Chapter 06 – International Management
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6
chapter
International Management
Learning Objectives 2
Key Student Questions 3
Class Roadmap 4
Bottom Line 12
Social Enterprise 13
Lecturettes 14
CHAPTER CONTENTS
Chapter 06 – International Management
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1 Discuss what integration of the global economy means for indi-
vidual companies and their managers.
2 Describe how the world economy is becoming more integrated
than ever before.
LEARNING OBJECTIVES
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Students have very practical questions about international management – they want to know:
1. “What implications does globalization have for my job – what can I do
to keep my job from being outsourced?”
2. “How does a manager know when to take a business global?”
While every industry is different, you can offer students the following advice:
• An article in Business Week outlines the skills that programmers need to find a job in the
United States.1 It seems that technical skills aren’t enough anymore. In order to be success-
ful, programmers also have to show that they can lead and manage teams, think strategically,
and become software architects, not just the implementers of someone else’s vision.
1 Baker, S. and Kripalani, M. “Software:Will Outsourcing Hurt America’s Economy?” Business Week, March 1, 2004, Online at
2 Foley, J. The Global Entrepreneur. Dearborn Trade, 1999.
KEY STUDENT QUESTIONS
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Management in Action
How Lenovo Is Becoming a Global Brand
A few years ago, Lenovo was barely known outside China, but today it is “the first Chinese
global consumer brand,” according to the Wall Street Journal. Lenovo is the world’s largest PC
maker and competes directly with HP in computers and servers.
LO 1: Discuss what the integration of the global economy means for individual companies and their
managers.
A. Implications of a Flat World
B. The Role of outsourcing
1. Outsourcing occurs when an organization contracts with an outside provider to
produce one or more of its goods or services
CLASS ROADMAP
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LO 2: Describe how the world economy is becoming more integrated than ever before.
A. European Unification
1. European Union (EU) will allow goods, services, capital, and human resources to
B. Asia: China and India’s Ascent
1. Japan dominated world attention toward the end of the last century.
E.G.
Use Example 6.2 – Global economy consequences here
C. The Americas
1. North American Free Trade Agreement (NAFTA) is an economic pact that com-
bined the economies of the United States, Canada, and Mexico into the world’s larg-
D. The Rest of the World
1. Middle East, Africa, and Latin America comprise a major share of the world’s natural
LO 3: Define the strategies organizations use to compete in the global marketplace.
II. THE GLOBAL ENVIRONMENT
III. GLOBAL STRATEGY
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A. Pressures for global integration
1. Universal needs create strong pressure for a global strategy.
B. Pressures for local responsiveness emerge when:
1. Consumer tastes and preferences differ significantly.
C. Choosing a global strategy (Exhibit 6.6)
1. The international model is designed to help companies exploit their existing core capabilities
to expand into foreign markets.
a. The advantage of this model is that it facilitates the transfer of skills and know-how from
2. The multinational model uses subsidiaries in each country in which the company does busi-
ness, and provides a great deal of discretion to those subsidiaries to respond to local condi-
tions.
a. One advantage of allowing local responsiveness is that there is less need for coordination
3. The global model is designed to enable a company to market a standardized product in the
global marketplace and to manufacture that product in a limited number of locations where
the mix of costs and skills is most favorable.
a. Companies that adopt the global model tend to become the low-cost players in any indus-
4. The transnational model is an organization model characterized by centralization of certain
functions in locations that best achieve cost economies; basing of other functions in the com-
pany’s national subsidiaries to facilitate greater local responsiveness; and fostering of com-
munication among subsidiaries to permit transfer of technological expertise and skills.
a. A distinguishing characteristic is the fostering of communications among subsidiaries.
Chapter 06 – International Management
E.G.
Use Example 6.3 – Global strategy systems here
Management in Action –
Progress Report
A primary challenge of Lenovo’s strategy to build outward from China is that selling in a developing
economy requires high efficiency and low prices, while selling high-tech products requires constant inno-
vation, which can be expensive. CEO Yang Yuanqing and vice president Gerry Smith settled on an ap-
proach they believed could accomplish both goals: manufacturing at its own facilities, located in key
markets.
