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MNO chapters 8 & 10

multinational corporations
corporations that own businesses in 2 or more countries
direct foreign investment
a method of investment in which a company builds a new business or buys an existing one in a foreign country
US companies largest foreign investments
UK, Netherlands, Canada
trade barriers
government imposed regulations that increase the cost and restrict the numbers of produced goods
the use of trade barriers to protect local companies and their workers from foreign competition
2 kinds of trade barriers
tariff, nontariff
direct tax on imported goods; increase the cost of imported goods relative to that of domestic goods
nontariff barriers
nontax methods of increasing the cost or reducing the volume of imported goods
nontariff barrier examples (5)
quotas, voluntary export restraints, government import standards, government subsidiaries, customs valuation/classification
limit on the number or volume of imported products
voluntary export restraints
voluntarily imposed limits on the number or volume of products exported to a particular country; exporting country imposes the restraints
government import standards
a standard ostensibly established to protect the health and safety of citizens, but is actually often used to restrict imports
government subsidiaries
loans, grants, tax deferments given to domestic companies to protect them from foreign competition
customs valuation/classification
a classification assigned to imported products by government officials that affects the size of the tariff and the imposition of import quotas
2 developments that have reduced trade barriers
GATT/WTO; regional trade zones
general agreement on tariffs and trade; worldwide trade agreement that reduced and eliminated tariffs, limited government subsidiaries, and established protections for intellectual property
world trade organization; successor to GATT; only international organization dealing with global rules of trade between nations; main function is to ensure that trade flows smoothly, predictably, and freely
regional trade zones
areas in which tariff and non tariff barriers are reduced or eliminated
maastricht treaty of europe
regional trade agreement between most european countries
north america free trade agreement
NAFTA; regional trade agreement between US, Canada and Mexico
agreement between Costa Rica, DR, El Salvador, guatemala, honduras, nicaragua, and the US
south america; aims to create a united South America by permitting free movement between nations, creating common infrastructure and establishing region as a single market
2 largest and most important trading groups in Asia
free trade agreements importance
they increase choices, competition and purchase power and decrease what people pay for food, clothing, necessities and luxuries
free trade agreements characteristics (3)
create new business opportunities, intensify competition, address that competition is manager’s job
global consistency
when a multinational company has offices, manufacturing plants, and distribution facilities in different countries and runs them all using the same rules, guidelines, policies, and procedures
advantage of global consistency
simplifies decisions
disadvantage of global consistency
can result in using procedures poorly suited to particular countries’ markets and cultures and employees
local adaptation
modifying the rules, guidelines, policies and procedures to adapt to differences in foreign customers, governments and regulatory agents
advantage of local adaptation
preferred by local managers who are charged with making the international business successful in their country
disadvantage of local adaptation
runs the risk of losing cost effectiveness and productivity that result from using standardized rules and procedures throughout the world if relied on too much
phase model of globalization
transition from domestic to global company
phases model of globalization steps (5)
exporting, cooperative contracts, strategic alliances, wholly owned affiliates, global new ventures
when companies produce products in their home countries and sell them to customers in foreign countries
advantages of exporting
makes company less dependent on sale in home market and provides a greater degree of control over research, design and production designs
disadvantages of exporting
exported goods are subject to tariff and non tariff barriers that could increase their final cost to customers and transportation costs
cooperative contracts
agreement in which a foreign business owner pays a company a fee for the right to conduct that business in the country
types of cooperative contracts
licensing, franchise
agreement in which a domestic company (licensor) receives royalty payments for allowing another company (licensee) to produce their product, sell its service or use its brand name in certain foreign market
advantages of licensing
allows companies to earn additional profits without investing more money; helps avoid tariff and non tariff barriers
disadvantages of licensing
licensor gives up control over quality of the product or service sold by the foreign licensee; licensees can eventually become competitors
collection of networked firms in which the manufacturer or marketer of a product or service (franchisor) licenses the entire business to another person or organization (franchisee)
advantages of franchise
franchisees pay an initial franchise fee plus royalties; helps avoid barriers to entry
disadvantages of franchise
face a loss of control when they sell businesses to franchisees who are thousands of miles away; franchise success may be somewhat culture bound
strategic alliances
an agreement in which companies combine key resources, costs, risk, technology and people
joint venture
strategic alliance that occurs when 2 existing companies collaborate to form a third company; founding companies remain intact and unchanged, except that together they now own the newly created joint venture
advantages of joint venture
helps companies avoid tariffs and non tariff barriers to entry; companies bear only part of costs and risk to business
disadvantages of joint ventures
sharing profits, managing problems because of merging of the country and organization cultures; power struggles and lack of leadership
wholly owned affiliates
foreign offices, facilities and manufacturing plants that are 100 percent owned by the parent company
advantage of wholly owned affiliates
parent company receives all the profits and has complete control over foreign facilities
disadvantage of wholly owned affiliates
expense of building new operations or buying existing businesses, can be risky
global new ventures
new companies that are founded with an active global strategy and have sales, employees, and financing in different countries
3 trends of global new ventures that, combined, allow companies to skip the phase model
quick, reliable air travel can transport people to nearly any point; low-cost communication technologies and internet make it easier to communicate with global customers, suppliers, etc; now a critical mass of businesspeople with personal experience in all aspects of global business
most important factor in an attractive business climate
access to a growing market
2 factors that determine market growth potential
purchasing power, foreign competitors
purchasing power
relative cost of a standard set of goods and services in different countries
reasons for a company to establish a location in a foreign country (4)
global mergers and acquisitions, commitment to grow in a new market, seeking a tax haven, creating a global brand
qualitative factors of business climate
