MG4035 Summary Notes PDF

Topic 1: Globalisation Globalisation: growing interconnectedness of firms, governments and individuals Waves of globalisation: ○ 1830-1890s: growth of rail/ocean transport, rise in manufacturing ○ 1900-1930s: emergence of MNCs and electricity and steel production ○ 1948...

Topic 1: Globalisation Globalisation: growing interconnectedness of firms, governments and individuals Waves of globalisation: ○ 1830-1890s: growth of rail/ocean transport, rise in manufacturing ○ 1900-1930s: emergence of MNCs and electricity and steel production ○ 1948-1970s: establishment of GATT and increased demand for consumer products ○ 1980-2006: technological advancements and rise of SMEs ○ 2007-: rise of digital technology Drivers of globalisation: reduction of global investment/trade barriers, adoption of free markets, technological advancements and industrialisation Levitt (1983) predicted that there would be a single global market where standardized products would be sold everywhere Impacts of globalisation: ○ Economic benefits of globalisation: gains for manufacturing workers in technological sectors and workers in new manufacturing regions, negative for low skill workers in high cost countries ○ Technological diffusion: adoption of new technologies across firms and households, providing opportunities for local firms to benefit ○ Environmental effects: firms will relocate to avoid strict pollution legislation ○ Social impact benefits: host society gains jobs, technology and industrialisation while home country receives FDI growth and increased corporate profit ○ Social impact drawbacks: host society becomes vulnerable to location shifts and environmental degradation, home country loses low skilled jobs International firm: a firm engaged in trade activities with no FDI component MNC: a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries ○ Competitive advantages: lower production costs, price stability, product quality, flexibility of logistics Case Study: Ireland ○ 70% of manufacturing output is produced by MNCs, second most effective globally for FDI ○ IDA Ireland: agency responsible for attraction and retention of inward FDI Globalization of production: allows companies to break down the manufacturing process into separate stages, each in the most advantageous location Uniformity: when a company sells an identical product everywhere, easily manageable and cost effective Customisation: company alters its product to fit preferences of people in different places  Topic 2: Culture Liability of foreignness: additional costs incurred by a firm operating overseas that a local firm would not incur Origins of culture ○ National culture: common sense of belonging or identity, language and history ○ Ethnic groups: when people are drawn together by a sense of common identity or belief in a common descent ○ Language and culture: instills basic socialization themes & determines how values and norms are expressed & communicated Hall’s Context Typology of Cultures: ○ High context: establish social trust first, emphasis of trust in agreements, negotiations are slow and ritualistic, value of personal relationships ○ Low context: business oriented discussions, performance valued, negotiations are efficient with legalistic contracts Hofstede’s Dimension of Culture: ○ Power distance: extent to which hierarchical difference are accepted in society high: tall hierarchies and centralisation, more supervisory staff (India / Brazil) Low: less centralisation with smaller wage differentials (Sweden / Norway) ○ Uncertainty avoidance: extent to which members of society will tolerate ambiguity high: more rules and structures, standardisation (Portugal / France) low: fewer rules and more variability ( UK / USA / Ireland) ○ Individualism / Collectivism: extent to which the self or group constitutes the center point of identification for the person collectivism: practices based on loyalty and group interests (Colombia / Mexico) individualism: individual interests, more impersonal (UK / USA) ○ Motivation Towards Achievement: degree to which society is driven by competitiveness, achievement and success decisive: status oriented, competition reward, less women in senior positions (Italy / Austria) consensus-oriented: work-life balance, social values, compromise and negotiation (Nordic countries) ○ Long Term Orientation: cultural attitudes to time low: treat societal change with suspicion, maintain time-honoured traditions high: pragmatic approach with longer timeframe planning, individuals delay gratification ○ Indulgence vs. Restraint: extent to which people control their desires/impulses  restraint: gratification needs to be curbed, control their desires, less time spent on leisure (China / Russia) indulgence: willingness to realise their desires and impulses (US / Canada) Trompenaar’s Relational Dimensions: derivation of 7 relationship orientations that address way that people deal with each other, time and environment Universalism vs. Particularism: ○ Universalism: high importance of laws, rules and obligations, rules before relationships (US / Canada) ○ Particularism: circumstances and relationships define the rules they live by (China / Russia) Neutral vs. Emotional ○ Neutral: people control their emotions, reason influences action more than