PhD Tran Thi Phuong Thuy

Course code: KDOE307

 CHAPTER 1

OVERVIEW OF INTERNATIONAL BUSINESS &

GLOBALIZATION

Outline

1.1. Definitions of international business and other related terms

1.2. Definition, components, drivers of globalization

1.3. Types of international companies

1.4. Rationales under company’s decision to go global

2
1.1. Definitions of international business and other related terms

international business
An …………………….. is any firm that
engages in international trade or investment

(Hill, 2023)

1.1. Definitions of international business and other related terms

international trade
• ............................. occurs when a firm exports
goods or services to consumers in another
country.
Foreign Direct Investment
• ………………………. occurs when a firm
invests resources in business activities outside
its home country.
(Hill, 2023)
4
1.1. Definitions of international business and other related terms

• ……………………
International business consists of all commercial

transactions between two or more countries.

(Daniels et al., 2015)

1.1. Definitions of international business and other related terms

…………………………
International business refers to the performance
of trade and investment activities by firms across
national borders.
(Cavusgil et al., 2008)

6
 1.1. Definitions of international business and other related terms

Managing an international business is different from managing a purely

domestic business for at least four reasons:
• countries are …………………..
(1) countries are different, in their cultures, political systems, economic systems, legal
systems, and levels of economic development.

(2) the range of problems confronted by a manager in an international business is wider and
the problems them selves more complex than those confronted by a manager in a domestic
business,

(3) an international business must find ways to work within the limits imposed by government
intervention in the international trade and investment system, and

(4) international transactions involve converting money into different currencies. 7

1.1. Definitions of international business and other related terms

Managing an international business is different from managing a purely

domestic business for at least four reasons:
• the range of problems confronted by a manager in an international
wider
business is ………… and the problems them selves more ..……….
complex

than those confronted by a manager in a domestic business

8
1.1. Definitions of international business and other related terms

Managing an international business is different from managing a purely

domestic business for at least four reasons:

• an international business must find …………

ways to work within the limits

imposed by government intervention in the international trade and

investment system

1.1. Definitions of international business and other related terms

Managing an international business is different from managing a purely

domestic business for at least four reasons:
different currencies
• international transactions involve converting money into ……………

10
 1.2. Definition, components, drivers of globalization

1.2.1. Definition

1.2.2. Components

1.2.3. Drivers

11

1.2.1. Definition of globalization

Globalization is [an] integration of national economies into the

international economy through trade, direct foreign investment (by
corporations and multinationals), short-term capital flows, international
flow of workers and humanity generally, and flow of technology
(Bhagwati, 2004)

12
 1.2.1. Definition of globalization
Globalization is the process of greater interdependence among
countries and their citizens. It consists of the increased interaction
of product and resource markets across nations via trade,
immigration, and foreign investment - that is, via international
flows of goods and services, people, and investments in equipment,
factories, stocks, and bonds. It also includes noneconomic elements
such as culture and the environment. Simply put, globalization is
political, technological, and cultural, as well as economic
(Carbaugh, 2007)
13

1.2.1. Definition of globalization

Globalization is the word used to describe the growing interdependence

of the world’s economies, cultures, and populations, brought about by
cross-border trade in goods and services, technology, and flows of
investment, people, and information (The Peterson Institute for
International Economics, 2022).

14
 1.2.1. Definition of globalization

integrated
Globalization refers to the shift toward a more …………….. and
…………………….
interdependent world economy (Hill, 2023).

15

1.2.2. Components of globalization

Components

Globalization of Globalization of
………….
market ……………
production

The globalization of markets refers to the merging of historically distinct and separate national
markets into one huge global marketplace.

The globalization of production refers to the sourcing of goods and services from locations
around the globe to take advantage of national differences in the cost and quality of factors of
production (such as labor, energy, land, and capital). 16
 Globalization of Markets

…refers to the merging of historically

distinct and separate national markets
into one huge ………………………
global marketplace

Globalization of Markets

• …………..…

• ……………..

• ……………..

18
 Globalization of Markets

trade liberalization
………………………..
+ a process
+ reduce and remove barriers to trade
+ eliminate discrimination
+ create favorable environment
+ to promote development of international trade

19

Globalization of Markets

converge on some global norms

• Tastes and preferences - ………………..

20
 Globalization of Markets

• Only multinational giants facilitate and benefit from the globalization of

markets.

• The most global markets currently are markets for consumer products.

21

Globalization of Production

…refers to the sourcing of goods and

services from locations around the
globe to take advantage of national
differences in the cost and quality of
production
…………………….. like land, labor,
energy and capital
Globalization of Production

23

Globalization of Production

24
 Globalization of Production

25

1.2.3. Drivers of globalization

failing trade and investment barriers; market liberalization and adoption of free market
economics in formerly closed economies; industrialization and economic development,
especially among emerging markets; integration of world financial markets; and technological
advances.

Drivers

26
 Decline in trade & investment barriers
Figure 1.1. Average tariff rates on manufactured products as percent of value

27

Decline in trade & investment barriers

Figure 1.2. Value of world merchandised trade and world production 1960–2021

28
 Decline in trade & investment barriers
Figure 1.3. Changes in national investment policies, 2013–2022
(Number of measures)

29

Technological change

• Important advances have occurred in:

+ Microprocessors and Telecommunications

+ The Internet and World Wide Web

+ Transportation Technology

30
 1.3. Types of international companies
international companies
• ………………………… are importers and exporters,
• Global companies typically without investment
• Multinational companies outside of their home country
• Transnational companies

31

1.3. Types of international companies

• International companies
global companies
• ………………………… • also has locations in multiple
• Multinational companies countries, but they’ve figured
out to create one company
• Transnational companies
culture with one set of
processes that facilitate a
more efficient and effective
single global organization

32
 1.3. Types of international companies

• International companies
• Global companies
multinational companies
• ………………………….. • has locations or facilities in
• Transnational companies multiple countries, but each
location functions in its own
way, essentially as its own
entity

33

1.3. Types of international companies

• International companies
• Global companies
• Multinational companies
• …………………………….
transnational companies
• are much more complex
organizations. One of
the significant advantages is that they
are able to maintain a greater
degree of responsiveness to the local
markets where they maintain
facilities. 34
 1.4. Rationales under company’s decision to go global

(1) ……………………….
expanding sales

Pursuing international sales

usually increases the potential
market and potential profits

35

1.4. Rationales under company’s decision to go global

(2) ……………………..
acquiring resources

Foreign sources may give companies

• Lower costs
• New or better products
• Additional operating knowledge

36
 1.4. Rationales under company’s decision to go global

reduce risks
(3) ……………………..
International operations may reduce operating risk by
• Smoothing sales and profits
• Preventing competitors from gaining advantages