• Where in this example do you see pressures for global integration?
• Where do you see pressures for local responsiveness?
The primary source of pressure for global integration would be the pressure to reduce costs for the devel-
• Which global strategy (international, multinational, global, or transnational) do you think is most ap-
propriate for Lenovo? Why?
LO 4: Compare the various entry modes organizations use to enter overseas markets
A. Exporting
1. Advantages of exporting are:
2. Disadvantages of exporting are:
a. Exporting from the company’s home base may be inappropriate if other countries offer
B. Licensing
IV. ENTRY MODE
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C. Franchising
1. It is used primarily by service companies.
E.G.
Use Example 6.4 – Difference between franchising and licensing here
D. Joint ventures
1. Joint ventures benefit a company through:
a. The local partner’s knowledge of the host country’s competitive conditions, culture, lan-
guage, political systems, and business systems
E.G.
Use Example 6.5 – Joint ventures here
E. Wholly owned subsidiaries
LO 5: Explain how companies can approach the task of staffing overseas
Managing Across Borders
V. MANAGING ACROSS BORDERS
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A. When establishing operations overseas, headquarter executives have a choice between
sending:
1. Expatriates
a. cost
E.G.
Use Example 6.6 – Cultural differences here
LO 6: Summarize the skills and knowledge managers need to manage globally.
A. Skills of the Global Manager
1. Failure rate is the number of expatriate managers of an overseas operation that come
home early. Failure can be prevented by:
a. structuring assignments clearly
2. Skills and knowledge include:
a. flexibility
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E.G.
Use Example 6.7 – Multidimensional perspective here
LO 7: Identify ways in which cultural differences across countries influence management.
B. Understanding cultural issues
1. Culture shock is the disorientation and stress associated with being in a foreign envi-
ronment.
2. Geert Hofstede’s dimensions of cultural differences: (Exhibit 6.12)
Multiple Generations at Work
Do Millennials Need International Work Experience?
According to the results of a survey of working Millennials from six countries, the answer is yes.
4. When working with foreign nationals, it is important to explain U.S. cultural norms
with regard to:
a. Holding meetings
E.G.
Use Example 6.8 – Working with foreign nationals here
D. Ethical issues in international management
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2. Ch. 5 identified several steps companies can take to enforce ethical behavior. In a for-
3. Most people embrace five core values, regardless of religion or nationality:
a. compassion
Management in Action –
Onward
Lenovo’s strategy requires managers who understand local markets and can run efficient manufacturing
operations. Lenovo meets the need with a combination of host-country and third-country nationals. R&D
in China enables the company to innovate with products that will please the developing markets where
Lenovo launches new products. In the United States, CEO Yang Yuanqing is patiently building the
brand’s reputation over the long run.
• What advantages does Lenovo have from its choice of entry modes?
By selling products manufactured in its own strategically located facilities, Lenovo should experience
• What cultural issues should an American-born manager at Lenovo be prepared to handle?
An American-born manager at Lenovo will be working for a company whose executives are Chinese.
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p. 195: Why might innovation be important for a U.S. company in a global market?
Answers will vary. The previous section gave one hint, however, and that is the higher cost of labor in the
p. 201: What is one way in which a global strategy can help reduce costs?
p. 202: Give an example of a product for which quality standards would apply globally.
p. 203: What kind of product might experience rapid changes in local demand?
p. 204: Could this model apply to a jewelry company? If so, how? If not, why not?
Students should give a reason for either answer. A jewelry company that specializes in high-end or hand-
p. 205: Does that mean the transnational model is always best? Why or why not?
p. 207: Can services be exported? Why or why not?
The traditional answer has been that it is difficult or impossible to export services because they are deliv-
p. 208: Why does quality control pose a risk in franchising?
