6.9: Summary
- Born globals
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Companies that operate internationally from the day that they are created.
- Christianity
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Faith based on the life, teachings, death, and resurrection of Jesus.
- Clusters
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Representing countries that share similar cultural characteristics.
- Cultural Intelligence
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Refers to the individuals’ capabilities to function and manage effectively in culturally diverse settings.
- Cultural paradox
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Insights from an understanding of culture may not necessarily coincide with reality in that culture.
- Cultural stereotyping
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Occurs when one assumes that all people within a culture act, think, and behave the same way.
- DHL Global Connected Index
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Index tracking the flow of capital, information, trade, and human resources and representing the degree of globalization.
- E-commerce
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Buying and selling of products using the Internet.
- Education
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Socializing experiences that prepare individuals to act in society.
- Emerging market multinationals
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Influential companies from emerging markets that are competing headon with established multinationals and rewriting the rules of competition by using new business models.
- Emerging markets
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Those markets in countries that present tremendous potential for multinational.
- Expatriate
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Foreign employee who moves and works in another country for an extended period of time.
- Exporting
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International entry mode where a company sends a product to an international market and fills the order like a domestic order.
- Foreign direct investment (FDI)
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Refers to deliberate efforts of a country or company to invest in another country through the form of ownership positions in companies in another country.
- Foreign direct investment (FDI)
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Involves a company investing in another country through the construction of facilities and buildings in another country.
- Global strategy
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Where all operations and activities are managed fairly similarly worldwide.
- Globalization
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Worldwide phenomenon whereby the countries of the world are becoming more interconnected and where trade barriers are disappearing.
- GLOBE project
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More recent cultural project involving 170 researchers who collected data on 17,000 managers from 62 countries around the world. .
- High-rigor cross-cultural training
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Methods of training where participants are much more actively engaged in the training process and can learn some tacit aspects of cross-cultural differences.
- Hinduism
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Represented by all those who honor the ancient scriptures called the Vedas.
- Hofstede model of national culture
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Project involving survey of over 88,000 employees in IBM subsidiaries from 72 countries.
- Immigration
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Movement of people from their home country to other countries; will continue to grow worldwide.
- Individualism
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Degree to which a society focuses on the relationship of the individual to the group.
- International franchising
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Where a company will license the complete business model.
- International strategic alliances
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Two or more companies from different countries enter into an agreement to conduct joint business activities.
- Islam
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Religion whose essence is described in the Qur’an as the submission to the will of Allah (God).
- Licensing
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Contractual agreement whereby a company is given the right to another company’s trademarks, know-how, and other intangible assets in return for a royalty or a fee.
- Local strategy
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Company’s operations are adapted to fit some specific countries.
- Low-rigor cross-cultural training
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Training where individuals are exposed to critical information to help them understand the realities of a different culture but are not actively engaged in their learning.
- Masuclinity
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Degree to which a society emphasizes traditional masculine qualities, such as advancement and earnings.
- Political risk
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Degree to which political decisions can impact a business’s ability to survive in a country.
- Postarrival cross-cultural training
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Training provided after the expatriate has arrived to the intended destination.
- Power distance
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Refers to the degree to which societies accept power differences and authority in society.
- Predeparture cross-cultural training
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Learning opportunities provided prior to departure.
- Regional strategy
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Where the multinational adapts activities and operations to regional requirementst.
- Religion
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Shared set of beliefs, activities, and institutions based on faith in supernatural forces.
- Social institution
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Complex of positions, roles, norms, and values lodged in particular types of social structures and organizing relatively stable patterns of human resources with respect to fundamental problems in . . . sustaining viable societal structures within a given environment.
- Social stratification
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Degree to which social benefits are unequally distributed; those patterns are perpetuated for life.
- Tariffs
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Extra charges that are added to the price of international products in the form of additional taxes or higher prices as a way to give domestic companies a price advantage while also protecting these companies from foreign competition.
- Trade agreements
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Popular policy instruments that countries agree on to eliminate cross-border barriers to trade and to promote global integration.
- Uncertainty avoidance
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Refers to the degree to which people in a society are comfortable with uncertainty and unpredictable situations.
