.S. companies are hiring Indian math experts to devise models for risk analysis, consumer behavior, and industrial processes.
DRUG RESEARCH - As U.S. R & D costs soar, India is expected to be a center for biotechnology and clinical testing.
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India
Where India has the edge (in comparison to China):
LANGUAGE - English gives India a big edge in IT Services and Back-Office work.
CAPITAL MARKETS - Private firms have readier access to funding. China favors state sector
LEGAL SYSTEMS - Contract law and copyright protection are more developed than in China.
DEMOGRAPHICS - Some 53% of India's population in under age 25, vs. 45% in China.
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Russia
GDP growth around 6%No incentives by governmentHigh tax on profits from oilAuthoritarian governmentCorruption - risk
90
Russia
Third largest FX reservesHosted/aid to HamasUkraine, GeorgiaGazprom – Europe (25%)Limitations on foreign ownershipCentralization of authorityWeak infrastructure
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The ISA Global Update
The U.S. has recently experienced healthy growth rates. What are the two factors explaining that growth?
• Weak dollar => exports
• Business confidence => investment
92
The ISA Global Update
Peru elected a new president in the Fall of 2006. To what extent has his government been successful in this first year? What is Peru’s corruption rating?
• Alan Garcia– Poverty eliminated by 2011– Approval rating
• Natural resources– Copper, silver, gold, petroleum, timber, fish, iron ore,
coal, phosphate, potash, hydropower, natural gas – Economic growth driven by exports of minerals,
textiles, and agricultural products, and by expectations for the Camisea natural gas megaproject and for other promising energy projects.
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The ISA Global Update
Gordon Brown is the UK’s new Prime Minister. The relationship between the UK and the U.S. was excellent under the U.K.’s previous Prime Minster, Tony Blair. What are the expectations for the UK-U.S. relationship?
• Continue close relationship• Brown’s visit to U.S.• Less of a public “display”
94
The ISA Global Update
Only some of the 27 EU (European Union) members are also members of the EMU (European Monetary Union). Which countries belong to the EMU? How likely is it that some of the newer EU members, especially the Eastern European countries, will become EMU members soon?
• EMU (13) – France, Germany, Italy, Netherlands, Austria, Greece, Finland, Spain, Belgium, Ireland, Luxembourg, Portugal, Slovenia
• Criteria: Inflation Rate – not more than 1.5% higher than 3 best performing; Government Finance – government deficit and government debt; Exchange rate – 2 consecutive years not devalued; Long-term interest rates
• Eastern European – not likely because of inflation and large public deficit
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The ISA Global Update
The report suggests that oil prices will continue to rise. Why? OPEC (organization of oil exporting countries) has a primary influence on the global supply of oil, and, hence, the oil price. Which countries belong to OPEC?
Increasing U.S. demandConstrained capacity
96
Global Market Update Spring 2006
OPEC – organization of petroleum exporting countries
Unify and coordinate members’ petroleum policiesControl world’s oil supplyMonitor and control oil priceLimit competitionAccount for about 40% of world production
97
OPEC Countries
Eleven membersAlgeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela
98
www.cia.gov
Saudi Arabia
Iran Iraq Qatar Kuwait
Pop 26.5 68 26 1 2.5GDP/capita
$12,900 8,100 3,400 26,000 22,100
GDP growth
rate
6.4% 4.8 2.4 8.8 4.5
Progress toward
Democracy
Automatic rule – House
of Saudi, Election
Presidential election – distribution of wealth
Trans-itional
Constitution
Right to vote for women
99
External EnvironmentCurrent Developments - Overview
Relevant variables: GDP GDP/capita GDP growth and factor endowments; demand conditions
The GDP (gross domestic product): The value of the final output of goods and services produced by the residents of an economy (World Bank). There are several methods to calculate the GDP. The PPP (purchasing power parity) method reflects the cost of a basket of goods in two countries in their local currencies.
100
Balance of payments measures economic transactions between
residents of one country and residents in all other countries;
transactions that earn foreign currency are sources of reserves; transactions that consume foreign currency are uses of reserves;
101
Current Developments
International Investment
and Trade
Level of International Activities
102
North America–United States - which industries
most internationally active? Why?
–US-Canada Free Trade Agreement (1989)
–Mexico - wage rate; maquiladora industry (1965)
103
Europe•delayed differentiation
•acquisitions/alliances
•EU - 25 members …..
•Eureka - European Research Cooperation Agency
•EU – The Euro
104
European UnionEU (27): Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, UK, France, Germany, Ireland, Greece, Romania (07), Bulgaria (07)
EMU (13): Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Slovenia
105
EU – GDP Growth
Italy 1.3% lowGermany 2% (approx) lowFrance 1.5% lowSpain 3% moderateUK 3% (approx) moderate
106
Italy
Textile, clothing, footwearEuroChinaSmall businesses
107
France Unemployment
Three strategiesIncome tax cuts suspendedReward re-employment with Euro 1,000Change labor laws (termination, hours, maternity)
UE Rate10.2%
108
Spain
PrivatizationFiscal policyInvestment in infrastructure and education
109
European Union - continued
The European CommissionThe Council of Ministers (counterbalance to Commission)The European ParliamentThe European Court of Justice
110
European Union
The European Commission proposes policies and legislation responsible for the administration of the EU ensures - provisions of the EU treaties+the
decisions of the other institutions are properly implemented
one rep per country(two for the 5 larger countries)
represent, protect, further the European interest + its members do not represent or take orders from their national governments
111
Greater Europe• EFTA (European Free Trade
Association).... Austria, Finland, Iceland, Norway, Sweden, Switzerland
112
Eastern Europe• Break-up of The Soviet Union
(Dec 1991)
• Russia (glasnost, perestroika)
• The Ukraine
• Czech Republic
• Slovakia
• Poland
113
External Environment
Latin AmericaMiddle and SouthMexico, Costa Rica, El Salvador, NicaraguaPeru, Columbia, VenezuelaBrazilArgentinaChile
114
External Environment
Asia•Japan
– MITI (Ministry of International Trade and Industry)
– keiretsus
– Current economic conditions
•South Korea - chaebols
•China– GNP growth of 10% (80s)
– low wage rates
115
External Environment
What about Australia?
