Chap 001

International Management Phatak, Bhagat, and Kashlak McGraw-Hill/Irwin

Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 1 An Introduction to International Management

Chapter Learning Objectives Define the concepts of international business and international management. Examine the dramatic growth and global impacts of international companies. Define and understand the strategic, marketing and economic motives of firms seeking to expand internationally. Explain the strategic objectives and sources of competitive advantage for an international firm.

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Chapter Topics The International Management Setting What is International Business? What is International Management? International Companies and Entry Modes Why Firms Seek to Engage in International Business Strategic Objectives and Sources of Competitive Advantage The Environment of International Management

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Fig. 1.1: Managing in the International Environment Section 1: The Macro-Environment (Economics, Politics, Laws, Culture)

Section 2: Firm-Level Initiatives (Strategy, Structure, Implementation, Control)

Section 3: Manager Responses (Communication, Motivation, Leadership, Negotiations)

Section 4: Social Responses (Global Social Enterprise, Social Responsibility)

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Definition of International Management International management is defined as a process of accomplishing the global objectives of a firm by: Effectively coordinating the procurement, allocation, and utilization of the human, financial, intellectual, and physical resources of the firm and across national boundaries Effectively charting the path towards the desired organizational goals by navigating the firm through a global environment that is not only dynamic but often very hostile to the firm’s very survival. 1-6

Domain of International Management Why, when, and how does a business firm (as an organization) decide to “go international” including the expansion and reduction of such internalization?

Why, when, and how is its organizational behavior – a broad term covering mission, objectives, strategies, structures, staff, and processes [particularly, decisionmaking] internal, and external transactions and relations, performance, impact, etc. – altered by internationalization. 1-7

An International Company … is an enterprise that has operations in two or more countries. If it has operations in several countries then it may have a network of wholly or partially (jointly with one or more foreign partners) owned producing and marketing foreign affiliates or subsidiaries. The foreign affiliates may be linked with the parent company and with each other by ties of common ownership and by a common global strategy to which each affiliate is responsive and committed. The parent company may control the foreign affiliates via resources that it allocates to each affiliate – capital, technology, trademarks, patents, and workforce – and through the right to approve each affiliate’s long- and short-range plans and budgets. 1-8

Table 1-1: Largest International Companies (Selected)

Global Rank

1 2 3 4 5

Company

Wal-Mart Stores Exxon Mobil General Motors BP Ford Motor

2007 Revenues ($ millions)

361,139.0 347,250.0 207,349.0 274,316.0 160,126.0

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Foreign Market Entry Modes Exporting Countertrade Contract manufacturing Licensing Franchising Turnkey projects Non-equity strategic alliances Equity-based ventures such as wholly-owned subsidiaries and equity joint ventures 1-10

Fig. 1-2: Motives to Go International

Market-Seeking Motives

The Historically Indigenous Firm

Cost-Reduction Motives

Strategic Motives

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Bandwagon Effect … when firms venture abroad to follow their major competitors

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Ex. 1.1: Global Strategy: An Organizing Framework Sources of Competitive Advantage Strategic Objectives

National Differences

Scale Economies

Scope Economies

Achieving efficiency in current operations

Benefiting from differences in factor costs (wages and cost of capital)

Expanding and exploiting potential scale economies in each activity

Sharing investments and costs across products, markets, and businesses

Managing risks

Managing different kinds of risks arising from market- or policy induced changes in comparative advantage of different countries

Balancing scale with strategic and operational flexibility

Portfolio diversification of risks and creation of options and side-bets

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Ex. 1.1 : Global Strategy: An Organizing Framework (contd.) Sources of Competitive Advantage Strategic Objectives Innovation, learning, and adapting

National Differences

Scale Economies

Learning from societal differences in organizational and managerial processes and systems

Benefiting from experience, cost reduction, and innovation

Scope Economies Sharing learning across organizational components in different products, markets, or businesses

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Fig. 1.3: The International Environment

Political: Governments Ideology Stability Civil Strife

Economic:

Cultural:

Trade Agreements Trading Blocs GNP/Wages Inflation

Customs Values Language Religion

The International Company Legal:

Infrastructure:

International Law Host Country Laws Home Laws International Piracy

Communications Internet Transportation Technology 1-15

Fig. 1-4: Fundamentals of International Management: A Model of International Management International Environmental Analysis Economic Environment & Infrastructure (Chapter 2) Political Environment (Chapter 3) Legal Environment (Chapter 4) Cultural Environment (Chapter 5)

Management/Implementation of International Initiatives International Strategic Initiatives Strategies for Int’l Competition (Chapter 6)

Organizing Int’l Operations (Chapter 9) Controlling Int’l Operations (Chapter 10) Managing Technology and Knowledge(Chapter 11) Int’l Human Resource Mgmt (Chapter 12)

Foreign Modes Of Entry (Chapter 7)

Work Motivation (Chapter 13) Leadership (Chapter 14)

Int’l JVs and Alliances (Chapter 8)

Communications (Chapter 15) Negotiations and Decision-Making (Chapter 16) Ethics and Social Responsibility (Chapter 17)

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Key Terms and Concepts Cost-reduction motives for international expansion Foreign Direct Investment (FDI) Global Strategy International Business International Company International Management Market-seeking motives for international expansion Strategic motives for international expansion 1-17