- Uppsala model of internationalization
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Model that argues that as firms learn more about a specific market, they become more committed by investing more resources into that market.
Summary of Learning Outcomes
6.2 Importance of International Management
1. Why is it important to understand and appreciate the importance of international management in today’s world?
Any serious management student needs to understand and appreciate the importance of international management in today’s global business environment. Whether you work for a domestic company or a foreign company, you will likely need to interact with someone from another country or do business in another country. Understanding international management is therefore critical to address future challenges.
In this section, you learned about the many factors contributing to making globalization a reality: the growth of trade between countries, the growing importance of foreign direct investment, the growing competition from emerging market multinationals, and the globalization-fueling pervasiveness of the Internet. These factors all contribute to making the business world more global.
6.3 Hofstede's Cultural Framework
2. What is culture, and how can culture be understood through Hofsetde’s cultural framework?
Given the importance of globalization, any serious international management students will need to be able to understand the cultural aspects of a society in which they may find themselves and will need to learn how to adapt to various cultural conditions. The most popular cultural framework, the Hofstede scheme, was developed by Geert Hofstede, a Dutch social scientist who surveyed over 88,000 employees in 72 countries in which IBM had subsidiaries. He developed this cultural model primarily on the basis of differences in values and beliefs regarding work goals. This effort resulted in four main dimensions: power distance (the degree to which societies accept power differences and authority in society), individualism (the degree to which a society focuses on the relationship of the individual to the group), uncertainty avoidance (the degree to which people in a society are comfortable with uncertainty and unpredictable situations), and masculinity (degree to which a society emphasizes traditional masculine qualities such as advancement and earnings).
6.4 The GLOBE Framework
3. How are regions of the world categorized using the GLOBE framework, and how does this categorization enhance understanding of cross-cultural leadership?
The GLOBE project cultural framework is a much more recent effort that involved 170 researchers who collected data on 17,000 managers from 62 countries around the world. The focus of the GLOBE project was to understand how national cultures have preferences for different leadership styles. One of the strengths of the GLOBE project is that it clusters societies that share similar characteristics. The seven important clusters of the GLOBE project are the Anglo cluster, the Confucian Asia cluster, the Germanic Europe cluster, the Latin America cluster, the Middle East cluster, the Nordic Europe cluster, and the Sub-Saharan cluster. Each cluster rates differently the styles of leadership that the GLOBE researchers considered. The six leadership profiles are charismatic types (degree to which the leader can inspire and motivate others), participative type (degree to which leaders involve others in decision making), humane-oriented type (degree to which the leader shows compassion and generosity), autonomous (degree to which the leader reflects independent and individualistic leadership), and self-protective (degree to which the leader is self-centered and uses a face-saving approach). The various clusters show preferences for specific leadership styles that are consistent with the cultural aspects emphasized in each cluster.
6.5 Cultural Stereotyping and Social Institutions
4. Why is an understanding of cultural stereotyping important, and what can students do to prepare for cultural stereotyping by looking at social institutions?
While the Hofstede and GLOBE culture frameworks are certainly useful and can provide a solid basis for understanding cultural differences, relying solely on cultural dimensions can lead to problems when managers are confronted with cultural paradoxes (when reality doesn’t coincide with expectations based on cultural dimensions) and cultural stereotyping (when it is assumed that everyone within the same culture acts and behaves similarly).
To broaden your understanding of cultural differences, you must also take into account a country’s social institutions.
While there are a large number of social institutions that can impact international business, we examined three main types of social institutions that affect how people act and behave: social stratification (degree to which social benefits are unequally distributed and those patterns are perpetuated for life), education (the socializing experiences which prepare individuals to act in society), and religion (the shared set of beliefs, activities, and institutions based on faith in supernatural forces).
6.6 Cross-Cultural Assignments
5. What steps can you undertake to be better prepared for cross-cultural assignments?
While the above sections provided you with many diagnostic tools to understand how to evaluate crosscultural differences, this section presented you with the ways to prepare for cross-cultural assignments. The goal of any training is to increase cultural intelligence, the ability to function and manage effectively in culturally diverse settings. To understand what companies can do to increase cultural intelligence, you learned about various types of training: low-rigor training (where individuals are exposed to critical information but are not necessarily actively engaged in their learning) and high-rigor training (methods of training where participants are much more actively engaged in the training process). You also learned that multinationals can also provide training before someone goes on an international assignment or while someone is already on the assignment.