116
External Environment
The Four TigersSouth Korea, Hong Kong, Singapore, Taiwan
Baby Tigers
Thailand, Malaysia, Indonesia
117
Less developed countries
•Large population, high unemployment, inflation, low or negative economic growth, low literacy rate
•India, African countries, Central and South American countries, Middle East
118
Major economic regions
North America
Europe
Asia
119
Economic Superpowers
The Triad
1.The United States
2.The EU (dominated by Germany),
3.Japan
Dominates foreign direct investment and international
trade
120
•FDI Clusters
121
FDI Clusters
The Four TigersSouth Korea, Hong Kong, Singapore, Taiwan
Baby Tigers
Thailand, Malaysia, Indonesia
122
Group Dynamics
Why groups?
123
Group Dynamics
Group performance =
Sum of individual performance PLUS group dynamics
Group dynamics can be positive or negative
Higher quantity and quality of solutions
124
Group Dynamics
Advantages – Benefits
Different viewpointsDifferences in expertiseDifferences in training and experienceCultural differencesValue differences
125
Group Dynamics
Process lossesLoafingIntra-group conflictMiscommunicationWrong leaderIn appropriate role and task assignmentsRole ambiguityRole conflictInformal, dysfunctional norms
126
Group DynamicsGroup management
Roles•What – List of tasks•Who – Who is responsible for what based on expertise
•How - Enforcement
Timeline•When – Specific deadlines•What – Effective communication•Who - Commitment
127
Group Dynamics
Group managementLeadership •Formal•Why•Expertise and role
Norms•Must be explicit•Agreed upon by all•Consequences of norm violations
128
Global Market Update June 20061. The author provides and in-depth
analysis of countries’ vulnerability to external economic shocks. What does he conclude are the most and least vulnerable countries and what are the reasons for his conclusions.Vulnerable: Russia, Turkey, China
Explanation
Low vulnerability: Central, southeastern Europe, Korea, Japan, India, U.S.
Explanation
129
Global Market Update June 20062. Japan’s and Korea’s economies have been
quite vulnerable in the past. However, both countries have implemented reforms that should make them more resilient. What were those reforms?Reform of banking systems and monetary policyJapan – no quantitative easing; target interest rates, analysis of riskKorea – banking sector consolidation, foreign owned banksLess gov lending to CHAEBOLS more to SME’s
130
Global Market Update June 2006
3. India is one of the BRIC countries and is playing an increasingly important role in the global market. What are some of India’s current challenges discussed in the report?High and rising oil pricesGov’s weak fiscal positionCoalition politics – difficult to implement reforms – friendly to FDIInfrastructureLabor restrictions and resistance to foreign ownership
131
Global Market Update June 2006
5. Brazil, the largest economy in Latin America, has made progress economically under Lula da Silva but is facing serious political challenges. Especially issues related to Bolivia and Venezuela are of concern. Explain?Venezuela - Chavez – regional leader – powerBolivia – Morales – nationalize gas sectorBrazil – 50% of gas from Bolivia - Petrobras
132
Global Market Update June 20066. Although Turkey’s economy has
been strong, its desire to join the EU is hindered by some critical issues. Summarize these issues.Cyprus – Greek and Turkish Cypriotes; ports and airportsHuman Rights Record – Kurds in southeast (Sunni Muslims); suppressed minority
133
www.cia.govRussia Brazil Turkey
Population 143 M 188 M 70 M
GDP/capita
$ 11,100 8,400 8,200
Current Gov
PutinRussian
Federation
Da SilvaFederative Republic
Ahmet Sezer
Republic
Currency Ruble Real Lira
Political Stability
Moderate Moderate Moderate
Economic S
Low/Moderate Low/Moderate Moderate
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International investment and tradeWhat do you know?
Which countries are the main players inWorldwide - EuropeAsia - Eastern EuropeLatin America - Middle East
Worldwide, the dominant players in the following industries are from which countries
Computer – Car – Oil – Minerals – Agriculture – ClothingTransportation
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External Environment
EconomicTheory – Porter, Trade AgreementsCurrent developments - International trade and investment• Dominant players
– China – Political and economic freedom
• FDI clusters• European Union (WSJ)
– 15 members– 10 new members – Eastern Europe
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Review
Summarize the current developments in Eastern Europe.What do you know about China with respect to international management.What about Japan?What are keiretsus?Give an example of the effect on the manufacturing process of open trade.
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External Environment
National CultureHarry and Sally in Saudi Arabia
1. What went wrong? Specific examples!
2. Why did things go wrong?
3. What were the consequences of these mistakes?
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External EnvironmentWhat went wrong? Specific examples!
– Sabbath– Flights– Language - Taxi– Coffee – Refusal – Rude– Food– Role of women– Negotiation – Relationship-
building
Why did things go wrong?
Lack of preparation – Cultural knowledge
Cultural sensitivity
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Culture and International Management
Relevance
•Cultural Toughness – Cultural Distance
•Cross-cultural literacy
•Cost of doing bus in a particular culture
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Internationalization Decision
Benefits from internationalization into a specific country
Cost associated with internationalization into a specific country
Risk associated with internationalization into a specific country.