feelings (UK / Germany) ○ Emotional: people find ways to express their emotions (Latin America) Individualism vs. Communitarianism ○ Individualism: personal freedom and achievement and ability to make one’s own decisions (US/ UK) ○ Communitarianism: group is more important than the individual (Latin America) Specific vs. Diffuse ○ Specific: separate work and personal lives (US / UK) ○ Diffuse: people see an overlap between work and personal, relationships crucial to business objectives (India / Brazil) Achievement vs. Ascription ○ Achievement: worth is based on your performance and results (US / UK) ○ Ascription: status based on aspects such as social position and age, based on being rather than doing (Japan / Saudi Arabia) Sequential vs. Synchronic ○ Sequential: view time in a linear fashion, order comes from separation of activities (UK / US) ○ Synchronic: juggling of several events simultaneously (Japan / Mexico) Internal Direction vs. Outward Direction ○ Internal direction: focus on controlling environment, how parties work together (UK /US) ○ Outward direction: focuses on harmony and avoidance of conflict (China / Russia) Cultural risk: event in which cultural misunderstanding puts human value or activity at stake Cultural distance: degree to which firm is unfamiliar with culture of a foreign business location 3R approach to cross cultural working: ○ ethnocentrism: using own culture as standard for judging other cultures  ○ polycentrism: host country mindset in which organisation develops affinity for country in which they conduct business ○ geocentrism: global mindset in which organisation can understand market without regard for country boundaries Topic 3: Internationalisation Internationalization: cultural differences need to be explored, understood and appropriately managed, political and legal environment of the international business location needs to be considered and managed Born global firms: organisations which conduct business in multiple countries from inception Factors considered when internationalising: location, resource availability, language/cultural differences, product standardisation, market entry timing options Decision to expand internationally: ○ proactive: tends to be future directed and occurs when an organization identifies an opportunity for expansion and making a profit ○ reactive: responding to a deterioration in its competitive position possibly from declining sales and market saturation First Movers: ○ advantages: opportunity for market share, create barriers to entry, consumer loyalty, cost advantages ○ disadvantages: expensive, high risk and uncertainty, less market opportunities Second Movers: advantage from following others into a market or mimicking products ○ Reduced risk, larger timeframe to evaluate options, lower R+D costs ○ Higher barriers to entry with difficult to gain market share Exporting: continues producing domestically but also exports to foreign markets ○ direct: produces and sells its own products to foreign markets ○ indirect: exporting outsourced to intermediaries who handle distribution export house: buys products from firm and sells on own account confirming house: works on commission by uniting buyers/sellers buying house: confirming except more active in finding sellers ○ countertrade: transactions where payment made in kind, helps sales where excess stock produced Transfer related modes: transfer of ownership of specified property assets in exchange for royalties Licensing: legal contract authorising one business to use assets belonging to another through an outsourcing arrangement ○ Instant guaranteed revenue with an easy mode of entry ○ Lack of control with an increased exposure of resources, potential exploitation Franchising: form of licensing where one firm operates a certain type of business under an established name ○ Contractual source of income with limited financial exposure ○ Existing brand identity ○ Increased exposure of processes with limited creativity and control  Foreign direct investment: investment in form of controlling ownership in business in one country by an entity based in another ○ market related: proximity to market ○ production related: economies of scale and production capacities ○ resource related: proximity to raw materials ○ control of specific strategic assets: acquisition of brands or other assets Joint venture: commercial enterprise jointly undertaken by multiple parties who otherwise remain separate ○ equity JV: legally separate entity where new company generally acts as a supplier to parent companies ○ cooperative JV: profits and responsibilities specifically assigned to each party provides entry to activities which may have too much risk for one party individually, prevents and reduces competition enhances economies of scale and allows bypass of entry barriers however does include loss of competitive advantage may lead to issues regarding coordination and integration Strategic alliances: cross border partnership between firms who aim to pursue interests through resource and capability sharing ○ aims to avoid barriers or protectionist legislation, in addition to splitting R+D costs and splitting political risk ○ coevolution: partners develop to reflect changing environments ○ provides access to new markets or customer base as