6.7 Strategies for Expanding Globally
6. What are the main strategies that companies can use to go international?
As companies explore expanding into international markets, they adopt one of three main strategies, each of which has its advantages and disadvantages depending on the company’s and country’s characteristics. The three strategies are 1) the global strategy, in which all operations and activities are managed fairly similarly worldwide; 2) the regional strategy, in which the multinational adapts activities and operations to regional requirements; and 3) the local strategy, in which the company’s operations are adapted to fit some specific countries.
6.8 The Necessity of Global Markets
7. Why might it be necessary for a company to go international, and how might it accomplish this goal?
In the final section of the chapter, you first read about the need for companies to go international and learned that some markets present strong potential while others have floundered.
Companies can go international in many ways: exporting (an entry mode where a company sends a product to an international market and fills the order like a domestic order), licensing and franchising (a contractual agreement whereby a company is given the right to another company’s trademarks, know-how, and other intangible assets in return for a royalty or a fee), strategic alliances (where two or more companies from different countries enter into an agreement to conduct joint business activities), and foreign direct investment (which involves a company investing in another country through the construction of facilities and buildings in another country).
With each of these methods of entry, there is a trade-off between the cost of a means of entry and the amount of control a company has over its operations. For example, exporting is usually the cheapest way to go international but offers the company the least amount of control. Born globals do not have to think about how or when to go global because they are international from the day they are created.
- Why is international management a critical area that all management students should be aware of?
- Briefly describe the main cultural dimensions of Hofstede’s framework. Where does the U.S. stand on each of the dimensions?
- What is power distance? What are the implications of power distance for how management is conducted in different societies?
- How is the GLOBE project different from the Hofstede project of cultural dimensions? What are the main findings of the study?
- What are country clusters? Pick any three clusters and discuss some of the leadership preferences for each cluster.
- Compare and contrast low-rigor versus high-rigor cross-cultural training. Provide some examples of each type of training.
- What is predeparture cross-cultural training? What is postarrival cross-cultural training? Which method works best and why?
- What is a global strategy? When do companies prefer a global strategy?
- Compare and contrast a global, regional, and local strategy. Discuss some advantages and disadvantages of each method.
- What are the various means available to companies to go international? When is an exporting strategy most appropriate?
Management Skills Application Exercises
- Your manager is currently considering negotiations in China, and given your international management knowledge, you are asked for advice. How would you approach preparing to advise her? What type of information will you provide to her?
- You have a new product, and you are considering exporting the product. Visit the government’s export website at https://www.export.gov/article?id=Wh...-should-export . What are some of the key issues to take into consideration when exporting?
- You are in charge of HR in your company, and the company will soon need to send an expatriate to Japan. You will need to design a training program to better prepare your employee. What type of training program will you provide? What essential elements will the program include?
- You are considering investing in Saudi Arabia and know that the business culture there is influenced by religion. Using your knowledge of Islam, what should you expect? How can you better prepare for the investment?
- You have designed a new surfboard that presents significant advantages over current models. How can you determine whether you are ready to launch your company as a born global
Managerial Decision Exercises
- You are the CEO of a company that produces high-end laptops for gaming. You have heard that there is interest in your product from international customers. You need to decide how to enter the international market. What issues do you take into consideration when deciding among the different means of entry? Which approach do you think would work best?
- Visit Hofstede’s cultural dimensions website at www.hofstede-insights.com/mo...tionalculture/. Pick two countries and compare them with the United States on the cultural dimensions. How would you manage cultural differences in these countries?
- Your company is interesting in exploring international expansion into Africa. Visit the African Union’s website at https://au.int/en/ . What are some of the countries included in the African Union? How easy will it be to approach entering these markets?