Decision = f (benefit-cost-risk tradeoff)
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Cultural Dimensions
All peoples have common life problems (?)
choose different solutions – results in culture
142
Cultural Dimensions
Six basic dimensions describe the cultural orientations of societies
• What is the nature of people?• What is a person's relationship to nature?• What is a person's relationship to other
people?• What is the primary mode of activity?
• What is the conception of space?• What is the temporal orientation?
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Cultural dimensions
Six basic dimensions describe the cultural orientations of societies
1. What is the nature of people? Good/evil/change
2. What is a person's relationship to nature?Dominant/harmony -subjugation
3. What is a person's relationship to other people?Individualistic/group – hierarchical/lateral
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Cultural dimensions
Six basic dimensions describe the cultural orientations of societies
4. What is the primary mode of activity?Doing/being
5. What is the conception of space?Private/public
6. What is the temporal orientation?Future/present/past
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U.S. – EU Sharing Air Passenger Data
Sept 11 – U.S. law within 15 minutes of flight departure.. Name, address, credit card details etc.EU top court, May 2006 – illegal according to EU law – allow until Sept 30, 2006U.S. – fine $6, 000 per passenger; EU – National data protection authorities, legal actionEU – legal vacuum; US – no legal vacuum because “U.S. law is clear that airlines have to provide data about people entering this country”
146
Characteristics of Culture - Values and Norms
1) Social structure
1.Social stratification
2.Class consciousness
3.Class membership is a function of ?
4. Social mobility
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2) Religion (#s from 2002)• www.adherents.com
• Minimal level of self-identification
• Non-religious 14%
• Christianity 2 bill; 33%
– Protestant work ethic
– Catholic vs Protestant/Lutheran
– Take care of your neighbor and the less fortunate
– 10 commandments
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• Islam 1.3 bill; 22%
– Sunni and Shi’ite – best known branches
– all embracing way of life, governing the totality of a Muslim being;
– prayer five times a day;
– free enterprise/hostile to socialist ideals - earning a legitimate profit through commerce and trade;
– Koran;
– contractual obligations, keeping one's word
– role of women and men
149
•Hinduism 900 mill; 15%
– spiritual achievement;
– Nirvana;
– Samsara – birth, death, re-birth;
•Buddhism 360 mill; 6%
– Central and Southeast Asia, China, Korea, Japan;
– "life is suffering; misery is everywhere and originates in people's desire for pleasure;
– Noble Eightfold Path: right views, right intention, right speech, right action, right livelihood, right effort, right awareness, right concentration
– Japan – Temples, Shrines (Shinto)
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Characteristics of Culture (Cont’d)
3) Political philosophy
• Political freedom – dominant political orientation
4) Economic philosophy
• Free Market – to what extent
• Economic freedom - www.heritage.org/research/features/index/
5) Education
• Importance
• Access
• Type
6) Language (verbal/spoken; non-verbal) Communication; word equivalency
151
Ignoring Culture
•Religion – Ads for refrigerator, airlines (Middle
East)
•Language – Baby Food in Africa, – English candy “Zit”, – Finnish product unfreezes car locks
“Super Piss” – Electrolux sucks (Sweden)
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The US Culture????
Describe ….
153
The US Culture???????
154
Japan and U.S.1. Purpose of meeting – build relationship and
trust; implementation – business card, present, culturally prepared, respect
2. Noise – M and Crowell: language, history, dolls; Crowell/Moto: bragging, bus cards, wife, dolls =toys
3. Dolls – Trust, relationship, respect, carefully selected
4. Allmack – Crowell – Moto not prepared5. Kubushevsky – distant, polite; trust,
understanding
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Measurement of Culture
Purpose????Geert Hofstede – 1970’sIBM employees100,000 across 30+ countriesSurvey – typical work situationsIdentify systematic differences – Factor AnalysisFour independent factorsFollow up research: Culture’s consequences (2001)Culture: Collective programming of the mind
156
World BankSource of financial and technical assistance to developing countries around the world. We are not a bank in the common sense. We are made up of two unique development institutions owned by 184 member countries— the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Each institution plays a different but supportive role in our mission of global poverty reduction and the improvement of living standards. The IBRD focuses on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world. Together we provide low-interest loans, interest-free credit and grants to developing countries for education, health, infrastructure, communications and many other purposes
157
World Bank
July 1, 1944 during a conference of 44 countries in Bretton Woods, New Hampshire ANTI-CORRUPTION HOTLINEReport allegations of fraud & corruption in World Bank projects, and staff misconductDepartment of Institutional Integrityhttp://www.web.worldbank.org/
158
Four dimensions of culture
1.Individualism/Collectivism
2.Power Distance3.Uncertainty Avoidance4.Masculinity/Femininity
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Individualism/Collectivism• Individualism exists when people define
themselves as individuals. It implies loosely knit social frameworks in which people are supposed to take care only of themselves and their immediate families.
• Collectivism is characterized by tight social frameworks in which people distinguish between their own groups, "in-groups", (relatives, clans, organizations) and other groups. People expect in-groups to look after their members, protect them, and give security in exchange for members' loyalty.
160
Power distanceIndicates how a society deals with the inequality among people's physical and intellectual capabilities.
A culture with high power distance allows inequality to grow to inequality in power and wealth, one low in power distance aims at removing such inequalities.
Indicates to what extent the unequal distribution of power is accepted.
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Uncertainty avoidance The extent to which people in a society feel
threatened by ambiguous situations and the extent to which they try to avoid these
situations by providing greater career stability,
establishing more formal rules, and rejecting deviant ideas and behavior.
Lifetime employment is more common in countries with high uncertainty avoidance - the reverse is true for job mobility.