37

Thank you

38
 CHAPTER 2

NATIONAL DIFFERENCES

Outline

2.1. Political environment

2.2. Economic environment
2.3. Legal environment
2.4. Cultural environment

2
 2.1. Political environment

2.1.1. Political system

2.1.2. Political risks

2.1.1. Political system

(1) Definition

System of
…………… in a
nation

4
 2.1.1. Political system
(2) Dimensions
• Political systems can be assessed according to two dimensions
collectivism
• The first is the degree to which they emphasize …………… as
individualism
opposed to ……………..
democratic
• The second is the degree to which they are ………….. or
totalitarian
…………………

• These dimensions are interrelated

5

2.1.1. Political system

COLLECTIVISM INDIVIDUALISM
……………… …………………
A political system An individual
that stresses the
should have
primacy of
collective goals freedom in his own
over individual economic and
goals political pursuits

6
 2.1.1. Political system

1. Core unit = the group 2. Core unit = the individual

3. Individuals must fit into 4. Society promotes the

society well-being of individuals

5. Individuals are 6. Individuals are separate from

fundamentally connected one another

7. Interdependence 8. Independence
COLLECTIVISM INDIVIDUALISM
7

2.1.1. Political system

8
 2.1.1. Political system

Democracy v/s Totalitarianism

2.1.1. Political system

Democracy
A political system in which government
people
• is by the ………………….
elected representatives
• exercised either directly or through …………………………..

10
 2.1.1. Political system

Totalitarianism

One person or political party

absolute
• exercises …………….. control over all spheres of human life
prohibit
• ………………. opposing political parties

11

2.1.1. Political system

• Communist totalitarianism: advocates achieving socialism through
totalitarian dictatorship
• Theocratic totalitarianism: political power is monopolized by a party,
group, or individual that governs according to religious principles
• Tribal totalitarianism: a political party that represents the interests of a
particular tribe monopolizes power
• Right wing totalitarianism: individual economic freedom is allowed but
individual political freedom is restricted in the belief that it could lead to
communism
12
 2.1.2. Political risks

Political risk has been defined as the likelihood that political forces will
cause drastic changes in a country’s business environment that adversely
affect the profit and other goals of a business enterprise

13

2.1.2. Political risks

14
 2.1.2. Political risks
(3) Property seizure Confiscation (tịch thu)
………………..
The forced transfer of assets from a
company to the government
expropriation (sung công) without compensation
………………..
The forced transfer
Nationalization (quốc hữu hóa)
of assets from a ………………..
company to the Government take
government with over an entire
compensation industry
15

2.1.2. Political risks

16
 2.2. Economic environment

2.2.1. Economic system

2.2.2. Economic indicators

17

2.2.1. Economic system

In a ……………………., the government plans

• the goods and services that a country produces
• the quantity in which they are produced
• the prices at which they are sold

18
 2.2.1. Economic system
In the archetypal …………………
• All productive activities are privately owned, as opposed to being
owned by the state
• The goods and services that a country produces are not planned by
anyone
• Production is determined by the interaction of supply and demand and
signaled to producers through the price system
• The role of government in a market economy is to encourage vigorous
free and fair competition between private producers 19

2.2.1. Economic system

In ………………………
• Certain sectors of the economy are left to private ownership and free
market mechanisms
• Other sectors have significant state ownership and government planning

20
 2.2.2. Economic indicators

• GNI is regarded as a yardstick for the economic activity of a country; it

measures the total annual income received by residents of a nation

• GNI per capita

• GDP is the total market value of all output produced within a nation’s
borders

21

2.2.2. Economic indicators

• To account for differences in the cost of living, one can adjust GNI per
capita by purchasing power. Referred to as a purchasing power parity
(PPP) adjustment, it allows a more direct comparison of living standards
in different countries.

22
 Purchasing Power Parity
‐ number of units of a country’s currency required to buy the same amounts
of goods and services in the domestic market that one unit of income would
buy in the other country.
‐ Big Mac Index – Big Mac theory
• If a Big Mac costs €3.38 in countries that use the euro and $3.73 in the
US, then the implied PPP rate is 3.38/3.73 = 0.91.
• If the actual exchange rate for the euro is lower that the implied PPP
rate, the Big Mac theory suggests that the value of the euro might go up
until it reaches the implied PPP rate.
• If the actual exchange rate is higher, then you might expect the euro to
go down until it hits the implied PPP rate.
23

2.2.2. Economic indicators

Table 2.1. Economic Data for Select Countries

24
Source: World Development Indicators Online, 2021
 2.2.2. Economic indicators

• HDI: to measure the quality of human life in different nations

• The Heritage Foundation’s index of economic freedom is based on 10

indicators, including the extent to which the government intervenes in
the economy, trade policy, the degree to which property rights are
protected, foreign invest ment regulations, taxation rules, freedom from
corruption, and labor freedom.

25

2.2.2. Economic indicators

• Bhutan’s Gross National Happiness (GNH) framework is a set of holistic

measures and indicators that assesses and promotes the overall quality of
life and flourishing of individuals and communities in the country.

• It is based on Bhutanese cultural values and Buddhist beliefs regarding

the meaning of happiness and well-being.

• In particular, its assessment of well-being is not restricted to merely

measuring economic output like the gross domestic product (GDP).
26
 Gross National Happiness

27

Implication for managers

‐ Inflation/deflation
‐ Unemployment
‐ Debt
‐ Income distribution
‐ Poverty
‐ Balance of Payments

28
 2.3. Legal environment

2.3.1. Legal system

2.3.2. Legal concerns

29

2.3.1. Legal system

A system for
creating, interpreting, enforcing
…………………….
laws and regulations

30
 2.3.1. Legal system

Based on
precedent,
………………..
tradition,
custom

31

2.3.1. Legal system

Based on a detailed
set of laws
organized into
codes
………………..
CIVIL LAW
32
 2.3.1. Legal system

Law is
based on
religious
teachings
33

2.3.1. Legal system

4
Customary
law

5
Mixed
law

http://www.juriglobe.ca/index-en.html
34
 2.3.1. Legal system

•A ………………..
Common law system relies on tradition, judge-made precedent, and
usage. It respects established case law in resolving disputes.
•A ………………..
Civil law system relies on the systematic codification of
accessible, detailed laws.
Theocratic law
•A ……………. system relies on religious doctrine, precepts, and beliefs.
customary law system reflects the wisdom of daily experience or, more
•A ……………..
formally, enduring spiritual legacies and time-honored philosophical
outlooks.
mixed legal
•A ……………….. system results when a nation uses two or more of the
preceding types.
35

2.3.2. Legal concerns

???

