INTERNATIONAL MANAGEMENT

Lecture 6
Globalization
and
Localization
Monday, October 13, 2014

FORCES FOR
GLOBAL INTEGRATION
Economies of Scale
Economies of Scope Factor Costs
Free Trade
Global Competitors

Economies of Scale
When economies of scale are so large that the most efficient volume of production is greater than the total demand for a product, sales can sometimes be increased by expanding into foreign markets.

Economies of Scale
Scale economies (economies of scale)
are cost savings that result from lowering the cost of making one unit of product,
by varying the total quantity produced.
Production efficiency is highest at the minimum efficient scale/volume of production. This is where average unit costs fall to their lowest point.

OUTPUT QUANTITY
Ave. Costs
per Unit
PRODUCTION COSTS
Lowest
Unit Cost

OUTPUT QUANTITY
Ave. Costs
per Unit
PRODUCTION COSTS
“As production output increases, the average unit cost falls –
until total output is too much for the facility to produce efficiently.”
Economist
Lowest Unit
Cost
“Production is most efficient when the average unit cost is at its lowest point.

OUTPUT QUANTITY
PRODUCTION COSTS
If production continues to increase beyond that point, the cost per unit goes up again.
Lowest Unit
Cost
Ave. Costs
per Unit
The optimal output level represents the lowest unit costs. This is the minimum efficient scale i.e. the smallest quantity that can be produced efficiently)

OUTPUT QUANTITY
PRODUCTION COSTS
Lowest Unit
Cost
Cost savings obtained by maximizing efficiency are called economies of scale.
economies of scale
(amount saved by producing at the most efficient level of output)

Conditions that Favor Concentrating Production in Fewer Locations
High fixed costs relative to total costs
High minimum efficient scale of production
Flexible manufacturing is not available

Industries with LARGE
Economies of Scale
STEEL
AUTOMOBILES

Conditions that Favor Spreading Production Across More Locations
Low fixed costs relative to total costs
Low minimum efficient scale of production
Flexible manufacturing is available

Economies of Scope
Improved global communication and transportation create opportunities for companies to capitalize on their strengths by increasing the scope or range of their operations.

Economies of Scope
Geographic Scope
Product Market Scope
Vertical Integration Scope

Definition:
ECONOMIES OF SCOPE
These are the cost savings that result from combining various activities in one firm, instead of in several different organizations.

Factor Costs
Gaining access to low-cost resources (land, labor, raw materials, capital) is another important reason to enter foreign markets.

“many companies found that, once educated, the cheap labor rapidly became expensive…
the typical life cycle of a country as a source of cheap labor for an industry is now only about five years.”

Free Trade Agreements
GATT
NAFTA
EU
WTOa

Forces for global integration
reinforce each other
Technological innovation
Economic rationalization
Product standardization
Converging consumer preferences

FORCES FOR LOCALIZATION
Cultural Differences
Government Demands
Company Preferences

Conflicting cultural characteristcs and conflicting expectations and priorities between home country and host country governments force companies to become more sensitive to foreign environments.

Cultural Differences
Work values (Hofstede)
Consumption patterns

Country Preferences
Host countries often see the MNE as a source of capital, technology, & skills to support national priorities.
These include regional development, employment, import substitution, and exporting.

Company Preferences
access to resources & markets in other countries
opportunity to integrate its marketing & operations across national borders
the right to coordinate & control its activities across national borders

MGT 3209
INTERNATIONAL MANAGEMENT
Fall 2014

Lecture 7
International
Joint Ventures
(IJVs)
Monday, October 20, 2014

This chapter deals with three topics:
Reasons for investing in IJVs
Partner selection
Practical issues in making IJVs work

Shared Interests of the Partners
Increase market power by combining resources
Share costs of investment and production
Gain economies of scale
Cooperate to avoid expensive competing

Contributions of the Foreign Partner
International know-how
Access to international connections
International reputation
International product markets
International labor markets
International finance
International technologies
Other international resources
International distribution

Contributions of the Local Partner
Access to local connection
Government contacts
Local reputation
Government regulations
Local culture
Local product services
Local labor markets
Other local resources
Local distribution

Trust and Mistrust
Contractual details
Priorities in planning
Implementation strategy
Management style, structure, systems
Communication systems within the IJV
with parents, between parents, with
environment
Criteria for evaluating IJV development
and performance
Other

Cultural mindset

BigMove is a joint venture of well known heavy haulage companies that joined forces to offer a total package for every customer.
Partners in the BigMove JV are: Bloedorn, Geser, Giebel, Gutmann, Hämmerle, Hegmann Transit, Pallmann, Schmallenbach, Seeland, Wagner and Wallek.

The BigMove Group is a Joint Venture alliance of eleven medium-sized special transport companies that was founded in 2004.
The BigMove network is represented with branch offices in Switzerland, Austria, France and Germany.