162
Masculinity/Femininity Masculinity is defined as the extent to
which the dominant values of society emphasize assertiveness and acquisition of money and things (materialism).
Femininity is defined as the extent to which the dominant values in society emphasize relationships among people, concern for others, and the overall quality of life.
163
Confucian dynamism or Long-term orientation (1993)
•Refers to the time perspective in a society for the gratification of people's needs.
•A high CD or long-term oriented society is one which emphasizes thrift and perseverance.
•A low CD or short-term oriented society focuses on gratifying needs here and now.
164
Sources for International ResearchHofstede, Geert (1980): Culture’s Consequences
Hofstede, Geert (1991): Cultures and Organizations
Hofstede, Geert (1984): Culture’s Consequences: International Differences in Work-Related Values
Hofstede, Geert and Michael Harris Bond (1984): The Confucius Connection: from cultural roots to economic growth. Organizational Dynamics, 16, 4, 4-21
165
U.S. Japan GermanyIndividualism: 91 46 67
Power distance: 40 54 35
Uncertainty
avoidance: 46 92 65
Masculinity: 62 95 66
ST/LT: 29 80 25
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Applying Hofstede’s Dimensions
Lawyers per 100,000 populationU.S.GermanyGreat BritainJapanItalyFrance
167
Applying Hofstede’s Dimensions
Lawyers per 100,000 population (1990s)
U.S. 312Germany 190Great Britain 134Japan 106Italy 81France 49
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Laurent’s Research-See Adler9 Western countries, US, 2 Asian countriesMore than sixty common work situation (yes/no)
1. The main reason for hierarchical structure is so that everybody knows who has authority over whom
2. In order to have efficient work relationships, it is often necessary to bypass hierarchical lines
3. It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their work
169
Laurent’s Research1. The main reason for hierarchical structure is so
that everybody knows who has authority over whom US 18% agree, Germany 24% agree, Italy 50% agreeFrance 45% agree, Japan 52% agree
2. In order to have efficient work relationships, it is often necessary to bypass hierarchical linesUS 32% disagree, Germany 46% disagree, Italy 75%
3. It is important for a manager to have at hand precise answers to most of the questions that his subordinates may raise about their workUS 18% agree, Germany 46% agree, Italy 66% agree,
Japan 78% agree
170
Fons TrompenaarsRiding the Waves of Culture (1998; 2nd edition)
Dimensions (see textbook):1. Universalistic–Particularistic (Obligation)2. Neutral-Affective (Emotional Orientation
in Relationships)3. Specific-Diffuse (Involvement in
Relationships)4. Achievement-Ascription (Legitimization
of Power)
171
172
173
174
Cultural Stereotypes
What is a stereotype?Good or Bad?Effect on cross-cultural adaptationExercise
175
Cultural Stereotypes
Good or Bad??Exercise:
Countries: Germany, Italy, Switzerland, UK, FranceJobs: Government, Cooks, Policemen, Engineers, LoversBest Case and Worst Case Scenarios
176
Culture
Review– What is culture?
– Why is it relevant?
– What are basic assumptions of culture?
– What are determinants and characteristics of culture?
– How is understanding the dominant religion in a country important to international management?
– Measurement of Culture
– Cultural Stereotypes
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CultureWhat is culture? Values and norms;
socialization
Why is it relevant? Cross-cultural literacy; Benefit-Cost-Trade-off
What are the dimensions of culture? Nature of People, Relationship to Nature, People, Temporal, Space, Mode of activity - ICEBERG
What are characteristics of culture? Social structure, religion, education, economic philosophy, political philosophy, language
How is understanding the dominant religion in a country important to international management? Values are based on dominant religion
178
Overall Attractiveness of a Country
Trade-off between Benefits
Costs
Risks
179
Overall Attractiveness of a Country
Trade-off between Benefits: market size, wealth (purchasing power), future wealth, resources (quality and cost)
Costs: legal requirements, availability of resources, infrastructure, level of economic development, free market?
Risks: the likelihood that political, economic, legal forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a particular business enterprise.
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Political Risk
• What is risk?
• What is economic risk?
• What is political risk?
181
Political Risk
Definition• the likelihood • that political forces • will cause drastic changes • in a country's business environment• that adversely affect the profit and
other goals of a particular business enterprise.
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Political RiskCharacteristics of countries
with a higher likelihood for political risk:
• Social unrest (see below) • Demonstrations• Terrorism
Social Unrest• More than one ethnic nationality• Competing ideologies battle for political control• High inflation and falling living standards• Strikes
183
Results of Social Unrest:
Change in government and/or policy
Results of Political Change:Expropriation Indigenization
184
Risk Assessment
Euromoney Magazine’s Country Risk Ratings
Analytical Indicators: • political risk (20%) - measures stability and
potential fall out from instability• economic indicators and risk(20%)
Credit IndicatorsMarket Indicators
Political Risk Yearbook
185
Political Risk Data - ExampleDun & Bradstreet’s Guide to Doing Business around
the World (textbook)Comparative Country Risk RankingsOverall Ratings:
• Political Risk, • GDP Growth, Per Capita Income, • Trade Flow with the US, • Monetary Policy, • Trade Policy, • Protection of Property Rights, • Foreign Investment Climate
List countries low/high in political risk
186
Risk Management:
Analysis - macro, micro
Management
•Integrative
•Protective/Defensive
187
Integrative Approach
Become part of the host country’s infrastructure
Good relationship with host government
Produce locally … in-country suppliers
Joint venturesLocal R&DEffective in long-run
188
Protective/Defensive Approach
Discourage host government from interferingAs little as possible local manufacturing and R&DCapital from local banks and outsideDiversify production among several countries
189
Contingency Approach Overall risk for an international company
depends on the polit. risk and characteristics of the firm.