36
 2.3.2. Legal concerns

…………….. concerns that managers face worldwide include

• Starting a business
• Entering and enforcing contracts
• Hiring and firing workers
• Closing a business

37

2.3.2. Legal concerns

……………. concerns that managers face worldwide include

• Product origin and local content
• Legal jurisdiction
• Product safety and liability
• Intellectual property protection

38
 Ranking of Doing Business in Various Countries
Table 3.5 Easy Here, Hard There: Doing Business In Various
Countries

39
Source: The World Bank, 2016

2.4. Cultural environment

2.4.1. Concept

2.4.2. Determinants

40
 2.4.1. Concept
ethnocentric orientation
A. …………..: using our own culture as the standard for judging other
cultures
polycentric orientation
B. ……………: a mindset in which the manager develops a greater
affinity with the country in which he/she does business than the home
country.
geocentric orientation
C. ……………: a global mindset in which the manager is able to
understand a business or market without regard to national boundaries
41

2.4.1. Concept
• Hofstede (1980): Culture as the collective programming of the mind
which distinguishes the members of one human group from another….
culture, in this sense, includes systems of values; and values are among
the building blocks of culture.
• Luthans (1994): Culture is acquired knowledge that people use to
interpret experiences and to generate social behavior. This knowledge
forms value, creates attitudes, and influences behavior.

42
 2.4.1. Concept

• Czinkota: is defined as “an integrated system of learned behavior

patterns that are characteristic of the members of any given
society”. It is a combination of shared values and behaviors of a
group of people. These ideals are reflected in the political system of
a society. Culture is a stable, unchanging element that defines or
identifies a particular people.

43

2.4.1. Concept

Culture is a system of ……………….. that are shared among a

group of people and that when taken together constitute a design for
living

44
 2.4.1. Concept

• Values and norms are the central components of a culture

• ……………. are abstract ideals about what a society believes to be

good, right, and desirable

• …………… are social rules and guidelines that prescribe appropriate

behavior in particular situations

45

2.4.1. Concept

• Values include a society’s attitudes toward such concepts as individual

freedom, democracy, truth, justice, honesty, loyalty, social obligations,
collective responsibility, the role of women, love, sex, marriage, and
so on

• Norms are the social rules that govern people’s actions toward one
another. Norms can be subdivided further into two major categories:
………….. and ……………..
46
 2.4.1. Concept
The price

Individual Freedom Self-Reliance

Equality
Competition
of Opportunity

The American Dream Hard Work

47

2.4.1. Concept

• Folkways are the routine conventions of everyday life. Generally,

folkways are actions of little moral significance. Rather, they are social
conventions concerning things such as the appropri ate dress code in a
particular situation, good social manners, eating with the correct
utensils, neighborly behavior, and the like. Folkways include rituals
and symbolic behavior

48
 2.4.2. Determinants

Attitude to …

49

2.4.2. Determinants
Time orientation

A. B.
…………….. ……………..
culture culture

50
 2.4.1. Concept

• Mores are norms that are seen as central to the functioning of a society
and to its social life

51

2.4.1. Concept

Drinking alcohol in moderation once

a person reaches a legal age is widely
accepted

Consumption of alcohol is viewed as

violating important social mores and
is punishable by imprisonment
52
 2.4.2. Determinants

53

2.4.2. Determinants

(1) …………………….

Spoken Unspoken

54
 2.4.2. Determinants

• ………….. culture

• …………... culture

55

2.4.2. Determinants

1. A culture that
communicates
mostly through
…………… 2. A culture that
messages
communicates
mostly through
………….
messages
56
 2.4.2. Determinants
• Posture • Facial
• Bearing • Expressions
• Body • Eyes
movement • Touch
• Gestures • Voice

57

2.4.2. Determinants
Three gestures that require cautious use

Thumbs-Up

• Germany – “……………… ”
• China – ………………
• Japan – Boss or husband
• America – Sign of approval
• Australia- Sign of approval
• Greece – “Up yours”
• Middle East – …………………
58
 2.4.2. Determinants

OK Sign

• America, England – “……”

• Japan, China – ……….
• France – “You’re a ……..”
• Greece, Spain - ………..

59

2.4.2. Determinants

V
“…………….” Sign

• America – Peace; Victory

• Australia, Italy, Ireland -

Insult

60
 2.4.2. Determinants
Religion
(2) ………………

may be defined as a system of shared beliefs and rituals that are

concerned with the realm of the sacred

61

2.4.2. Determinants
(2) ………………

62
 2.4.2. Determinants

(3) …………………….
education

• Formal education plays a key role in a society

• Formal education is the medium through which individuals learn
many of the language, conceptual, and mathematical skills that are
indispensable in a modern society
• Formal education also supplements the family’s role in socializing the
young into the values and norms of a society
one important aspect of education is its role as a determinant of national competitive advantage

63

2.4.2. Determinants
(3) ……………………
education

• One important aspect of education is its role as a determinant of

national ……………………….
advantage

• It is also an important factor …………………

guiding
the location choices of
international businesses
• The general education level of a country is also a good index of the
kind of products
…………………… that might sell in a country and of the
……………………..
type of promotional material
that should be used 64
 2.4.2. Determinants
(4) ……………………
social structure = basic social organization

The extent
to which Degree of
society is stratification
group or into castes or
individually classes
oriented
65
65

2.4.2. Determinants
Individualism vs. Group

Individual

Individual achievements

66
 2.4.2. Determinants
Individualism vs. Group
Group

• Social status of an individual is

determined by the standing of
the group to which he or she
belongs

67

2.4.2. Determinants
Social stratification

• All societies are stratified on a hierarchical basis of social categories

• Strata are typically defined on the basis of characteristics

+ family background

+ occupation

+ income

68
 2.4.2. Determinants
tính linh hoạt chuyển đổi về mặt xã hội
Social mobility
• The term social mobility refers to the extent to which individuals can
……………….
move out of
the strata into which they are born.
• Social mobility varies significantly from society to society.

69

2.4.2. Determinants
Social mobility
caste
• The most rigid system of stratification is a …………….. system.
• A ………………
caste system is a closed system of stratification in which
social position is determined by the family into which a per son is born,
and change in that position is usually not possible during an individual’s
lifetime.
class
• A ……………… system is a less rigid form of social stratification in
which social mobility is possible. 70
 Cultural Collision

•IB involves people from different national cultures, which affects every
business function - managing a workforce, marketing and transporting
output, purchasing supplies, dealing with regulators, and securing funds.
•Sometimes issues can happen because cultures may have different
values. When contact among divergent cultures creates problems, the
situation is known as cultural collision. Cultural collision may cause:
• Ineffective business practices
• Personal distress
71

Cultural Collision

• Deal-focus (DF) culture vs Relationship-focus (RF) culture

•An example of cultural collision: …………….

DF culture, where people
are primarily task-oriented; whereas ……………..
RF
culture is based
more on getting to know potential business partners, and traditionally
move slower.

72
 Cultural Collision

• Deal-focus (DF) culture vs Relationship-focus (RF) culture

DF
•………… people typically view …………
RF
people as time-wasters,
whereas …………
RF
people view …………….
DF people as offensively
blunt.