work force and company strategy
quantitative factors of business climate
kind of facility being build, tariff and non tariff barriers, exchange rates, transportation and labor costs
2 types of political risk
political uncertainty, policy uncertainty
political uncertainty
associated with the risk of major changes in political regimes that can result from war, death of political leaders, revolutions, social unrest or other events
policy uncertainty
risk associated with changes in laws and government policies that directly affect the way foreign companies conduct business
3 strategies used to minimize or adapt to political risk in global business
avoidance, control, cooperation
avoidance strategy
when risks are too great; divest or sell business or hold off on investing
control strategy
active in trying to control; prevent or reduce political risks, lobby foreign governments
cooperation strategy
using joint ventures and collaborative contracts; can limit risk associated with foreign ownership
national culture
set of shared values and beliefs that affects the perceptions, decisions, and behavior of the people from a particular country
steps in dealing with culture (2)
recognize there are meaningful differences; decide how to adapt your company to those differences because different cultures perceive management practices differently and the cultural values change
hofstede’s 5 consistent cultural dimensions
power distance, individualism, masculinity and femininity, uncertainty avoidance, short term/ long term orientation
power distance
the extent to which people in a country accept that power is distributed unequally in society and organizations
degree to which societies believe that individuals should be self-sufficient
capture the difference between highly assertive and highly nurturing cultures
uncertainty avoidance
degree to which people are uncomfortable with unstructured, unpredictable situations
short term/long term orientation
whether cultures are oriented to the present and seek immediate gratification or to the future and defer gratification
someone who lives and works outside his or her country
expatriate failure
result of difficulty of adjusting to language, culture, and societal differences
chances for successful international assignment can be increased through:
language and cross cultural training; consideration for spouse, family and dual career issues; adaptability screening
work teams
small number of people with complementary skills who hold themselves mutually accountable for pursuing a common purpose, achieving performance goals and improving the interdependent work processes
advantages of teams (5)
improves customer satisfaction because teams are trained to meet the needs of the specific customer; product and service quality because teams take direct responsibility for their product and services; speed and efficiency in product development; employee job satisfaction; decision making
cross training
team members are taught how to do all or most of the jobs performed by other members; receive information that is typically only available to managers; unique leadership responsibilities
disadvantages of teams (4)
initially high turnover because members don’t initially want to have the responsibility; social loafing aka slackers; group think and minority domination
when to use teams
clear, engaging reason for using them; job can’t be done unless people work together; used when rewards can be provided for teamwork and team performance
the degree to which workers have discretion, freedom and independence to decide how and when to accomplish their jobs
how teams differ in autonomy (5)
traditional work groups, employee involvement teams, semi-autonomous work group, self managing teams, self designing teams
traditional work group
smallest amount of autonomy; two or more people work to achieve a shared goal; workers report to managers
employee involvement teams
provides advice or makes suggestions to management concerning specific issues; don’t have authority to make decisions
semi-autonomous work group
group that has the authority to make decisions and solve problems related to the major tasks of producing a product/service; receive all info about budgets, performance and members are typically cross trained
self managing teams
team members manage and control ALL of the major tasks directly related to production without first getting approval from management
self designing teams
have all the characteristics of self managing teams, but they can also control and change the design of teams, the tasks they do and how and when to do them, and the membership of teams
special kinds of teams
cannot be classified in terms of autonomy
3 special kinds of teams
cross functional, virtual, project
cross functional teams
intentionally composed of employees from different functional areas of organization
virtual teams
groups of geographically and virally dispersed coworkers who use a combination of telecommunications and information technologies to accomplish an organizational task
advantage or virtual teams
disadvantage of virtual teams
members must learn to express themselves in new contexts
project teams
created to complete specific, one-time projects
advantage of project teams
bringing in employees from different areas can reduce or eliminate communication barriers; provides flexibility because when the project is over, team members can move on to the next team
work team characteristics
norms, cohesiveness, size, conflict
team norms
informally agreed on standards that regulate team behavior
stages of team development
forming, storming, norming, performing, denorming, destorming, deforming
team members meet each other, form initial impressions, and begin to establish team norms
members disagree over what team should do and how they should do it
team members begin to settle into their roles as team members, group cohesion grows and positive norms develop
final stage of team development; performance improves because they develop into mature, effective, fully functioning teams
how to ensure team goals lead to superior performance
structural accommodation, bureaucratic immunity
stretch goals
ambiguous and workers don’t know how to reach them
structural accommodation
ability to change organizational structures, policies and practices to meet stretch goals
bureaucratic immunity
teams no longer have to go thru the slow process of multilevel reviews and sign offs to get approval
selecting people for teamwork
look at their individualism/collectivism, team level, team diversity
puts own welfare and interests first and prefer independent tasks
put group or team interests first, prefer interdependent tasks with others and would rather cooperate than compete
team level
average level of ability, experience, personality or any other factor; higher level means more experienced members
team diversity
variances or differences in ability, experience, personality or any other factor on a team
what should you do when you create teams?
keep them together as long as possible
team training factors (5)
interpersonal skills, decision making, problem solving skills, conflict-resolution skills and technical training
3 ways to compensate employees for team participation and accomplishments
skill based pay, gainsharing, non financial rewards
skill based pay
compensation system that pays employees for learning additional skills/knowledge (self directing teams)
companies share financial value of performance gains, such as increased productivity, cost savings, or quality with their workers
non financial rewards
t-shirts, plaques, coffee mugs; especially effective when coupled with management recognition

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