Three primary factors to be considered:
1.Political risk type - Transfer risk/Operational Risk/Ownership risk
2.General investment type -Conglomerate/Vertical/ Horizontal
3. Specific Investment (1=most risky) - Sector (primary=1 /industrial=3/service=2) Technology (science=2/non-science=1) Ownership (wholly=1/partially owned=2)
190
Political Risk
Political Risk Insurance - covers the loss of firm’s assets, not the loss of revenue
Overseas Private Investment Corp (OPIC)• inability to repatriate profits, expropriation,
nationalization, damage from war, terrorism
Foreign Credit Insurance Association• war, revolution, currency inconvertibility,
cancellation of import or export licenses
191
A Risky Country:
1. unstable government
2. unstable economy
3. war/revolution/terrorism
4. unfriendly/hostile people
5. unacceptable customs/values/attitudes
192
A Risky Company:
1. type of product and/or service offered
2. type of industry
3. structure of ownership
4. level of technology
193
Review
Why assessing risk in internationalization decisions? Define “risk”. What is political risk?Social unrest is an indicator of political risk - explain.What conditions precede social unrest?What are the consequences of political risk?Where to get info about political risk?
194
Expatriate Assignment
Why to use expatriates?Ethnocentric, polycentric, regiocentric, geocentric
Culture ShockKSA RequirementsSelection
KSA assessment
TrainingType and rigor of training
Failure Rates
195
The Expatriate Assignment
Experience of uncertaintyAnticipatory and in-country adjustment
Expatriate SelectionRelevant KSA’s?• Technical, Managerial• Adaptiveness
Measurement• SMILE: Speciality; management ability;
international flexibility; language facility; endeavor (Matsushita)
Spouse and FamilyFailure rates• 40% on average; lower for European and
Japanese• Rosalie Tung
196
The Expatriate Assignment
Failure rates• 40% on average; lower for European and
Japanese• Rosalie Tung: Reasons
– Selection is based on headquarter criteria– Lack of training, preparation, orientation– Alienation/lack of support from headquarters– Inability to adapt to local culture/work enviro– Problems with spouse,family– Compensation– Poor programs fro career support/repatriation
197
The Expatriate Assignment
Asia Pacific Journal of Human Resource Management – Stedham/Nechita paper – Comparing Theory and Practice of Expatriate Assignments
Reduce the number of uncertainties and increase the ability to deal with uncertainties- Anticipatory and in-country adjustmentSelection – Criteria: Ability to adjust. Strategic purpose of the assignment (coordination, control, info exchange, management development). Similarity of current job. Conflict resolution skills. Methods: Include spouse and family.Training: Reduce the number of uncertainties and increase skills to cope with uncertainties. Contingency factors: cultural toughness, communication toughness, job toughness. Trg rigor, techniques, duration and content.Repatriation: Uncertainties .. Continuous contact. External validation.
198
The Expatriate Assignment
TrainingCultural toughness – China, Brazil, India, Japan, Russia, Mexico, Saudi Arabia, South Korea, FranceLess than 1/3 of expatriates receive trainingPre-departure training, postarrival training, reentry training Culture, language, everyday mattersCross-cultural training to ease the adjustment to the new environment by reducing “culture shock”: a state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture
199
The Expatriate Assignment
TrainingFour stages of culture shock:• Honeymoon• Irritation and hostility• Gradual adjustment• Biculturalism
Training techniques and Rigor of training• Area studies• Culture assimilators• Language training• Sensitivity training• Field experiences
200
The Expatriate Assignment
Training – ExamplesABB (Asea Brown Bovari) rotates 500 managers around the world .. Every two to three yearsPesiCo orientation program for foreign managers … one year at U.S. bottling division plantsHonda of America Japanese language, culture, lifestyle training .. Tokyo up to 3 yearsGE engineers and managers must have global perspective .. Regular language and cross-cultural training
201
The Expatriate Assignment
Compensation$100,000 manager in U.S. -> $300,000 in London, $1mill in Tokyo or StockholmEquity and goodwillPurchasing power and standard of livingTax differentials and tax equalizationBalance sheet approachAllowances – Cost of living, housing, education, home leave, shipping and storage
Repatriation
202
For next class: The Expatriate AssignmentYou have been assigned as the mentor to an employee, Klaus Schmidt, from Germany who will be working with you in your department for the next three years. His family, wife who is a computer programmer, and two sons (13 and 15 years old), is coming with him.
You are writing to John telling him about what to expect – on the job and in the community. Tell him about some of the cross-cultural conflicts he may run into with his co-workers and how he should handle them. You also want to give advice to each family member.
Groups of four – make a list of relevant issues. Any assumptions?
203
Expatriate AssignmentWhy expatriates?
Culture shock - cross-cultural adaptation
Failure of U.S. expats
Strategic purpose/involve HRM
Selection: Technical skills/Adaptation skills/Family and Spouse
Training: When? Purpose? Type - rigor/methods
Repatriation: Communication and Valuation
204
Recommendations
Purpose: Reduce uncertainty, create realistic expectations, and increase coping skillsUse cultural characteristics Hofstede dimensionsMake recommendations related to work and nonworkReno-specific recommendations
205
RecommendationsCultural characteristics
Social stratification: Money vs education – Religion: Many different, separation of church and state vs Protestant and catholic – Education: Emphasis, access, system – big differences!! – Political and economic philosophy – LanguageProvide recommendations related to work and non-work (husband, wife, children)
Hofstede dimensionsDifferences in uncertainty avoidance and individualismImplications for work and non-work: Decision-making, leadership, role of manager, risk-taking, creativity and innovation; freedom and discretion;
206
Strategic Planning
Strategy – Defined:• The science
• and art
• of conducting military campaign
• on a broad scale.