73

Prof Geert Hofstede

• Conducted perhaps the most comprehensive study of how values in the workplace
are influence by culture
• Analyzed a large data base of employee values scores collectd by IBM (HERMES)
+ 1967 – 1973
+ more than 50 countries
• Developed a model that identifies four primary Dimensions to assist in
differentiating cultures:
+ Power distance
+ Uncertainty avoidance
+ Individualism
+ Masculinity
+ Long-term orientation (added later)
74
 Prof Geert Hofstede

75

Power distance

The extent to which the less

powerful members of
institutions and organizations
within a country expect and
accept that power is
distributed unequally

76
 Low power distance High power distance
• Minimize the inequalities among people • Inequalities among people are both expected
and desired
• Interdependence between less and more
powerful people • Less powerful people should be depended on
the more powerful
• Flat hierarchy pyramid
• Slope hierarchy pyramid
• Power decentralization
• Power centralization
• Narrow salary range
• Wide salary range
• Subordinated expect to be consulted
• Subordinated expect to be told what to do
• The ideal boss is a resourceful democrat
• The ideal boss is a benevolent autocrat or
• Privileges and status are disapproved good father
• Privileges and status are both expected and
popular

77

Viet Nam
Malaysia
High Arab Countries
Mexico
Orientation towards authority

India
France
Italy
Japan
Spain
Argentina
US
Germany
UK
Denmark
Low Israel
Austria

78
Example
• A company from Austria (low power distance) is considering entering the Vietnam (high power distance)
market.

Power Distance Index

100
81
80
60
40
20 11
0
Austria Viet Nam

Communication tips for the Austrian manager

• Give clear and explicit directions to those working with him
• Deadlines should be highlighted and stressed
• Do not expect subordinates to take initiative
• Be more authoritarian in his management style
• Show respect and deference to those higher up the ladder 79

Uncertainty avoidance

The extent to which

members of a society
feel threaten by
uncertain or unknown
situations

80
 Weak uncertainty avoidance Strong uncertainty avoidance
• Uncertainty: normal feature of life • Uncertainty: continuous threat that
and each day is accepted as it comes must be fought
• Low stress – subjective feeling of • High stress – subjective feeling of
well-being anxiety
• Aggression and emotions must not be • Aggression and emotions may be
shown shown at proper times
• Comfortable in ambiguous situations • Fear of ambiguous situations and of
and with unfamiliar risk unfamiliar risk
• There should not be more rules than • Emotional need for rules, even if they
necessary never work
• Precision and punctuality have to be • Precision and punctuality come
learned naturally
• Tolerance to innovation • Resistance to innovation
• Motivation by achievement • Motivation by security 81

VietNam
Greece
High Japan
France
Korea
Desire for stability

Arab Countries
Germany
Australia
Canada
US
UK
India
Denmark
Low Singapore

82
Example
 A company from France (high uncertainty avoidance) is considering investing in Denmark (low
uncertainty avoidance)
100 86

Uncertainty Avoidance Index

80
60
40 23
20
0
France Denmark

Communication tips for the French manager

• Try to be more flexible or open in his approach to new ideas than he may be used to
• Be prepared to push through agreed plans quickly as they would be expected to be
realized as soon as possible
• Allow employees the autonomy and space to execute their tasks on their own; only
guidelines and resources will be expected of him
83

Individualism

The tendency of people

to look after themselves
and their immediate
family and neglect the
needs of society

84
 Low individualism High individualism
• Individuals learn to think in terms of • Individuals learn to think in terms of “I”
“we”
• Diplomas increase economic worth and/or
• Diplomas provide entry to higher self- respect
status groups
• Relationship employer-employee is a
• Relationship employer- employee is contract based on mutual advantage
perceived in moral terms, like a family
• Hiring and promotion are supposed to be
• Hiring and promotion decisions take based on skills and rules only
employees’ ingroup into account
• Management is management of
• Management is management of groups individuals
• Relationship prevails over task • Task prevails over relationship

85

High Australia
US
UK
Canada
Individual level

France
Germany
Spain
Japan
Mexico
Italy
Korea
Low Singapore

86
Example
 A company from UK (high individualism) is considering investing in Mexico (low individualism)
100 96

Individualism Index
80
60
40
23
20
0
UK Mexico

Communication tips for the UK manager:

• Note that individuals have a strong sense of responsibility for their family
• Remember that praise should be directed to a team rather than individuals
• Understand that rewards depend upon seniority and experience
• Be aware that the decision making process will be rather slow, as many members across the
hierarchy need to be consulted 87

Masculinity

The tendency within a

society to emphasize
traditional gender roles

88
 Low masculinity High masculinity

• Dominant values: caring for others and • Dominant values: material success
preservation and progress
• People and warm relationships are • Money and things are important
important
• Sympathy for the strong
• Sympathy for the weak
• In family, fathers deal with facts and
• In family, both fathers and mothers deal mothers with feelings
with facts and feelings
• Stress on equity, competition among
• Stress on equality, solidarity , and quality colleagues and performance
of work life
• Managers are expected to be decisive
• Managers use intuition and strive for and assertive
consensus
• Resolution of conflicts by fighting
• Resolution of conflicts by compromise them out
and negotiation
89
Masculinity level

90
Example
A company from Denmark (low masculinity) is considering investing in Mexico (high
masculinity)

Communication tips for the Danish manager

• Be aware that people will discuss business anytime, even at social gatherings
• Avoid asking personal questions in business situations
• Take into account that people are not interested in developing closer friendships
• Communicate directly, unemotionally and concisely
• In order to assess others use professional identity, not family or contacts
91

Long- term orientation

A basic orientation towards
time that values patience

92
 Short- term orientation Long-term orientation
• Respect for traditions • Adaptation of traditions to amodern
• Little money available forinvestment context
• Quick results expected • Funds available for investment
• Respect for social and statusobligations • Perseverance towards slow results
regardless of cost • Respect for social and statusobligations
• Concern with possessing the Truth within limits
• Concern with respecting thedemands of
Virtue

93

94
 CHAPTER 3

INTERNATIONAL BUSINESS STRATEGIES

Outline

3.1. Introduction about strategy

3.2. The role of strategy to the firm

3.3. Competitive pressures in the choice of international business

strategy

3.4. International business strategies

2
 3.1. Introduction about strategy

Alfred D. Chandler: Strategy can be defined as the determination of the

basic long-term goals and objectives of an enterprise, and the adoption
of courses of action and the allocation of resources necessary for
carrying out those goals.

3.1. Introduction about strategy

• Johnson and Scholes: Strategy is the direction and scope of an

organization over the long-term: which achieves advantage for the
organization through its configuration of resources within a
challenging environment, to meet the needs of markets and to
fulfil stakeholder expectations.