With franchises, much of the value is in the brand; customers expect the same level of quality whenever
p. 210: How might training an expatriate manager differ from training a local manager?
An expatriate manager is likely to need more training in cultural differences and business practices of the
BOTTOM LINE
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Student Social Entrepreneurs Compete for $1 Million
1. Of the three recent award-winning start-ups mentioned above, which do you find
most likely to succeed? Why?
2. The Hult Prize has been awarded to new social enterprises from all over the world.
Why do you think the competition has a global focus?
Social entrepreneurship, like many other facets of business, has become a global endeav-
SOCIAL ENTERPRISE
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LECTURETTE 6.1: Untangling the Trade Deficit
TRADE DEFICIT
1. There are many misunderstood economic statistics, but there is one that clearly stands out as the most
confusing: the trade deficit. No other number is interpreted so differently by professional economists
2. The U.S. trade deficit rose from $56 billion in 1992 to $155 billion in 1997. The economic troubles
COMPONENTS OF THE TRADE DEFICIT
1. Part of the confusion about the trade deficit arises because the U.S. Department of Commerce reports
several versions of the trade deficit, and the differences among them can be tens of billions of dollars.
2. In the modern economy, it is surely too limited to consider goods only. In 1997, only 36 percent of
the U.S. gross domestic product (GDP) were goods, while 55 percent was services. (The rest is struc-
tures and changes in inventories.) Some services are obviously difficult to trade internationally: It’s
not clear how one ships housecleaning or haircutting services overseas. But many services like fi-
POPULAR MYTHS
1. Much popular thinking about the trade deficit is based on a few well-known facts about the United
States and Japan. The Japanese economy is more closed to trade than the U.S. economy. In certain
LECTURETTES
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2. If one is to believe that trade deficits occur because of how well U.S. firms match up to foreign com-
petition, then one must believe that the competitiveness of U.S. firms collapsed from 1981 to 1987,
THE TRUE MEANING OF TRADE DEFICIT
1. We must return to the question of what a trade deficit really is. All the items on the surplus side of
the current account balance—exports of goods and services, investment income received by U.S. in-
vestors who have capital abroad, and unilateral transfers to the United States—involve money flow-
2. The U.S. trade balance can be viewed as a matter of comparing the amount of U.S. imports of goods,
services, investment income, and transfers—all paid in U.S. dollars—with the value of U.S. exports
CAPITAL FLOWS ARE KEY
1. In a world without foreign trade, a nation can only consume what it produces. But in a world with
trade, a nation can borrow from abroad, use the money to consume more goods and services than it
2. Thus a trade deficit means that a nation is receiving net investment from abroad. Equivalently, a
trade deficit means that a nation is consuming more than it is producing. Again equivalently, a trade
3 Taylor, Timothy, “Untangling the Trade Deficit,” Public Interest, Winter 99 Issue, 134, p 82
Chapter 06 – International Management
LECTURETTE 6.2: Stand Up and Fight
It’s tough being an aggrieved consumer in Big Business-oriented Japan. Mitsubishi hid consumer com-
plaints in a company locker rather than turning them over to the government. Shareholders are angry
Japanese judiciary believes it must preserve the social-structure and this means protecting big companies,
not the individual. In Japan, companies have little reason to fear litigation; they pay small heed to con-
sumers’ complaints. Japan has double standards and it is a place where companies can get away with ac-
tions that would never be tolerated in the United States or Europe. Management decisions are built upon
social responsibility and organization politics is an inherent part of the Japanese culture. Japanese firms
operate in the market place in a unique way so they can be competitive and meet industry wide standards
that are acceptable to employers within a given industry.
Milk sold by Snow Brand Milk Products Co., Japan’s largest dairy failed to notify the public of the prob-
lem for two days after 14,500 people fell ill after drinking the tainted milk. Health authorities declared
Snow Brand products safe for consumption before establishing the cause of the poisoning. A reactive
approach, compared to a proactive style of management, is often exercised in making decisions of a social
responsibility philosophy of management.