MGT 210, Fall 2008

Class-4, Instructor: Hkm

International Management and Cross-cultural competence
Like any other productive venture, an international corporation must be effectively and
efficiently managed. Consequently, international management, the pursuit of organizational
objectives in international and intercultural settings, has become an important discipline.
GLOBAL ORGANIZATIONS FOR A GLOBAL ECONOMY
Many labels have been attached to international business ventures over the years. They have
been called international companies, multinational companies, global companies, and
transnational companies. This section clarifies the terminology confusion by reviewing the
six-stage internationalization process as a foundation for contrasting global and transnational
companies.
The Internationalization Process:
There are many ways to do business across borders.
Stage 1: Licensing. Companies in foreign countries are authorized to produce and/or market
a given product within a specified territory in return for a fee. A Licensor grants permission to
a Licensee to use the trademark, process, copyright or technology. Advantages include extra
profits for Licensors and reduced piracy in those markets. While Licensee avoids R&D costs.
For example, under the terms of a ten-year licensing agreement, Samsung Electronics will get
to use Texas Instruments patented semiconductor technology for royalty payments exceeding
$1 billion.
Stage 2: Exporting. Goods produced in one country are sold to customers in foreign
countries. (eg., ready made garments from Bangladesh to USA..) Trade shows help boost
exports either in local country or overseas. Pay by LC (letter of credit), pay cash (transfer) or
pay on delivery.
Stage 3: Local Warehousing and Selling. Goods produced in one country are shipped to the
parent companys storage and marketing facilities located in one or more foreign countries.
Stage 4: Local Assembly and Packaging. Components, rather than finished products, are
shipped to company-owned assembly facilities in one or more foreign countries for final
assembly and sales.
Stage 5: Joint Ventures. A company in one country pools resources with one or more
companies in a foreign country to produce, store, transport, and market products with
resulting profits/losses shared appropriately. JV are usually formed to ensure access to a
complex foreign market but usually do not last long, sometimes for a single project

Experts offer the following recommendations for JVs:

Be patient, learn without giving away secrets, establish rules about
responsibilities

Stage 6: Direct Foreign Investments. Typically, a company in one country produces and
markets products through wholly owned subsidiaries in foreign countries. Cross-border
mergers are an increasingly popular form of direct foreign investment. A cross-border merger
occurs when a company in one country buys an entire company in another country. There are
many forms of FDI, including M&A, and Greenfield Investments. The UN defines a
controlling investment necessary over 10% to be classified as FDI. Otherwise, it is portfolio
investment a purely financial investment.
From Global Companies to Transnational Companies:
The difference between these two types of international ventures is the difference between
actual and theoretical. That is to say, transnational companies are evolving and represent a
futuristic concept. Meanwhile, global companies do business in many countries
simultaneously. By definition, a global company is a multinational venture centrally
managed from a specific country. For example, even though Coca-Cola earns most of its
profit outside the United States, it is viewed as a US company because it is run from a
powerful headquarters in Atlanta, Georgia. The same goes for McDonalds, Ford and IBM.
A transnational company, in contrast, is a global network of productive units with a
decentralized authority structure and no distinct national identity. Transnationals rely on a
blend of global and local strategies, as circumstances dictate. Local values and practices are
adopted whenever possible because, in the end, all customer contacts are local. However,
this type of international business venture exists mostly in theory, although some global
companies are moving toward transnationalism.
Significantly, many experts are alarmed at the prospect of immense stateless transnational
companies because of unresolved political, economic, and tax implications. If transnational
companies become more powerful than the governments of even the largest countries in
which they operate, who will hold them accountable in cases of fraud, human rights
violations, and environmental mishaps.
TOWARD GREATER GLOBAL AWARENESS AND CROSS-CULTURAL
COMPETENCE
To compete successfully in a dynamic global economy, present and future managers need to
develop their international and cross-cultural awareness.
Travelers Versus Settlers:
One or two short visits to a foreign country do not make a person competent to transact
business deals there. Accordingly, cross-cultural management experts distinguish between
travelers and settlers. Travelers visit foreign countries, whether for work or pleasure, on a
short-term basis (a few days to several weeks). They tend to have limited knowledge of the
local history, culture, and customs. Their local language skills typically vary from none to
few. In contrast, settlers take foreign assignments lasting from two to five years or more.
The settler has to deal with a variety of challenges, starting from pre-departure training to
the hassles of relocating, transitional challenges to acclimatization, to culture shock to reentry shock .. because the settler must receive more in-depth insights into the host countrys
customs and culture. The language skills must be much better than conversational and a
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solid knowledge of the countrys religion, politics, history, morals, social structure,
education, food and table manners, roles of man and woman, business ethics, negotiation
techniques, humour and values is highly important The Settler should be extremely openminded, flexible, friendly and honest .. (and) adaptability is a valuable asset.
Contrasting Attitudes toward International Operations:
Can a firms degree of internationalization be measured? Some observers believe it can, and
they claim a true global company must have subsidiaries in at least six nations. Others say
that, to qualify as a multinational or global company, a firm must have a certain percentage of
its capital or operations in foreign countries. However, Howard Perlmutter insisted that these
measurable guidelines tell only part of the story and suggested it is managements attitude
toward its foreign operations that really counts. Perlmutter identified three managerial
attitudes toward international operations, which he labeled ethnocentric, polycentric, and
geocentric.
Ethnocentric Attitude. Managers with an ethnocentric attitude are home-country-oriented.
Home-country personnel, ideas, and practices are viewed as inherently superior to those from
abroad. Foreign nationals are not trusted with key decisions or technology. Critics believe this
attitude makes for poor planning and ineffective operations because of inadequate feedback,
high turnover of subsidiary managers, reduced innovation, inflexibility, and social and
political backlash.
Polycentric Attitude. This host-country orientation is based on the assumption that, because
cultures are so different, local managers know what is best for their operations. A polycentric
attitude leads to a loose confederation of comparatively independent subsidiaries rather than
to a highly integrated structure. On the negative side, wasteful duplication of effort occurs at
the various units within the confederation precisely because they are independent.
Geocentric Attitude. Managers with a geocentric attitude are world-oriented. As a senior
manager with a leading accounting firm says, thinking globally means taking the best other
cultures have to offer and blending that into a third culture. Skill, not nationality, determines
who gets promoted or transferred to key positions around the globe. In geocentric companies,
local and worldwide objectives are balanced in all aspects of operation.
The Cultural Imperative:
Culture affects international business in many ways. For example, a contract is rarely renegotiated in USA but is often in Japan. Cross-cultural business negotiators who ignore or
defy cultural traditions do so at their own risk. That means the risk of not making the sale or
of losing a contract or failing to negotiate a favorable deal.
Culture Defined. Culture is the pattern of taken-for-granted assumptions about how a given
collection of people should think, act, and feel as they go about their daily affairs.
Organizational culture is called the social glue binding members of an organization together.
Similarly, at a broader level, societal culture acts as a social glue. That glue is made up of
norms, values, attitudes, role expectations, taboos, symbols, heroes, beliefs, morals, customs,
and rituals. Cultural undercurrents make international dealings immensely challenging.