BLOEDORN SHIPPING COMPANY
Member of the BigMove Group
Handles Shipping to Kazakhstan

The Snow Leopards
Bloedorn Trans-Asia is the specialist for transport and shipping in Kazakhstan, Kyrgyzstan and Uzbekistan.
Take advantage of our experienced multi-lingual staff who have expert regional knowledge of Central Asia.
We guarantee a high standard of professionalism in meeting your particular shipping needs.
www.bloedorn-trans.asia.de

MGT 3209
INTERNATIONAL MANAGEMENT
Fall 2014

Lecture 8
Headquarters
& Subsidiaries
Mead & Andrews, International Management,
4th ed., Chapter 18, “Risk and Control: Headquarters and Subsidiary”

CENTRALIZATION AT COCA-COLA
“Coca-Cola is still a highly centralized company…
All important strategic decisions are [made at] headquarters in the [U.S.].
Regional and national subsidiaries are managed by staff appointed by headquarters
they adjust headquarters strategy to their particular circumstances only when absolutely necessary.”
Source: Mead & Andrews (2009) p. 307

Cont.
“There is a good reason for this degree of centralization.
The company is selling a global product, a unique soft drink and the universal cultural values associated with that drink.
It cannot risk confusing the market by local managers developing products that appeal only to local tastes.”
Source: Mead & Andrews (2009) p. 307

Key Considerations in
Relationships Between
HQs & Subsidiaries
RISK
Factors that increase management risk for the firm
CONTROL
Measures to protect the firm against management risk

TYPES OF RISK
Competitive Risk
Economic Risk
Political Risk
Technology Risk
Cultural Risk

TYPES OF CONTROL
Managerial Control
Technology Control
Budget Control

Coca-Cola Ichimligi Uzbekiston

MGT 3209
INTERNATIONAL MANAGEMENT
Fall 2014

Lecture 9
Staffing
for Control
Mead & Andrews, International Management,
4th ed., Chapter 20, “Controlling by Staffing”
Monday, November 3, 2014

Staff from different labor pools typically have different interests, reflecting their ties to particular organizations and cultures.
Professional, hierarchical, and cultural factors complicate the situation further.
LABOR POOLS

When staff from different labor pools hold conflicting organizational loyalties and cultural ties, the overall level of misunderstanding and conflict in the organization rises.

Groups from labor pools with very different organizational loyalties may cause contradictions in:
Relations among groups
Relations with management
Interpretation of goals
Expectations about outcomes
Perceptions of management
Work norms
Organizational culture

There is generally less risk of misunderstanding when all staff in the IJV or subsidiary are from the same labor pool.

BUREAUCRATIC
CONTROL
The purpose of bureaucratic
control is to develop impersonal bureaucratic efficiency.

HQ can strengthen bureaucratic control over the Subsidiary by enforcing impersonal rules for activities such as:
Selection
Recruitment
Training
Rewards
Individual behavior
Individual productivity

Bureaucratic control over individual behavior relies on:
monitoring activities
evaluating activities regulations and rules
instructions and manuals
training

Bureaucratic control can also be carried out by monitoring Subsidiary activities through output control, e.g.
developing reporting and monitoring
systems for providing Subsidiary
reports to Hqs
assessing subsidiary performance
using reported data

CULTURAL
CONTROL
The purpose of cultural control is to develop loyalty to the company and to headquarters.

Cultural control is created by means of implicit norms that persuade members to make a moral commitment to the company.

Cultural control actively integrates newcomers into the shared culture by structuring personal interactions with established members of the organization.

Cultural control techniques include:
Many expatriates as role models
Employee socialization programs Visits between Subsidiary and HQ
Company seminars
Social events

by Sophie Cross, Demand Media
http://smallbusiness.chron.com/examples-cultural-controls-organizational-structure-13425.html
“Organizational culture … defines specific patterns of behavior, including rituals, rules and identity within a professional environment.”
“Culture specifically is a means of controlling behavior.”
“Company leaders develop cultural controls to create social norms and a sense of shared values within the organization.”

MGT 3209
INTERNATIONAL MANAGEMENT
Fall 2014

Lecture 10
Ethics and
Corporate Responsibility
Mead & Andrews, International Management, 4th ed., Chapter 24, “Ethics and Corporate Responsibility”
Monday November 10, 2014

Conditions under which ethical
concerns are significant
Complications in business ethics
BUSINESS ETHICS

Conditions under which ethical concerns are significant:
in the workplace
in the marketplace

Complications in business ethics:
professional factors
hierarchical factors
cultural factors

CONDUCT of behavior according
to moral principles
EVALUATION of behavior according
to moral principles
Two Aspects of Ethics

A firm’s only responsibility is to make profits for its stockholders within the law
Is there a place for ethics in business?
Two Opposing Views
Ethics can increase profit if a firm always follows its own ethical code

It’s easier to investigate and report unethical
and corrupt behavior
There’s more awareness of political, social,
and economic costs of corruption
Growing middle class expects more ethical
behavior from government and business
Why has interest in business ethics increased so much?

Workforces are increasingly diverse in terms
of ethics, especially in multinational firms
Companies can no longer assume that all
their members come from the same concept
and experience of ethical values
Changes in the marketplace show that
suppliers as well as customers increasingly
prefer to deal with ethical companies

The ethical code of an organization
represents what it considers to be
ethical and unethical
An ethical code shows how the
members of an organization are
expected to behave
Ethical Codes

Who is responsible for planning the code?
How is the code communicated to members?
How is ethical behavior taught to members?
How is ethical behavior rewarded?
How is unethical behavior punished?
How clear or ambiguous is the code?
How consistently is the code applied?
Implications for Managers

It is especially difficult to deal with ethics in another culture when we:
can’t identify the ethical code
don’t know how it is implemented
don’t anticipate how it is enforced
are unaware that it’s different
Understanding Ethics
Across Cultures

In individualistic cultures, the individual employee owes loyalty to the company
In collectivist cultures, the individual employee owes loyalty to the person who helped him or her get the job.
Ethics of Loyalty

Corporate Social Responsibility (CSR) refers to doing business in a way that supports the interests of society and the natural environment.
CORPORATE
SOCIAL RESPONSIBILITY