4
 3.1. Introduction about strategy

• Andrews: Strategy as the pattern of objectives, purposes, or goals

and plans for achieving these goals.

• Ansoff: Strategy as the common thread among a firm’s activities.

3.1. Introduction about strategy

• Mintzberg: Strategy is a pattern in a stream of actions over times.

6
 3.1. Introduction about strategy
Strategy: …………..
actions
managers take
to attain ………….
goals
of company

………….. for owners, shareholders

maximise firm's value

increase increase
………………
profitability
………………..
profit growth
7

3.1. Introduction about strategy

• Profitability: the rate of return the firm makes on its invested capital
• Profit growth: the percentage increase in net profits over time
• Expanding internationally can boost profitability and profit growth

8
 3.1. Introduction about strategy
Figure 3.1. Determinants of Enterprise Value

How is value created?

• The firm’s value creation is the difference between V and C
• A firm has high profits when it creates more value for its customers
and does so at a lower cost
• Profits can be increased by
+ Using a ………………..
low cost strategy
differentiation
+ Using a ………………… strategy
• To maximize long run return on invested capital, firms pick a viable
position on the efficiency frontier, configure internal operations to
support that position, have the right organization structure in place
to execute the strategy
10
 3.1. Introduction about strategy
Figure 3.2. Value creation

11

How are a firm’s operations configured?

value chain
A company’s operations can be considered as a …………… including
a series of distinct value creation activities

12
 The firm as a value chain
Figure 3.3. The Value Chain

13

3.2. The role of strategy to the firm

Strategy helps managers

• assess the company’s present situation
• identify the direction it should go
• determine how it will get there

14
3.3. Competitive pressures in the choice of international business strategy

• Pressures for …………………….

cost reductions

• Pressures to be ………………….
locally responsive

15

Pressures for Cost reductions

• Industries producing commodity type products (universal needs) where

……………….
price - main competitive weapon

• when major competitors in ……………..

low-cost locations

• where there is persistent excess capacity

• where consumers - powerful and low switching costs

16
 Pressures for Local responsiveness

17

3.4. International business strategies

High
cost reductions

B D
Pressures for

A C
Low High
Pressures for
local responsiveness

18
18
 3.4. International business strategies

core competence

skills within the firm that competitors can not easily match or imitate

20
 Location Economies

The economies that arise from performing a value creation activity in the

……………….
optimal
location for that activity, wherever in the world

that might be (transportation costs and trade barriers permitting)

21

Experience effects
Figure 4.4. The Experience Curve

experience curve
…………………
Systematic reductions in
production costs that have
been observed to occur over
the life of a product

22
 Experience effects

• Learning effects: cost savings that come from learning by doing

• Economies of scale: the reductions in unit cost achieved by producing a

large volume of a product

23

Economies of scale
large
• Reductions in unit cost achieved by producing a ………… volume of a
product

Sources of economies of scale include:

• spreading fixed costs over a large volume

• utilizing production facilities more intensively

• increasing bargaining power with suppliers

24
 (1) International Strategy
first
• Produced for domestic market ……………..

• Then selling internationally with only minimal local customization

This strategy makes sense when

low
• …………… cost pressures
low
• …………… pressures for local responsiveness

An international strategy can be very profitable if a company has a

distinctive competency
valuable ………………… that indigenous competitors lack 25

(2) Global Strategy

• Reaping the ……………

cost reductions that come from economies of scale,
learning effects, and location economies

This strategy makes sense when:

strong
• there are …………….. pressures for cost reductions
minimal
• demands for local responsiveness are ………………

Intel
26
 (3) Localization Strategy
customizing the firm’s goods or services to provide a good match to
• ……………….
tastes and preferences in different national markets

This strategy makes sense when:

substantial differences across nations with regard to
• there are ………………..
consumer tastes and preferences
not too intense
• where cost pressures are ………………..

27

(4) Transnational Strategy

• Achieve low costs through location economies, economies of scale, and

learning effects

• Differentiate the product offering

- • Foster a multidirectional flow of skills

This strategy makes sense when:

intense
• cost pressures are …………………
intense
• pressures for local responsiveness are …………….
28
 (4) Transnational Strategy

29

(4) Transnational Strategy

Caterpillar - heavy equipment manufacturer

• Achieves global efficiencies by designing its products to use many
identical components and centralizing manufacturing of components in
a few large-scale facilities
• Assembly plants located in each of CAT’s major markets add certain
product features tailored to meet local needs

30
 The Evolution of Strategy

• An international strategy may not be viable in the long term, and to

transnational
survive, firms need to shift toward a ……………….. strategy or a
global
……………….. strategy in advance of competitors
• Localization may give a firm a competitive edge, but if the firm is
simultaneously facing aggressive competitors, the firm will also have
to reduce its cost structures, and and the only way to do that may be to
transnational
shift toward a ………………… strategy
31

The Evolution of Strategy

High
Pressures for cost

………….. ………………
strategy
reductions

strategy

International Multidomestic
strategy strategy
Low High
Pressures for local responsiveness

32
 CHAPTER 4

ORGANIZATIONAL CULTURES
AND STRUCTURE

Outline

4.1. Organizational Architecture

4.2. Organizational Structure

4.3. Organizational Culture

2
 4.1. Organizational Architecture

Organizational architecture refers to the totality of a firm’s

organization, including

formal
…………………
organizational ………………….
………………….
…………….

4.1. Organizational Architecture

(1) …………………..
• The formal division of the organization into subunits such as product
divisions, national operations, and functions
• The location of decision making responsibilities within that structure
The establishment of integrating mechanisms to coordinate the activities
of subunits, including cross-functional and pan-regional teams

4
 4.1. Organizational Architecture

(2) ………………. refers to the metrics used to measure the performance

of subunits and to make judgments about how well managers are running
those subunits.

4.1. Organizational Architecture

(3) ……………… are the devices used to reward appropriate managerial

behavior. Incentives are very closely tied to performance metrics.

6
 4.1. Organizational Architecture

(4) ……………… are the manner in which decisions are made and work is
performed within the organization.

