Chapter-02 International Management and Cultural Diversity

1. Chapter-02International Management and Cultural Diversity Dr. GehanShanmuganathan, (DBA)

2. Chapter objectives • Describe the importance of multinational corporations and outsourcing in international business • Importance of sensitivity to cultural differences • Identify major challenges facing global managerial worker • Various methods of entry into world markets • Success factors in the global market place and positives and negatives of globalization • Scope of diversity, competitive advantage, and potential problems of culturally diverse workforce

3. International management

4. International management • Global integration influences the manager’s job • Approximately 10% to 20% of all jobs in the United States are dependent upon trade with other countries • National identity of the product is vague in today’s context due to outsourcing certain parts in the value chain • Critical aspects to manage in international business are, • Cultural diversity • Time factor in business operations (local and international) • Outsourcing

5. Cultural diversity in the US

6. The multinational Corporations

7. Multinational Corporations (MNC) • A firm with operating units in two or more countries in addition to its own • Headquarters in one country and subsidiaries in other countries • Some times hire people from its own country of origin (expatriates) for key positions in facilities in other countries • Other times, MNC will hire citizens of the country in which the division is located (host-country nationals) • Some MNCs are PepsiCo, IBM, Microsoft

8. Transnational corporations • A special type of MNC that operates worldwide without having a single national headquarters • Units of the company located in different parts of the world • Eg- Tokyo based Trend Micro is a specialist in combating computer viruses • Key challenges in international business are, • Government agreements about trade • Outsourcing

9. Trade agreement • The North American Free Trade Agreement (NAFTA) • Relationships among United States, Canada, and Mexico • Central American Free Trade Agreement (CAFTA) • United States, Dominican Republic, and Central America • The European Union (EU) • 27-nation alliance in Europe • The World Trade Organization (WTO) • The only international agency overseeing the rules of international trade and settle disputes among countries

10. Global outsourcing as part of International Business

11. Global outsourcing as part of International Business Outsourcing Offshoring • The practice of hiring an individual or another company outside the organization to perform work • Global outsourcing

12. Global outsourcing as part of International Business

13. Global outsourcing Cases for ….. Cases against…… • Lower-Priced goods • Create new jobs • Around the clock service • Permanent loss of jobs • Slow job creation • Low wages to local employees threatening offshoring

14. Problems with outsourcing • Language barrier • Customer handling issues • Currency value • When relatively weak- begins on-shoring and re-shoring

15. Sensitivity to cultural difference

16. Cultural sensitivity • Awareness and use of local and national customs and their importance in effective interpersonal relationships

17. Multicultural worker • An individual who is aware of and values other cultures Ethnocentrism discuss……

18. Country Cultural Mistake Great Britain Asking personal questions. The British protect their privacy. Spain Expecting punctuality. Your appointments will usually arrive 20-30 minutes late. Scandinavia Being overly rank conscious in these countries. Little attention is paid to a person’s place in the hierarchy. All Asian countries Pressuring an Asian employee to brag about his or her accomplishments. They prefer to let the record speak for itself. Japan Shaking hands or hugging in public. Japanese consider the practices to be offensive. India Telling Indians you prefer not to eat with your hands. If they are not using cutlery when eating, they expect you to do likewise. Mexico Flying into a Mexican city in the morning, expecting to close a deal by lunch. They build business relationships slowly. Brazil Attempting to impress them by speaking a few words of Spanish. Portuguese is the official language. Latin America Wearing elegant jewelry during a business meeting. They feel people should appear conservative during business meetings. 2.2 Cultural Mistakes to Avoid

19. Challenges faced the global managerial worker

20. Balance of trade problems Economic crises in other countries Liability of being a foreigner Collecting money Differences in negotiating style Culture shock Human rights violations 2.3 Challenges Facing theGlobal Managerial Worker Global leadership skills

