Iqra University

20th Sept 2011

CROSS CULTURAL MANAGEMENT

Dr. Kashif MEHMOOD

2007-2012 KashifMehmood.com

About Me
Double Doctorate Four post graduate degrees in five years from France:

PhD Business Administration (ESSEC) PhD Computer Science (CNAM-EDITE) M.Phil Business Administration (ESSEC) MS Computer Science (UPMC-Paris6) Two articles in review Book in review

Five publications in journals and international conferences.

+ +

Interview published in D. E. Avisons book Information Systems Project Management. Extensive industry experience

Course Introduction

This course focuses on management issues within the multinational enterprise (MNE), including structural and strategic decisions, HQ-subsidiary issues, human relations issues, impact of culture on management practices, R&D and knowledge management in MNEs.

Course Objectives
Recognize complexities and challenges imposed on management by operating in the global environment. Appreciate the effects of the global environment on basic and advanced management concepts and principles of organizational behavior. View management decisions through the lens of foreign cultures, looking both from head office culture standpoint and from foreign office perspective. Understand the impact of different firms different cultures in strategic alliance situations.

Course Objectives
Develop awareness of specific foreign cultures characteristics, particularly in the context of management. Become familiar with current global management events in the real world. Know contemporary players of note, i.e. MNEs that are making an impact (positively or negatively).

Text book
International Management: Managing Across Borders and Cultures, Text and Cases By Helen Deresky
ISBN-10: 0136098673 Publisher: Prentice Hall; 2011

What I Bring To The Class

Travel experience on 4 continents

Numerous countries North America, Europe, Asia

Real world work experience on 3 continents

Academic and practical concepts, techniques & strategies to make students better prepared for and more marketable in the challenging international business environment.

Grading
Article Presentation 2 Article Discussion In-Class Activities & Discussions Quizes Project Midterm Final Total 5 5 5 10 10 25 40 100

Exams
Multiple choice questions Fill-in-the-blank Short answers Long answers - choices

Exams are based on:

material presented / discussed in class including cases terms and information from the text book homework material guest speaker material topics brought by your classmates

In-Class Activities
Classroom discussions Case discussions Article Presentations Article Discussion Role play Leadership exercise Videos (& subsequent discussions)

Classroom Etiquette
No cell phone calls or texting Bring laptop computers only for taking notes & in-class research No refreshments Arrive on time No wandering in and out of class Let me know what youd like to be called in class. Use your name tent in every class. No gum

What is International Management?

Process of
developing strategies designing & operating systems working with people around the world

to ensure sustained competitive advantage

What is International Management?

3 chief skills students entering Global Management sector should possess:
1.

2.
3.

Ability to communicate above & beyond cultural lines International networking (beyond Pakistani colleagues) Courage to challenge stereotypes & cultural assumptions

CULTURE & its Effects on Organizations

Culture = set of shared values, understandings, assumptions, & goals learned from earlier generations, imposed by present members of society, & passed on to succeeding generations Understand how culture affects all aspects of international management

Opening Profile: India Becomes Crucial to IBM

India is the site of IBMs second-largest operation IBMs employees in India grew from 9,000 to 43,000 between 2004 and 2006 IBMs business in India grew 61% in the first quarter of 2006

Opening Profile: India Becomes Crucial to IBM

Examples of IBM projects in India:

Container tracking system Warranty management system System for tracking the failure of vehicle components Global Business Solutions Center

What is Globalism?

The term globalism refers to Global competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy

What is Global Management?

Global management is the process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage.

Challenges Associated with Globalism

The backlash against capitalism and a rekindling of nationalism Increased protectionism of high-demand resources The need to develop top managers with international understanding and experience

Benefits Associated with Globalism

Access to more markets
Growth of developing economies Opportunities for flexibility and efficiency Opportunities for small and medium-sized enterprises (SMEs)

Regional Trading Blocs

Much of todays world trade takes place within three regional free-trade blocs: Western Europe Asia The Americas Other Regions Central and Eastern Europe China Less Developed Countries (LDCs)

The European Union

A unified market of over 400 million people in 27 nations
Two challenges for global managers: Fortress Europe Dealing with multiple cultures within this unified market

The European Union (EU)

12 of the 15 member states of the European Community have adopted a common currency and monetary policy. The Euro is now a legally tradable currency. The EU is the largest and most integrated common market in the world with 376 million consumers. The creation of EU has not eliminated national pride. Most people in W. Europe still think of themselves first as British, French, Danish or Italian, and are wary of giving up too much power to centralized institutions, or of giving up their national culture.

Asia
Japan and the Four Tigers Singapore, Hong Kong, Taiwan, and South Korea provide most of the capital and expertise for Asias developing countries. In the 1980s and early 1990s, much of Asias economic power and competitive edge was attributed to Japans keiretsu and S.Koreas chaebol (Conglomeration/business family/group of giant MNCs) Recent economic woes have slowed growth in the region.

North America
The North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico has created a single market of 360 million consumers.

Examples include the one between Wal-Mart and Cifra, which in 2001 was Mexicos biggest chain.

The one America trading bloc has the potential for expansion in South America as trade liberalization among the Latin American countries progresses.