4.1. Organizational Architecture

(5) …………………. refers to the norms and value systems that are shared
among the employees of an organization

8
 4.1. Organizational Architecture

(6) ……………..: not only the employees of the organization, but also the
strategy used to recruit, compensate, and retain those individuals and the
type of people that they are in terms of their skills, values, and
orientation

4.2. Organizational Structure

Three dimensions:
• ………………. differentiation: the location of decision-making
responsibilities within a structure
• ………………. differentiation: the formal division of the organization into
subunits
• ………………. mechanisms: the mechanisms for coordinating subunits

10
 4.2.1. Vertical differentiation

A firm’s vertical differentiation determines …………… in its

hierarchy the decision-making power is concentrated

11

(1) Centralized decision-making

• Facilitate coordination and integration of operations

• Ensure that decisions are consistent with organizational objectives
• Give top-level managers the means to bring about needed major
organizational changes
• Avoid the duplication of activities
 (2) Decentralized decision-making

• Relieves the burden of centralized decision-making lower-level

managers
• Has been shown to motivate individuals
• Permits greater flexibility
• Can result in better decisions
• Can increase control

13

4.2.2. Horizontal differentiation

• Horizontal differentiation is concerned with ………… the firm

decides to divide itself into subunits.
• The decision is normally made on the basis of function, type of
business, or geographic area

14
 4.2.2. Horizontal differentiation

Most firms begin with no formal structure, but as they grow, split into
functions reflecting the firm’s value creation activities – ……………
structure
• Functions are coordinated and controlled by top management
• Decision making is centralized
• Product line diversification requires further horizontal
differentiation
15

4.2.2. Horizontal differentiation

Figure 4.2. A functional structure

Source: Hill, 2023

16
 4.2.2. Horizontal differentiation

Firms may switch to a ……………… structure

• Each division is responsible for a distinct product line
• Headquarters retains control for the overall strategic direction of
the firm and for the financial control of each division

17

4.2.2. Horizontal differentiation

Figure 4.3. A product divisional structure

Source: Hill, 2023 18

 4.2.2. Horizontal differentiation
What happens when firms expand globally?
When firms expand internationally, they often group all of their
international activities into an ……………………….
Over time, manufacturing may shift to foreign markets
+ firms with a functional structure at home would replicate the functional
structure in the foreign market
+ firms with a divisional structure would replicate the divisional structure
in the foreign market
In either case, there is the potential for conflict and coordination problems
between domestic and foreign operations
19

4.2.2. Horizontal differentiation

Figure 4.4. One Company’s International Division Structure

Source: Hill, 2023 20

 4.2.2. Horizontal differentiation

Firms that continue to expand will move to either a

……………………….. division structure – adopted by firms that are
reasonably diversified
• Allows for worldwide coordination of value creation activities of each
product division
• Helps realize location and experience curve economies
• Facililates the transfer of core competencies
• Does not allow for local responsiveness

21

4.2. Organizational Structure

Figure 4.5. A Worldwide Product Divisional
Structure

Source: Hill, 2023 22

 4.2.2. Horizontal differentiation

……………………… structure – favored by firms with low degree of

diversification and a domestic structure based on function
• Divides the world into autonomous geographic areas
• Decentralizes operational authority
• Facilitates local responsiveness
• Can result in a fragmentation of the organization
• Is consistent with a localization strategy

23

4.2.2. Horizontal differentiation

Figure 4.6. A Worldwide Area Structure

Source: Hill, 2023

24
 4.2.2. Horizontal differentiation
Figure 4.7. The international structural stages model

Source: Hill, 2023 25

4.2.2. Horizontal differentiation

The ………………….. structure – tries to minimize the limitations of the
worldwide area structure and the worldwide product divisional structure
• Allows for differentiation along 2 dimensions: product division and
geographic area
• Has dual decision making – product division and geographic area
have equal responsibility for operating decisions
• Can be bureaucratic and slow
• Can results in conflict between areas and product divisions
• Can result in finger-pointing between divisions when something goes
wrong 26
 4.2.2. Horizontal differentiation
Figure 4.8. A Global Matrix Structure

Source: Hill, 2023 27

4.2.3. Integrating mechanisms

Regardless of the type of structure, firms need a …………… to integrate

subunits
• The need for coordination is lowest in firms pursuing a localization
strategy and highest in transnational firms
• Coordination can be complicated by differences in subunis orientation
and goals

28
 4.2.3. Integrating mechanisms

• Simplest formal integrating mechanism is direct contact between

subunit managers, followed by liaisons
• Temporary or permanent teams composed of individuals from each
subunit is the next level of formal integration
• The matrix structure allows for all roles to be integrating roles

29

4.2.3. Integrating mechanisms

Figure 4.9. Formal Integrating Mechanisms

Source: Hill, 2023 30

 4.2. Organizational Structure
Many firms use informal integrating mechanisms
A knowledge network - a network for transmitting information within an
organization that is based not on formal organizational structure, but on
informal contacts between managers within an enterprise and on
distributed information systems
+ a nonbureaucratic conduit for knowledge flows within a multinational
enterprise
+ must embrace as many managers as possible and managers must
adhere to a common set of norms and values that override differing
subunit orientations 31

4.2. Organizational Structure

Figure 4.10. A Simple Management Network

Source: Hill, 2023 32

 4.3. Organizational Culture

Organizational culture – the values and norms that employees are

encouraged to follow
Evolves from
+ founders and important leaders
+ national social culture
+ the history of the enterprise
+ decisions that resulted in high performance

33

4.3. Organizational Culture

Organizational culture can be maintained through

• Hiring and promotional practices
• Reward strategies
• Socialization processes
• Communication strategies
Organizational culture tends to change very slowly

34
 4.3. Organizational Culture

• Managers in companies with a strong culture share a relatively

consistent set of values and norms that have a clear impact on the way
work is performed
• A strong culture
+ Is not always good
+ May not lead to high performance
+ Could be beneficial at one point, but not at another
• Companies with …………… cultures have the highest performance

35

Strategy and architecture

Firms pursuing a ……………. strategy focus on local responsiveness

• They do not have a high need for integrating mechanisms
• Performance ambiguity and the cost of control tend to be low
• The worldwide area structure is common

36
 Strategy and architecture

Firms pursuing an …………… strategy attempt to create value by

transferring core competencies from home to foreign subsidiaries.
• The need for control is moderate
• The need for integrating mechanisms is moderate
• Performance ambiguity is relatively low and so is the cost of control
• The worldwide product division structure is common

37

Strategy and architecture

Firms pursuing a ………………… strategy focus on the realization of

location and experience curve economies
• Headquarters typically maintains control over most decisions
• the need for integrating mechanisms is high
• Strong organizational cultures are encouraged
• The worldwide product division is common

38
 Strategy and architecture

Firms pursuing a …………….. strategy focus on the simultaneous attainment

of location and experience curve economies, local responsiveness, and global
learning
• Some decisions are centralized and others are decentralized
• The need for coordination and cost of control is high
• An array of formal and informal integrating mechanism are used
• A strong culture is encouraged
• Matrix structures are common
39

Environment, strategy, architecture, and performance

For a firm to succeed

• The firm’s strategy must be consistent with the environment in which the
firm operates
• The firm’s organizational structure must be consistent with its strategy
• Firms need to change their architecture to reflect changes in the
environment in which they are operating and the strategy they are pursuing

40
 Environment, strategy, architecture, and performance

The basic principles for successful organizational change can be summarized as

follows:
• unfreeze the organization through shock therapy (require taking bold actions
like plant closures or dramatic structural reorganizations)
• move the organization to a new state through proactive change in the
architecture (requires a substantial and quick change in organizational
architecture so that it matches the desired new strategic posture)
• refreeze the organization in its new state (requires that employees be
socialized into the new way of doing things)
41

How can firms implement organizational change?