• A plan or technique for achieving some end.
207
Strategic management
•set of decisions and
•subsequent actions
•used to formulate and
•implement strategies that will
•optimize the fit between the organization and its environment
•in an effort to achieve organizational effectiveness.
208
Strategy and the Firm
Purpose of any business: Provide products or services that are desired by society and, hence, to make a profit
Profit = Revenue - Cost
Profit = Volume * Price - Cost
209
Profit: If the price the firm can charge for its output is greater than its costs of producing that output.
210
Profit
To do this, a firm must produce a product that is valued by consumers.
211
Value
Thus the firm must engage in value creation.
212
Value to Customer
The price that consumers are willing to pay indicates the value/worth of the product to the consumer.
213
Strategy
Porter, 1985 - Strategy Model (Distinguish from Porter’s Diamond - National Competitive Advantage)
214
Strategy
Firms can increase profit in two ways:
1. adding value to a product so that consumers are willing to pay more for it (improve quality, provide service, customize product to consumer needs)
2. by lowering the costs of value creation (perform value creation activities more economically).
215
The firm is a value chain
composed of a series of distinct value creation activities
Value creation activities1. Primary activities
Production and marketing
2. Support activities
Materials management, R&D, Human resource management
216
Strategy - Michael Porter
Strategy: The
•steps a firm takes
•to ensure that the cost of value creation are reduced and
•that value creation activities are performed in such a way that consumers are willing to pay more for the product than it costs to produce it.
217
Strategy and Global ExpansionPerforming certain value creation activities may
have two benefits for the value chain1. Lower the cost of value creation2. Improve the quality of the product - create more
value
Perform value creation in “best” location
Firms realize location economies by dispersing particular value creation activities to those locations where they can be performed most efficiently and effectively.
218
Location economies and/or experience economies:
Basing each value creation activity that the firm performs
at the location where economic, political, and cultural conditions,
including relative factor costs,
are more conducive to the performance of that activity.
Consider transportation costs (weight-to-value ratio) and trade barriers.
219
Strategy and Global Expansion
Firms that expand to international markets will gain greater returns from their
distinctive skills or core competencies.
Core Competencies - Skills within the firm that competitors cannot easily match or imitate.
Examples.
220
Strategy and Global Expansion
Constrains on transferring core competencies result from the need for local responsiveness
Need for local responsiveness results from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions, and government policies - these constrain the firm's ability to transfer core competencies and realize location economies.
221
Strategy of an international organization
• concerns identifying and
• taking actions that will
• reduce the cost of value creation and/or
• will add value
• by better serving the consumer needs
• through transferring core competencies and
• realizing location economies taking
• into account national differences.
222
Strategic Predispositions
Ethnocentric:
strategic decisions are made at headquarters,
key jobs at both domestic and foreign operations
are held by headquarters management personnel (PCN's).
223
Polycentric: the MNC's subsidiaries are treated as distinct national entities with extensive decision-making autonomy
(HCN's mane the foreign operations).
Geocentric: tries to worldwide integrate business strategy
and decision-making.
Regiocentric:
reflects the geographic structure of the MNC.
224
Strategic Predisposition’s
Ethnocentric Polycentric Regiocentric Geocentric
Mission Profitability (viability)
Public acceptance (Legitimacy)
Both Both
Strategy Global Integration
National responsiveness
Regional integration national responsiveness
Global integration and national responsiveness
Culture Home country Host country Regional Global
225
Strategic Planning Process
External Scanning and Internal Scanning (SWOT)
Opportunities/Threats Strengths/Weaknesses
Vision, Mission, Goals, Objectives, Strategies
Strategy Implementation
226
Three Traditional Strategies (Bartlett/Goshal, 1989)
Multinational Strategy:
focus on cost reduction and product standardization that is marketed worldwide.
International Strategy:
limited local responsiveness, focus on transfer of valuable skills and products where indigenous competitors lack those skills and products.
Multidomestic Strategy:
like international but extensive local responsiveness.
227
Pressures for Local Responsiveness
1. Differences in consumer tastes and preferences
2. Differences in infrastructure and traditional practices
3. Differences in distribution channels
228
Termpaper PrepIntegration of Course Material
1. The purpose of your paper is to report the cost-benefits-risk associated with internationalizing into “your” country. At this point, what do you know about the cost, benefits, risk associated with “your” country?
2. The first section in your country analysis is an assessment of the external environment to determine cost-benefits-risk. What aspects of the environment will you review? What of the material that we have covered in class will you be using for that assessment?
3. What is the population size of “your” country? What is the GDP/capita?
4. How will you address the cultural aspects of “your” country? Is “your” country culturally tough for Americans?
5. We will now start reviewing the internal environment of an international organization. You will be reporting on the components of the internal environment in businesses in your country and determine the associated cost-benefits-risk. Give examples of the issues that will have to be addressed in this section of the report.
229
Termpaper PrepIntegration of Course Material
2. The first section in your country analysis is an assessment of the external environment to determine cost-benefits-risk. What aspects of the environment will you review? What of the material that we have covered in class will you be using for that assessment?