Other Regions
The Central and Eastern European bloc, where communism proved unworkable and crumbled, has created a new market of 430 million people. Impediments to business growth here are the lack of capitalist structure and systems to reproduce Western management practices easily. China has enjoyed recent success as an export powerhouse. Its GDP growth rate, though slowing, was the fastest in the world for several consecutive years.

Other Regions (contd.)

The economic situation and the often unacceptable level of government intervention discourage foreign investment in less developed countries (LDCs). Assessing the risk-return tradeoffs and keeping up with political developments in the LDCs are two of the many demands on international managers.

Information Technology: Affecting the Management Agenda

Making geographic barriers less relevant
Lowering cultural barriers Encouraging convergence of consumers tastes and preferences

The Globalization of Human Capital

The offshoring of manufacturing jobs and outsourcing of white-collar jobs is increasing It has been estimated that 3.3 million US jobs will be lost in service-sector outsourcing by 2015

The Global Managers Role and the International Environment

Political Risk
Any governmental action or politically motivated event that could adversely affect the long-run profitability or value of a firm Example:
Venezuela recently forced oil companies to accept a minority stake in fields they owned and to pay more in taxes and royalties

Typical Political Risk Events

Expropriation of corporate assets without prompt and adequate compensation. Confiscation: without compensation Forced sale of equity to host-country nationals, usually at or below depreciated book value. Discriminatory treatment against foreign firms in the application of regulations or laws. Barriers to repatriation of funds (profits or equity). Funds transfer to parent country

Typical Political Risk Events

Loss of technology or other intellectual property (such as patents, trademarks, or trade names). Interference in managerial decision making. Dishonesty by government officials, including canceling or altering contractual agreements, extortion demands, and so forth.

Managing Political Risk (Taoka and Beemans suggestions)

Equity sharing Participative management Localization of the operation Development assistance

Terrorism Risk
Terrorism is the use, or threat of use, of anxietyinducing violence for ideological or political purposes (Micklous). The increasing incidence of terrorism around the world concerns MNCs.

Examples of Managing Terrorism Risk

IBM and Exxon try to develop benevolent images and maintain low profiles Using teams to monitor terrorist activities Hiring counterterrorism consultants

Economic Risk
Is closely related to political risk

Is determined by a countrys ability or intention to meet its financial obligations

Economic Risk
The economic risk incurred by a foreign corporation usually falls into one of two main categories: its subsidiary (or other investment) in a specific country may become unprofitable if the government suddenly changes its domestic monetary or fiscal policies or if the government decides to modify its foreigninvestment policies.

Economic Risk in LDCs

LDCs tend to pose more risk than developed countries For example, expectations that Argentinas economy would shrink by 15% in 2002 negatively affected foreign firms doing business there

Four Approaches to Assessing Economic Risk

Quantitative

Assign weights to different variables Cant take into account the stages of development among countries
Asses the competency of leaders Analyze type of policies they can implement

Qualitative

Checklist

Measureable criteria to indicate changes in the credit worthiness of the country

A combination of these methods

The Legal Environment

Consists of the local laws and legal systems of those countries in which an international company operates and of international law, which governs relationships between sovereign countries

The Legal Environment

A host countrys legal system may be derived from common law, civil law, or Muslim law, and is a reflection of the countrys culture, religion, and traditions. Under common law, past court decisions act as precedents to the interpretation of the law and to common custom.

The Legal Environment

Civil law is based on a comprehensive set of laws organized into a code. Interpretation of these laws is based on reference to codes and statutes. Islamic law combines, in varying degrees, civil, common, and indigenous law. It is followed in approximately 27 countries.

Three Approaches to Contract Law

Common law: Details must be written in the contract to be enforced Civil law: Assumes promises will be enforced without specifying the details In Asia the contract may be in the relationship, not on the paper

Other Regulatory Issues

Protectionist policies, such as tariffs or quotas

The attractiveness of the tax system

The level of government involvement in the economic and regulatory environment

More Issues and Risks in the Technological Environment

The appropriability of technology Inappropriate use of technology by others Appropriateness of technology for the local environment

The Technological Environment

Technoglobalism is the phenomenon in which rapid developments in information and communication technologies (ICTs) are pushing globalization and viceversa. An MNCs major concern is the appropriability of technology that is, the ability of the innovating firm to profit from its own technology by protecting it from competitors.

Global E-Business
E-business is the integration of systems, processes, organizations, value chains and entire markets using Internet-based and related technologies and concepts. E-commerce refers directly to the marketing and sales process The Internet and e-business provide a number of uses and advantages in global business.
B2B..

Summary: The Environment of the Global Manager

Political Environment Form of government Political stability Foreign policy State companies Role of military Level of terrorism Restrictions on imports/exports Economic Environment Economic system Stage of development Economic stability GNP Intl financial standing Monetary/fiscal policies Foreign investment

Summary: The Environment of the Global Manager

Regulatory Environment Legal system Prevailing intl laws Protectionist laws Tax laws Role of contracts Protection for proprietary property Technological Environment Level of technology Availability of local technical skills Technical requirements of country Appropriability Transfer of technology Infrastructure Environmental protection

Thank you