Organizations can be difficult to change because of

• The existing distribution of power and influence
• The current culture
• Managers’ preconceptions about the appropriate business model or
paradigm
• Institutional constraints

42
 CHAPTER 5

ENTRY MODES

Outline

5.1. Basic entry decision

5.2. Entry modes

5.3. Strategic Alliances

5.4. Global value chain

2
 5.1. Basic entry decision

5.1. Basic entry decision

(1) Which foreign markets The choice of foreign market will depend on
long-run profit potential
their …………………..

favourable market
(1) …………………. (2) ……………………….
less desirable markets
• Are politically stable
• Have free market systems • Are politically unstable
• Have relatively low • Have mixed or command
inflation rates economies
• Have low private sector • Have excessive levels of
debt borrowing
4
 5.1. Basic entry decision
(2) Timing of Entry

early late
…………. ………
entrant entrant
Entry is early when the Entry is late when the company
firm enters a foreign after
enters the market ……………
market …………..
before other the other have already
foreign firms established themselves in the
market 5

First-mover advantage

• the ability to preempt rivals and capture demand by establishing a

strong brand name

• the ability to build sales volume in that country and ride down the
experience curve ahead of rivals, giving the early entrant a cost
advantage over later entrants

• the ability of early entrants to create switching costs that tie

customers into their products or services
6
 Pioneering costs arise when the business system in a foreign country
• ……………………
is so different from that in a firm’s home market that the enterprise has to
devote considerable effort, time, and expense to learning the rules of the
game.
• Pioneering costs include
+ costs of business failure if the firm, due to its ignorance of the foreign
environment, makes major mistakes
+ costs of promoting and establishing a product offering, including the
costs of educating customers
7

5.1. Basic entry decision

(3) Scale of Entry

………
large
………
small

scale scale
8
 5.1. Basic entry decision

right
There are no “…………..” decisions when deciding
which markets to enter, and the timing and scale of entry,
just decisions that are associated with different levels of

…………………..
risk and rewward

5.2. Entry modes

10
 (1) Exporting

• A common ………………
first step in the international expansion
process for many manufacturing firms
another
• Later, firms may switch to ……………… mode to serve the foreign
market

11

(1) Exporting

avoid
• ……………… the often substantial costs of establishing
manufacturing operations in the host country
achieve
• Help a firm …………… experience curve and location
economies

12
 (1) Exporting

• There maybe lower-cost manufacturing locations

Transportation
• …………….. costs can make exporting uneconomical
Trade
• …………… barriers can make exporting uneconomical
• Agents in a foreign country may not act in exporter’s best
interest

13

(2) Turnkey project

• The contractor handles every detail of the project for a foreign client,
including the training of operating personnel

• At completion of the contract, the foreign client is handed the “…………"

to a plant that is ready for full operation
 (2) Turnkey project

• There are a way of earning economic returns from the

know-how required to assemble and run a
technologically complex process
• Less risky than conventional FDI

(2) Turnkey project

• No long-term interest
• May create a new and direct competitor
• If the firm's process technology is a source of
competitive advantage, then selling it through a
turnkey project is also selling competitive advantage
to potential and/or actual competitors
 (3) Licensing

LICENSOR grants the rights to intangible property to the

• A …………….
LICENSEE for a specified period, and in return, the licensor
…………….
receives a royalty fee from the licensee

(3) Licensing
costs and risks
• Reduces ……………. of establishing operations
overseas
investment barriers
• Overcomes restrictive …………….
without
• Captitalize on market opportunities …………….
developing those applications itself

14-10
18
 (3) Licensing

Lack of control over manufacturing, marketing, and

• ………………..
strategy that is required for realizing experience curve
and location economies

• ……………..
limits a firm’s ability to coordinate strategic
moves
lost
• Proprietary (or intangible) assets could be……………

19

(4) Franchising
licensing
• A specialized form of …………………..

• Franchisor

+ Sells IPs to the franchisee

+ Insists that the franchisee agree to abide by strict rules as to how it

does business

20
 (4) Franchising

costs and risks

• Avoid ……………. of opening up a foreign market
quickly
• …………….. build a global presence

21

(4) Franchising
Inhibit
• ……………. the firm's ability to take profits out of one
country to support competitive attacks in another

• ……………
Quality control

22
 (5) Joint venture

Joint ventures
…………….. with a host country firm – a firm that is joinly owned
by two or more otherwise independent firms

23 23

(5) Joint venture

knowledge
utilize• Local partner’s ………………
share costs and risks
• ……………… of opening a foreign market
only
• ………….. feasible entry mode

24
 (5) Joint venture

• Giving control of its technology to its ……………

partner

tight
• May not have the ……………… control over
subsidiaries need to realize experience curve or location
economies
conflicts
• Shared ownership can lead to ……………. for control
if goals and objectives differ or change over time

25

(6) Wholly Owned Subsidiary

100%
Wholly owned subsidiary – the firm owns ……….. percent of the
stock

26
 (6) Wholly Owned Subsidiary

A B C The
consolidation or
combination
Merger of one firm with
another
Acquisition

A B A The purchase of
one firm by
another so that
ownership
transfers

27

(6) Wholly Owned Subsidiary

risk
• Reduce the ………….. of losing control
tight
• ……………. control over operations in different
countries

• ………..
realize location and experience curve economies

28
 (6) Wholly Owned Subsidiary

FULL COST AND RISK OF SETTING UP OVERSEAS OPERATION

……………….

29

5.3. Strategic Alliances

Strategic alliances refer to ………………

cooperative agreements between potential
or actual competitors.

30
 5.3. Strategic Alliances

• Facilitate entry into a foreign market

• Allow firms to share the fixed costs (and associated risks) of
developing new products or processes
• A way to bring together complementary skills and assets that
neither company could easily develop on its own
• Help the firm establish technological standards for the
industry that will benefit the firm
31

5.3. Strategic Alliances

• Give competitors a low-cost route to new technology

and markets

32
 5.3. Strategic Alliances

• The success of an alliance seems to be a function of three main

factors: partner selection, alliance structure, and the manner in which
the alliance is managed.