See syllabus page 11 – land, government, politics, economic structure, culture Trade agreements, Porter’s Diamond, Globalization - democracy, free market system, Political risk – issues, ratings, transparency index, risk management; elections –upcoming or recent; Education – access and type, importance; FDI clusters; the Triad
4. How will you address the cultural aspects of “your” country? Is “your” country culturally tough for Americans?Characteristics – social stratification etc; you could cover education here; language; religion here or earlierHofstede dimensions – discussion
230
Termpaper PrepIntegration of Course Material
5. We will now start reviewing the internal environment of an international organization. You will be reporting on the components of the internal environment in businesses in your country and determine the associated cost-benefits-risk. Give examples of the issues that will have to be addressed in this section of the report. Implications for management and cost/benefits StrategyBehavior – Group and Individual
LeadershipMotivationCompensation
ProcessesCommunicationDecision-makingHR processes
StructureHierarchical versus openFormal versus informal
CultureSee Hofstede material on organizational culture
231
Self-Assessment (Group) for Termpaper and Peer Evaluation
Rubric will be provided to students Completed self-assessment of the paper must be submitted when the termpaper is handed inEach group members evaluated each group memberCompleted form to be submitted with the termpaper
232
Quiz #5
Deresky Chapter 4 – Communication: pg 117 stories and culturegrams.com; 125-127 nonverbal; 127-128 context; 128 Asia; 129-130 Arabs; 136-138 IndiaChapter 5 – Negotiation: pg 149-154 process 5 stages; 161-165 China; 169-171 Decision-making in Japan
Adler – Cross Cultural Misinterpretation: pg 79-91
233
Privatization
http://www.privatizationbarometer.net/
Register but free
Library – ask business librarian for help
234
The Internal Environment of an International Organization
CulturePeopleProcessesStructure
235
Organizational Culture
What is it?Relevance? Why is it important?Where does it come from?What happens when two companies merge? Boeing-McDonnel Douglas; GE and Bently NVWhat happens when two companies from different countries merge?
236
Organizational Culture•What is organizational culture?
– The shared values, beliefs, norms, and patterns of behavior in an organization.
•Schein's Three Layer Model:– Artifacts, Values,Basic Assumptions
•Measurement of organizational culture
– In the workplace cultural differences are accounted for by work practices.
237
Dimensions of Organizational Culture
1. Process ↔ Results oriented
2. Tight ↔ Loose Control
3. Job ↔ Employee oriented
4. Parochial ↔ Professional oriented
5. Closed system ↔ Open system
6. Normative ↔ Pragmatic
238
Organizational Culture, Processes, and Structure
Structure Communication Decision Making Reward
Process OrientedResults OrientedJob OrientedEmployee OrientedParochialProfessionalClosed SystemOpen SystemTight ControlLoose ControlNormativePragmatic
239
Organizational CultureCreating and changing the culture of an organization?
National and Organizational Culture
Organizations in Japan, Germany, the U.S. are likely to have which org. culture characteristics?
The Organizational Culture of a MNC
A universal org. culture?
240
BehaviorIndividual Behavior
P = f (A, M)
Motivation defined!
Homeostasis---applied to psychological needs
MotivationTheories --- Applicability across cultures?? Content Theories
Maslow’s Need Hierarchy Two Factor Theory of Motivation McClelland Achievement Motivation
241
Motivation Theories in the International Context
How applicable are motivation theories proposed by Maslow and Herzberg in the international context?
242
Motivation Theories in the International ContextHaire, Ghiselli and Porter’s survey concluded that Maslow’s needs, in particular the upper-level ones, are important at the managerial level
Ronen concluded that need clusters are constant across nationalities and that Maslow’s need hierarchy is confirmed by these clusters. Also, Herzberg’s categories are confirmed by the cross-national need clusters.
243
Behavior Process Theories
Equity Theory of Motivation Goal - Setting Expectancy Theory of Motivation
valence
Effort Performance Outcome
expectancy instrumentality
244
Motivation and Hofstede
High UNC - job securityLow UNC - fast-track, more risky opportunities
Low POW - motivation through teamwork and peersHigh POW - motivation depends on boss
High IND - motivation through opportunities for individual advancementLow IND - motivation through appeals to group goals and support
High MASC - comfortable with traditional division of work rolesFeminine - looser definition of roles, more flexible
245
Reinforcement Theory
Applicability?Assumptions??Behavior is a function of its consequences
246
The Meaning of Work
Tied to economic necessity
What else?
247
Work Centrality
Work centrality “the degree of general importance that working has in the life of an individual at any given point in time.”
Mean work centrality score increases, the more motivated and committed the workers would be.
248
The Meaning of WorkExample - Thai:
work = ngan; same word as the word for play
Work centrality - relative importance of work
249
The Meaning of Work
Six functions of work: –needed income, – interesting & satisfying, –contact with others, –serve society, –keeps one occupied, –status and prestige
These may be satisfied through other aspects of life
250
Study results
Britain (lowest), Germany, Netherlands, Belgium, USA, Israel, Japan
(page 411)
251
Work Centrality8.0
7.75
7.5
7.25
7.0
6.75
6.5
6.25
6.0
Japan (7)
(former) Yugoslavia (5)
Israel (4)USA (3)
Belgium (1)
Netherlands (1)Germany (1)
Britain (0)
7.78
7.30
7.106.94
6.816.69
6.67
6.36
N = 3144
N = 521
N = 893N = 996N = 446
N = 976N = 1276
N = 409
Numbers in parentheses indicate the numberof countries significantly lower (p<0.05) inwork centrality than the country designated
Work ismoreimportantand morecentral inlife
Mean workcentrality score
252
Group Behavior Group effectiveness = individual
behavior + Mature group = effective group Stages of development (F, S, N, P)
Two main characteristics for the analysis of groups Leadership Composition
253
Leadership
Which Hofstede dimension?
