Intercultural Management

Chapter 1
Multinational Management in a
Changing World

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Learning Objectives

• Define multinational management

• Understand the characteristics of a multinational
company
• Understand the nature of the global economy and the
key forces that drive globalization
• Know the basic classification of the world’s economies
• Identify the characteristics of the next generation of
multinational managers
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Multinational Management

• Formulation of strategies and management systems to

take advantage of international opportunities and
respond to international threats

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Nature of The

Multinational Company

• Any company that engages in business functions

beyond its domestic borders

• Includes both large and small companies

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Exhibit 1.1 – The Largest

Companies in the World

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Exhibit 1.2 – Locations of

Global 500 Companies

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The Globalizing Economy

• Globalization: the worldwide trend of the economies of

the world becoming borderless and interlinked.

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Negatives of Globalization

• Not all economies of the world are benefiting equally or

participating equally in the process.
• Terrorism, wars, and a worldwide economic stagnation
have limited or reversed some aspects of globalization.
• Producing negative effects such as scarcity of natural
resources, environmental pollution, negative social
impacts, and increased interdependence of the world’s
economies.
• Widening the gap between rich and poor countries.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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The Benefits of Globalization

• Resulting in lower prices in many countries as

multinationals are becoming more efficient.
• Benefiting many emerging markets such as India and
China as these countries enjoy greater availability of
jobs and better access to technology.
• Major reason why many new companies from Mexico,
Brazil, China, India, and South Korea are the new
dominant global competitors.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Globalizing Economy:

7 Key Trends

• Disintegrating borders
• Growing cross-border trade and investment
• The rise of global products and global customers
• The internet and information technology
• Privatizations
• New competitors in the world market
• The rise of global standards of quality and production

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Countries of the World: The

Arrived, The Coming, and The
Struggling
• Developed countries: mature economies with
substantial per capita Gross Domestic Product,
international trade and investments.
• Developing countries: economies that have grown
extensively over past two decades
• E.g., Hong Kong, Singapore, South Korea.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Countries of the World: The

Arrived, The Coming, and The
Struggling
• Transition economies: countries that have changed
from mostly communist systems to market/capitalistic
systems
• E.g., Czech Republic, Hungary, Poland.

• Emerging markets: those countries that are currently

between developed and developing countries and
are rapidly growing
• E.g., India, China, Brazil, and Russia.
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Countries of the World: The

Arrived, The Coming, and the
Struggling

• Less developed countries (LDCs) have yet to show

much progress in the global economy

• Most are located in Central and South America and

Africa.

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Exhibit 1.3: Divisions of the

World’s Economies

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Exhibit 1.4: Forces Driving

Globalization

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Borders are Disintegrating: The

World Trade Organization (WTO)

• 1947 Nations met to reduce tariffs from 45% to less

than 7% - resulted in the General Agreement on
Tariffs and Trade (GATT).
• 1986 Negotiations began in Uruguay to continue
reducing tariffs. Established WTO to succeed
GATT.

WTO provides structure for continued negotiations

and settling trade disputes among nations.
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World Trade Organization

• 1997 – Trade ministers from countries representing

92 % of world trade agreed to eliminate tariffs on
software, computer chips, telecommunication
equipment, and computers.

• WTO has some critics such as environmentalists, poor

countries, and labor unions.

• Not all countries are participating equally in WTO.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regional Trade Agreements

• Regional Trade Agreements - agreements among

nations to reduce tariffs and develop similar technical
and economic standards.
• 3 largest agreements account for nearly half the
world’s trade – EU, NAFTA, APEC
• European Union (EU) - includes 27 European
countries, with additional countries being considered.
• Allows free movement of goods and services and a
common currency (EMU).
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Regional Trade Agreements

• The North American Free Trade Agreement (NAFTA):

links United States, Canada, and Mexico in an
economic bloc.
• Allows freer exchange of goods and services

• The Asia-Pacific-Economic Cooperation (APEC):

looser confederation of 19 Asian nations with less
specific agreements on trade facilitation.
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Sell Anywhere, Locate

Anywhere

• World trade growth: average of 6.5% per year between

1990 and 2000. Slowed to 4% in 2004, and grew again
to 6% in 2005 and 8.5% in 2006. Latest trends show a
slowdown due to effects of economic recession.

• Nearly half of the over $5 trillion in world trade is

among the European Union, the U.S., and Japan – the
TRIAD.