33

(1) Partner selection

A good partner
• helps the firm achieve its strategic goals and have capabilities that the
firm lacks and that it values
• shares the firm’s vision for the purpose of the alliance
• will not exploit the alliance for its own ends

34
 (2) Alliance structure

The alliance should

• make it difficult to transfer technology not meant to be transferred
• have contractual safeguards to guard against the risk of opportunism
by a partner
• allow for skills and technologies swaps with equitable gains
• minimize the risk of opportunism by an alliance partner

35

(3) The manner in which the alliance is managed

Requires
• interpersonal relationships between the managers
• learning from alliance partners

36
 5.4. Global value chain
• A GVC breaks up the production process across countries, with firms
specializing in a specific task and stages of production rather than
producing the whole product.
• This is possible due to the fragmentation of the production process
because of new technology and also a significant reduction in the
transport cost.
• This allows economies of scale to happen in the production process.
• Apart from fragmentation, GVC also leads to increase in technology
and knowledge transfer as well as capital.
37

5.4. Global value chain

38
 CHAPTER 6

BUSINESS ETHICS
AND
SOCIAL RESPONSIBILITY

Outline

6.1. Ethical issues in international business

6.2. The roots of unethical behavior

6.3. Implementing ethical and social responsibilities in MNEs

2
 6.1. Ethical issues in international business
Ethics
……………: accepted principles of right or wrong that govern the
conduct of a person, the members of a profession, or the actions of an
organization
Business ethics
…………: accepted principles of right or wrong governing the conduct
of business people

6.1. Ethical issues in international business

The most common ethical issues in business involve

4
 6.1. Ethical issues in international business

(1) Employment Practices

• What practices should be used when work conditions are inferior in

the host nation?

6.1. Ethical issues in international business

(2) Human Rights

• What is the responsibility of a foreign multinational when operating in

a country where basic human rights are not respected?

6
6.1. Ethical issues in international business

6.1. Ethical issues in international business

8
 6.1. Ethical issues in international business

(3) Environmental Pollution

• Should a multinational feel free to pollute in a developing nation if

doing so does not violate laws?

• ………………………….

6.1. Ethical issues in international business

(4) Corruption
• Is it ethical to make payments to government officials to secure
business?
+ Foreign Corrupt Practices Act
+ Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions
Facilitating payments/speed money excluded
10
 6.1. Ethical issues in international business

(4) Corruption
• Some argue that paying bribes might be the price of doing a greater
good
+ Where preexisting political structures distort or limit the workings
of the market mechanism, corruption - marketeering, smuggling, and
side payments to government bureaucrats to “speed up” approval for
business investments - may actually enhance welfare
• Others argue that corruption reduces the returns on business
investment and leads to low economic growth
11

6.1. Ethical issues in international business

12
 6.1. Ethical issues in international business

• Ethical dilemmas
• Managers often face situations where the appropriate course of action
is not clear
• Ethical dilemmas: situations in which none of the available
alternatives seems ethically acceptable
• Exist because real world decisions are complex, difficult to frame, and
involve various consequences that are difficult to quantify
13

6.2. The roots of unethical behavior

(1) Personal Ethics
• Business ethics reflect personal ethics
• Expatriates may face pressure to violate their personal ethics
+ They are away from their ordinary social context and supporting
culture
+ They are psychologically and geographically distant from the
parent company

14
 6.2. The roots of unethical behavior
(2) Decision-Making Processes
• Business people may behave unethically because they fail to ask the
relevant questions
• Decisions made based on economic logic

15

6.2. The roots of unethical behavior

(3) Organizational Culture

• Unethical behavior may exist in firms with an organizational culture
that does not emphasize business ethics
• Values and norms shape the culture of a firm, and that culture
influences decision making

16
 6.2. The roots of unethical behavior

(4) Unrealistic Performance Goals

• Pressure from parent company to meet goals that are unrealistic and
can only be attained by acting in an unethical manner

17

6.2. The roots of unethical behavior

(5) Leadership

• Employees often take cues from business leaders

• Actions speak louder than words

18
 6.2. The roots of unethical behavior

(6) Societal Culture

• Ethical policies differ by country

• MNEs located in countries where individualism and uncertainty

avoidance are strong are more likely to emphasize ethical behavior

• MNEs located in countries with high masculinity and high power

distance are less likely to promote ethical behavior

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6.3. Implementing ethical and social responsibilities in MNEs

(1) Hiring and Promotion

• Businesses should strive to identify and hire people with a strong sense
of personal ethics
• Prospective employees should find out as much as they can about the
ethical climate in an organization

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 6.3. Implementing ethical and social responsibilities in MNEs

(2) Organizational Culture and Leadership

• Articulate values that emphasize ethical behavior, repeatedly emphasize
their importance, provide incentives and rewards
Code of ethics: which is a formal statement of the ethical priorities a
business adheres to

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6.3. Implementing ethical and social responsibilities in MNEs

(3) Decision-Making Processes

If a manager can answer “yes” to the following questions, the decision is
probably ethically acceptable
• Does my decision fall within the accepted values of standards that
typically apply in the organizational environment?
• Am I willing to see the decision communicated to all stakeholders
affected by it?
• Would the people with whom I have significant personal relationships
approve of the decision?
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 6.3. Implementing ethical and social responsibilities in MNEs

(3) Decision-Making Processes

• A five-step process can also help managers think through ethical issues
• How would a decision affect stakeholders?
+ Internal stakeholders - people who work for or who own the business
such as employees, the board of directors, and stockholders
+ External stakeholders - the individuals or groups who have some claim
on a firm such as customers, suppliers, and unions
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6.3. Implementing ethical and social responsibilities in MNEs

(4) Decision-Making Processes

• Determine if a proposed decision violates the fundamental rights of any
stakeholders
• Establish moral intent
• Engage in ethical behavior
• Audit decisions - reviewing them to make sure that they were consistent
with ethical principles
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 6.3. Implementing ethical and social responsibilities in MNEs

(5) Ethics Officers

• To encourage ethical behavior in a business, a number of firms now
have ethics officers
• Ethics officers ensure
+ Employees are trained to be ethically aware
+ Ethical considerations enter decision-making
+ The company’s code of ethics is followed
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6.3. Implementing ethical and social responsibilities in MNEs

(6) Moral courage

• Managers must be able to walk away from decisions that are profitable
but unethical

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 6.3. Implementing ethical and social responsibilities in MNEs

Corporate social responsibility

• There should be a presumption in favor

of decisions that have both good
economic and good social
consequences

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6.3. Implementing ethical and social responsibilities in MNEs

• Sustainability
• Sustainable strategies – strategies that not only help the MNC make
good profits, but that also do so without harming the environment while
simultaneously ensuring that the company operates in a socially
responsible manner with regard to its stakeholders
• Sustainable strategies can be good for shareholders, the environment,
local communities, employees, and customers
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 6.3. Implementing ethical and social responsibilities in MNEs

UNCTAD Sustainable Development Goals

• United Nations Conference on Trade and Development established in
1964
• Ensuring countries’ domestic policies and international actions are
mutually supportive to sustainable development
• September 2015: many countries adopted 17 “sustainable development
goals”
• An opportunity to bring together countries, companies, and societies of
all levels in an effort to improve lives everywhere
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5.3. Implementing ethical and social responsibilities in MNEs

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