- Your company is interested in exploring investments in several sectors in Zimbabwe. Because of political instability, you are obviously very reluctant given the risks of doing business in that country. Using data from www.marsh.com/us/campaigns/p...-map-2017.html, discuss the concept of political risk. When can you decide that investing in Zimbabwe is a good idea?
- You will be sending one of your employees to several new countries for short-term assignments. You need to decide between low-rigor cross-cultural training and high-rigor cross-cultural training. Which method would work best? How would you decide between the two, and what elements would your training involve?
Critical Thinking Case
SAP and the American CEO of a German Multinational
SAP is a German multinational specializing in enterprise application software. The company was founded by five engineers, and the company is now the world’s leading business software maker. Through its software, SAP helps its customers streamline production processes. SAP also provides forecasting services to its customers to help them predict customer trends. It currently has over 87,000 employees in 130 countries assisting over 335,000 customers worldwide.
For the first time in its history, the company is currently headed by an American, Bill McDermott. McDermott’s training was in sales, and that provided him with significant expertise to become SAP’s current CEO. In 2010, SAP was facing declining revenue worldwide and needed a turnaround. Initially, McDermott was co-CEO with Jim Hagemann Snabe, a Danish executive who was one of the company’s cofounders. The arrangement worked well, and when Snabe retired in 2014, McDermott became CEO.
McDermott’s success came from the many changes he instituted to better adapt to cultural differences. For instance, he quickly discovered that sales were not very effective in the United States because the salespeople were more interested in focusing on the engineering aspects of SAP’s products at the expense of listening to American customers. Such experiences led to the development of more customer-focused innovation and a more empathetic approach to customer needs, things McDermott strongly believes in.
In visiting his German counterparts, McDermott also saw other potential sources of cross-cultural conflict. For instance, he saw that presentations in the United States were much more effective if the presentation quickly engaged the audience and got them excited. In contrast, a German audience preferred a more disciplined, fact-based presentation. McDermott also discovered key differences between the way U.S. companies are managed in comparison to German companies. For example, he found that while U.S. public companies are pressured by quarterly results, SAP was much more interested in 30-year cycles as opposed to 90-day stock price movements.
McDermott’s success at managing cross-cultural differences is no surprise. When he was a teenager, he purchased a distressed deli shop in Long Island. Long Island was already a melting pot of immigrants, and he learned how to deal with a diverse group of customers. When he was first hired at 27 to sell Xerox copy machines, he found that American customers do not have a long time for a sales pitch. He learned to be quick and to the point. In contrast, in Asia, he found that you had to focus on developing relationships rather than focus on the product. At the age of 29, he was asked to turn around business in Puerto Rico. There he found employee morale to be very low because of cost-cutting measures. Rather than blindly implementing American management, he listened to the local employees and implemented many measures to improve operations. For instance, he worked to improve customer service. Most importantly, he reinstated a Christmas party that had been canceled as a cost-cutting measure. This lifted morale and led to the turnaround.
McDermott has many important lessons for aspiring cross-cultural leaders. He advises that leaders be respectful of cross-cultural differences. Additionally, because SAP has one global vision, he can have all employees focus on that vision. He therefore also suggests that leaders and managers adopt a compelling vision that can be readily shared with all employees. He also believes that the customer experience is what is critical. Finally, he recommends that the savvy manager be human and empathetic and show humility.
Critical Thinking Questions
- What are some of the sources of McDermott’s excellence at managing cross-cultural differences? How did his experience managing a deli store at a young age help him develop cross-cultural management skills?
- What are some of the cross-cultural differences he discovered? Using your knowledge of culture, explain some of these differences.
- What is your assessment of his lessons for cross-cultural managers? Relate these lessons to the GLOBE findings of the effective global leader.
Sources: Geoff Colvin, “ A CEO’s plan to defy disruption,” Fortune , November 2014, pp. 36; Michal Lev-Ram, “Inside SAP’s radical make-over,” Fortune, April 9th, 2012, Issue 5, pp. 35-38; Bill McDermott, “SAP’s CEO on being the American head of a German multinational,” Harvard Business Review , 2016, November, https://hbr.org/2016/11/saps-ceo-on-...-multinational ; SAP Corporate Website https://www.sap.com/index.html .