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Exhibit 1.6a – World’s Leading

Exporters and Importers

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Exhibit 1.6b – World’s Leading

Exporters and Importers

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Sell Anywhere, Locate

Anywhere

• Foreign Direct Investment (FDI): occurs when a

multinational company from one country has an
ownership position located in another country.
• FDI increased by more than 36% between 1996 and
2000.
• Since 2001, there has been a decline in FDI.
• Nevertheless, it remains a significant factor.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Exhibit 1.7: Recent Changes in

the Growth/Decline of FDI in
Selected Countries

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Foreign Direct Investment

• Developed countries get the bulk of FDI (69%) while

developing countries get around 30%.
• Least developed countries get minimal FDI.
• Emerging markets will continue to attract FDI.
• Developing countries provide opportunities and risks.
• Implications for managers - significant opportunities
around the world.
• Multinational managers should look at risk rating of
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Two Types of Risks

• Economic risk: considers all factors of a nation’s

economic climate that may affect a foreign investor.

• Political risk: anything a government might do or not do

that might adversely affect a company.

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Factors Outside of The

Control of The Multinational

• War and increases in oil prices have the potential to

slow down global trade

• Natural disasters

• International terrorism

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The Internet and Information

Technology
• Electronic Communication - E-mail, World Wide Web,
etc.
• Allows multinationals to communicate with company
locations throughout the world.
• Allows multinationals to monitor worldwide
operations.
• Expands global reach of organizations.
• Information technology is spurring a borderless
financial market.
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The Internet and Information

Technology

• Information technologies make available many new

tools that facilitate business operations

• E.g., Voice-Over-Internet Protocol (VOIP) such as

Skype, MSN Messenger and AOL, WIKIs, Google

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The Rise of Global Products

and Global Customers

• The needs of customers for many products and

services are growing more similar
• E.g., McDonald’s, Boeing, Toyota.

• Global customers search the world for their supplies

without regard for national boundaries.

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New Competitors

• Free market reforms are creating a potential group of

new competitors.
• These companies have survived brutal competition in
local markets.
• Able to deal with domestic rivalry and competition from
western MNC.
• Develop strategies to compete with very low prices.

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New Competitors are

Emerging

• Global trade has two important effects in developing

new competitors:
• When developing countries are used as low-wage
platforms for high-tech assembly, multinationals
facilitate the transfer of technology. Assemblers may
become builders and creators of technology.
• Aggressive multinationals from emerging markets
are also expanding beyond their own borders.

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The Rise of Global Standards

• Companies can make one or only a few versions of a

product for the world market.

• This is cheaper than making different versions for

different countries.

• Drive to develop common standards to save money.

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Global Standards

• Consistency in quality also an important requirement of

doing business in many countries.

• International organization for standardization (ISO) in

Geneva, Switzerland
• Developed a set of technical standards (ISO
9001:2000 series).

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Corporate Social
Responsibility and Business
Ethics

• Increased pressure on MNCs to be responsible.

• Increased scrutiny of MNCs’ actions and impact.

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Corporate Social
Responsibility and Business
Ethics
• Some MNCs are becoming more proactive in
responding to social and ethical issues that arise from
their overseas operations.
• Some issues are:
• Climate change
• Environmental degradation and pollution
• Sweatshop conditions for labor
• Bribery
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Exhibit 1.8: Ranking the World’s

Most Ethical Companies

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Next Generation of
Multinational Managers:
Characteristics

• Global mindset

• Emotional intelligence

• Long-range perspective

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Next Generation of
Multinational Managers:
Characteristics
• Talent to motivate all employees to achieve excellence

• Accomplished negotiation skills

• Willingness to seek overseas assignments

• Understanding of national cultures

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Multinational Management: A
Strategic Approach

• Considers how managers formulate and implement

strategies to compete successfully in the global
economy.
• Strategies are the maneuvers or activities used to
increase and sustain organizational performance.
• Multinational strategies must include maneuvers that
deal with operating in more than one country and
culture.
• Helps position yourself in evolving global economy.
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Trends Shaping Future

Business Environment

• Blurring of industry boundaries

• Flexibility matters more than size
• Focusing on niche
• Hyper-competition
• Emphasis on innovation and the learning organization

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Conclusion

• Chapter provides key background information to

support study of multinational management.
• Must be prepared to compete with firms from any
country.
• Must be prepared to collaborate and align with firms
from any country.
• Develop organizational strategies and skills to
compete in different nations in a global economy.
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