Types of leadership styles: autocratic, participative, group
authoritarian, democratic, laissez-faire
Theory X, Theory Y
254
Leadership Research
Traits, Behaviors, Contingency approach Kouzes and Posner: Challenging the
process, inspiring shared vision, enabling to act, modeling the way, encouraging the heart
Across cultures: Haire, Ghiselli, Porter
South-European and Nordic-European --- more autocratic, more Theory X
South-European give a little more autonomy to employees in working out details
255
Smaller companies participative Japanese Theory Y --- employees learn from mistakes
Germans Theory X --- autocratic, stop poor performance asap
256
Culturally-Contingent Beliefs Regarding Effective Leadership Styles
Country N Charisma Team Self- Part. Humane Auton. Protective
Austria 169 6.03 5.74 3.07 6.00 4.93 4.47Brazil 264 6.01 6.17* 3.50 6.06* 4.84 2.27China 160 5.57 5.57 3.80 5.05 5.18 4.07Denmark 327 6.01 5.70 2.82 5.80 4.23 3.79England 168 6.01 5.71 3.04 5.57 4.90 3.92India 231 5.85 5.72 3.78 4.99 5.26* 3.85
Japan 197 5.49 5.56 3.61 5.08 4.68 3.67Mexico 327 5.66 5.75 3.86* 4.64 4.71 3.86Russia 301 5.66 5.63 3.69 4.67 4.08 4.63*USA 399 6.12* 5.80 3.16 5.93 5.21 3.75
Scale 1 to 7 in order of how important those behaviors are considered for effective leadership (7 = highest)
257
Culturally-Contingent Beliefs - Effective Leadership Style
Americans appreciate two kinds of leaders. They seek empowerment from leaders who grant autonomy and delegate authority to subordinates. They also respect the bold, forceful, confident, and risk-taking leader, as personified by John Wayne.
The Dutch place emphasis on egalitarianism and are skeptical about the value of leadership.
Terms like leader and manager carry a stigma. If a father is employed as a manager, Dutch children will not admit it to their schoolmates.
Arabs worship their leaders – as long as they are in power!
258
Culturally-Contingent Beliefs Regarding Effective Leadership Styles(contd.)
Iranians seek power and strength in their leaders.
Malaysians expect their leaders to behave in a manner that is humble, modest, and dignified.
The French expect their leaders to be “cultivated” – highly educated in the arts and in mathematics.
R. House, et al.
259
Group Composition --- Multicultural Teams
Impact of cultural diversity on group performance?
group productivity = f(task, resources, process)
actual productivity = potential productivity - losses due to faulty process
actual productivity or =
potential productivity or - losses or
260
Benefits associated with cultural diversity:
# of alternatives generated; quality of alternatives; creativity/divergence; no groupthink
261
Process Losses: potential for miscommunication increases;
cohesiveness decreases; negative attitudes (dislike, mistrust);
perceptual problems (stereotyping); stress
262
Managing team effectiveness:
Multicultural teams have the potential to be the most or the least effective teams
Group development stages: entry, work, action
Task: innovative or routine
263
Manage culturally diverse teams through:
task-related selection recognition of differences super-ordinate goals equal power mutual respect feedback
264
Communication - Macro - LevelCommunication Flows
upward/downward
formal/informal
265
Communication: Micro - LevelMicro (Interpersonal) Level
Definition: Transmission of meaning through the
use of common symbols
Sender -> Message -> Receive(Encoding) (Medium)
(Decoding)
266
Communication: Micro - LevelInterpersonal communication Process
encodingmessagedecoding
267
Communication: Micro - Level
Communication barrierslanguagePerception - stereotypingculturenonverbal communicationprojected similarityparochialism
268
Micro -LevelExplicit vs Implicit CommunicationHigh vs low contextHigh vs low contact
269
Micro -Level
Non-verbal communicationBody LanguageEmblemsIllustratorsAffect DisplayRegulators/AdaptorsSpace (proxemics)TouchVoiceDermal Code
270
Decision Making in an International Organization
•Relevance: Quality of decisions
Organizational
Effectiveness
Differences across Cultures?
271
DM Process and Culture
1. Setting Objectives
2. Problem Recognition
3. Information Search
4. Alternative Generation
5. Choice
6. Implementation
272
International Negotiations
Definition:The process in which at least two
partners with different needs and viewpoints try to reach an agreement that is acceptable to all on matters of mutual interest
-> International managers spend more than 50% of their time negotiating
273
Recommendations (Fisher and Ury "Getting to Yes"):
1. Separate the people from the problem
2. Focus on interest, not position
3. Insist on objective criteria
4. Invent options for mutual gain
274
Apply the following models to summarize and remember the relevant information about the countries we discussed:
Porter Diamond: National competitive advantage
Existence and importance of basic factors? Existence and importance of advanced factors?
275
Course Summary1. ==> Europe? Asia? Latin America? Australia?
Specific countries?
2. Internationalization Strategy: Generalizations??
3. Purpose of internationalization1. Market growth (pop size; income)
2. Value creation activities (labor cost, exp.)
4. Benefits = Location economies
(transportation cost)
1. Political Risk .... South America? Asia? Europe?
2. Cost … Management - cultural differences ...1. religion, education; Hofstede and Trompenaars
2. ==> Generalizations across countries/regions??
276
The International Organization
The External Environment
Culture
MultipleEconomy
Multiple SocialEnvironment
TechnologicalEnvironment
PoliticalEnvironment
The Internal Environment
People
Processes Structure
BusinessStrategy
Culture
Effectiveness
277
Managing the International Organization• 1.External Environment ... Porter Diamond; Status Quo;
Culture (Hofstede)
• 2.Strategy ... Value creation activities; Location economies
• 3.Internal Environment ... Behavior: Individual (Motivation) and Group (Leadership; Multicultural Teams)
Processes: Communication -- Macro (communication flow); Micro (communication process); Next -- Nonverbal communication -- Decision Making
; Negotiation; HR Processes (The Expatriate Assignment).