21. Developing global leadership skills • The ability to effectively lead people of other cultures • This is a combination of cultural sensitivity and general leadership skills • A welcoming attitude towards other cultures is the most important in becoming an effective global leader • Their main roles are, • Inspiring • Envisioning • Culturally sensitive

22. Hofstede Cultural Dimensions Uncertainty Avoidance

23. Application of Hofstede Cultural Dimensions

24. Currency fluctuations • If the currency gains in value, difficult for exports but easy for imports • If the currency weakens in value, difficult for imports, but easy for exports • These affect marketing and production in MNCs

25. Balance of Trade Problems • The difference between exports and imports in both goods and services • Deficit and surplus effects

26. Human rights violations, corruptions, and violence • Should the manager use, • Child labor • Free labor from political prisoners • Undocumented employees • Unfair treatments for indigenous people

27. Culture shock • A group of physical and psychological symptoms that may develop when a person is abruptly placed in a foreign culture • Understanding of, • Values, beliefs, attitudes, ideas, religious beliefs, myths, colors, education, symbols, and so on • Time zones

28. Differences in negotiating style • Negotiation is a process where each party involved in bargaining, tries to gain an advantage for themselves by the end of the process. Negotiation is intended to aim at compromise. • American managers will have to be; • Patient • Use team approach • Avoid being too informal

29. Piracy of intellectual property rights and other merchandise • Intellectual property rights – software • Copy rights – publications

30. Methods of entry into world markets

31. 1 2 8 Methods of Entry into World Markets 3 7 4 6 5 2.4 Exporting Licensing Local warehousing & selling Global startup Local assembly & packaging Global merger Direct foreign investment Strategic Alliance(joint venture)

32. International Business Entry Strategies • Licensing- A contractual agreement in which one firm permits another to produce and market its products and use its brand name in return for royalty or other compensation • Exporting- organization manufactures in the home country to export to other countries • Joint venture- a partnership between two entities for a business operation in a country (guest country) • Totally owned facility- with total ownership of the business • Strategic Alliance- partnership formed to create competitive advantage on a worldwide business

33. International Business Entry Strategies • Trading company- These companies provide a link between the international buyer and the seller • Counter Trade- International barter transactions • Multinational Firms- A firm that operates on a worldwide scale without ties to any specific nation or region • Global startup- a small firm that comes into existence by serving an international market

34. Success factors in the global marketplace

35. 2.5 How to Succeed in the Global Marketplace • Think globally, act locally • Diversify into similar product markets • Be familiar with local business concepts, laws, and customs • Recruit talented nationals • Research and assess potential markets • Hire or develop multicultural workers • Adopt Environmentally Friendly Policies • Understand your • Competitors • Potential partners • Members of the management team

36. The scope, competitive advantage, and potential problems of managing diversity

37. 2.6 The Competitive Advantages of Diversity Leads to better rapport with culturally diverse customers Facilitates recruiting and retaining talented individuals Improves productivity and profits Reduces possible cultural bloopers Improves customer service

38. Competitive advantage of diversity

39. Competitive advantage of diversity • The advantage an organization has as an advantage of managing diversity over rivals • Product – Apple • Price- Wal-Mart • Advertising – insurance companies • Distribution or delivery – fast food • People or service- Banks • Process - travel and leisure

40. Benefits of cultural diversity • Marketing advantage in terms of sales and profits • Reduces costs (lost customer and efficiency) • Recruiting talented employees • Provide useful ideas for advertising and publicity • Reduces cultural bloopers (blunders) • Create corporate creativity

41. Problems associate with diversity

42. Problems associate with diversity • Heterogeneous groups could create potential conflicts among groups

43. 2.7 Organizational Practices for Improvingthe Management of Diversity Establish corporate policies favoring diversity Encourage employees to form network groups Conduct “valuing diversity” training programs English Language as a Force For Unity

44. Questions…….

45. Weekly assignment- 02 • What steps can you take, starting this week, to ready yourself to become a multicultural worker?