well as supplementary services, increases brand awareness Wholly owned subsidiary: company has total ownership over facility in a new country, achieved through greenfield investment or a merger/acquisition ○ greenfield: new manufacturing or administrative facility ○ brownfield: investment in infrastructure which was previously operational ○ mergers: combination of two previously separate organisations ○ acquisitions: purchase of majority shares in target company overseas company invests to establish subsidiary avails of cheaper factors of production such as cheaper labour or raw materials Increases in house capacities and reach efficient for tax purposes Mergers: provide access to resources and competencies with decreased costs and easier to overcome market entry barriers ○ Integration issues such as conflicting objectives and redundancies Acquisitions: access to accumulated assets with target company ceasing to exist, leads to decreased risk of competitive reaction  Topic 4: Political and Legal Context Political environment: factors such as government, political parties, trade unions, interest groups and public opinion Political systems: structures/processes by which a state is governed ○ authoritarianism: individuals claim absolute power with no substantive accountability ○ democracy: system based on accountability to the voting public ○ monarchy: absolute = monarch has significant governing power, ceremonial = power lies with elected officials ○ communism: everything owned communally and distributed as necessary ○ theocracy: religious leaders control government and legal system Legal issues for MNCs: rule of origin laws (requirement of trade and important for determining duties), competition, patents, product liability laws Anti-Trust laws: governing mergers, acquisitions, cartels Political objectives for MNCs: favourable trade/investment environment, removal of obstacles to free trade, open access to foreign markets, gain legitimacy as a local entity Political risk: exposure to potential loss to company operations and profitability caused by development in a political/legal system. ○ ownership risk: change of governance structure or expropriation ○ operational risk: changes of rule such as to tax systems ○ transfer risk: impediment to transfers of factors of production Legal environment: refers to laws and regulations that businesses must follow in a region, impacts interaction with stakeholders ○ common law: series of rules implemented by judges ○ civil law: judges follow written rules and don’t necessarily look at past decisions ○ theocratic law: relies on religious code and practice Country risk: ○ HC legal system: foreign investment laws, environmental/contract laws, ecommerce regulation, laws on income repatriation ○ HC political systems: government takeover of corporate assets, boycotts/embargoes/sanctions, terrorism and war Topic 5: Expatriation International staffing process: ○ ethnocentric: mostly parent country nationals ○ polycentric: mostly host country nationals ○ geocentric: global staffing approach involves appointing best person regardless of nationality ○ regiocentric: transferred on a regional basis  Expatriates: any employee working outside of home country, transferred by parent company to overseas assignment for a period of time ○ PCN: familiar with objectives, may struggle with language and culture ○ HCN: socioeconomically familiar, lower hiring costs but may have difficulty with subsidiary operations ○ TCN: career international managers, may impede development of domestic talent Expatriation is any period of two to several years Types of assignment: ○ management development: give managers experience through exposure to foreign business practices ○ business development: parent country managers required to assist start up abroad ○ technical assignments: expatriates share technical skills with local staff Bear = decision maker with high level of authority, bees = connection between headquarters and subsidiary, spiders = establishment of communication networks International assignment cycle: ○ Recruitment and selection: research into suitable candidates ○ Hiring: aspects such as hiring, remunerations, family supports and taxation ○ Preparation/training: providing training to employees to assist in them settling into the foreign environment easier ○ Expatriation: performance appraisal of employee’s performance abroad ○ Repatriation: most important step, transition back to own country Culture shock: state of anxiety about not knowing how to behave in a foreign culture, eased by training (DuBois and Oberg) ○ honeymoon, culture shock, adjustment, integration Subculture shock: shock coming from feeling like a foreigner in one’s own country, caused by moving to another part of same country Repatriation only occurs once there is successful repatriation of the company within the company headquarters Colombian Culture Context: high context with use of verbal cues Collectivism: valuing familial and communal relationships Time orientation: more relaxed views to deadlines Religion: Catholicism Language: Spanish Negotiations: importance of relationship in business, preference for face to face meetings Business relationships: importance of personal relationships, personal transactions conducted prior to any business