American Corporations. Protesters at World Trade Organization and global economic

summits in recent years have decried the growing global reach of McDonalds and other
American corporate giants. They predict a homogenizing of the worlds unique cultures into a
so-called McWorld, where American culture prevails.
Cultural profile of American Mangers. One study based on interviews with 40 managers
from many different countries has given American managers a revealing look in the cultural
mirror. Each manager was asked to characterize the American style of management. Two
sets of characteristics of the American style of managing turned out to be clearly positive.
International managers generally like Americans informality, creativity, open-mindedness,
and related traits. At the other end of the scale, American managers were roundly criticized
for being educationally and professionally narrow.
How international managers characterize American managers (Table 4.3)
Positive
Negative
Informal, frank
Work harder than Europeans
But less than many Asians
Impatient; get things done
Short-term orientation
Materialistic; profit-oriented
Judge persons worth by their wealth
Individualistic; entrepreneurial
Loyal to division
Aggressive, hard-nosed, pragmatic
Overlook simpler, diplomatic means
Not well rounded educationally
High-Context and Low-Context Cultures. People from European-based cultures typically
assess people from Asian cultures such as China and Japan as quiet and hard to figure out.
Conversely, Asians tend to view Westerners as aggressive, insensitive, and even rude.
Anthropologist Hall prompted better understanding of cross-cultural communications by
distinguishing between high- and low-context cultures. In high-context cultures, people rely
heavily on nonverbal and subtle situational messages when communicating with others. Thus,
in high-context Japan, the ritual of exchanging business cards is a social necessity, and failing
to read a card you have been given is a grave insult. Arab, Chinese and Korean cultures also
are high-context.
People from low-context cultures convey essential messages and meaning primarily with
words. Low-context cultures in Germany, Switzerland, Scandinavia (Denmark, Norway,
Sweden and Finland), North America, and Great Britain expect people to communicate their
precise intended meaning. While low-context people do read so-called body language, its
messages are secondary to spoken and written words. Patience is a prime virtue for lowcontext managers doing business in high-context cultures.
Other Sources of Cultural Diversity. Managers headed for a foreign country need to do
their homework on the following cultural variables to avoid awkwardness and problems.

Individualism versus collectivism. This is a distinction between me and we

cultures. People in individualistic cultures focus primarily on individual rights, roles
and achievements. (such as USA and Canada) Meanwhile, people in collectivist
cultures such as Egypt, Mexico, India, and Japan rank duty and loyalty to family,
friends, organization, and country above self-interests. Group goals and shared
achievements are paramount to collectivists; personal goals and desires are
suppressed.
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Time. Hall referred to time as a silent language of culture. He distinguished between

monochronic and polychronic time. Monochronic time is based on the perception that
time is a unidimensional straight line divided into standard units, such as seconds,
minutes, hours, and days. In monochronic cultures, including North America and
Northern Europe, everyone is assumed to be on the same clock time and time is
treated as money. In contrast, polychronic time involves the perception of time as
flexible, elastic, and multidimensional. Latin American, Mediterranean, and Arab
cultures are polychronic.
Interpersonal space. People in some cultures prefer to stand close together when
conversing. Both Arabs and Asians fall into this group. However, Americans and
Europeans prefer a little distance when conversing. (at arms length)
Language. Foreign language skills are the gateway to true cross-cultural
understanding. Spanish remains the most widely studied foreign language, followed
by French and German.
Religion. Awareness of a business colleagues religious traditions is essential for
building a lasting relationship. Those traditions may dictate dietary restrictions,
religious holidays, and Sabbath schedules, which are important to the devout.

COMPARATIVE MANAGEMENT INSIGHTS

Comparative management is the study of how organizational behavior and management
practices differ across cultures. We will focus on (1) the applicability of American
management theories in other cultures, (2) Ouchis Theory Z, which contrasts American and
Japanese management practices, (3) a cross-cultural study of work goals, and (4) an
international contingency model of leadership.
Applying American Management Theories Abroad:
Geert Hofstede, a Dutch organizational behavior researcher, surveyed 116,000 IBM
employees from 40 different countries. Hofstede classified each of his 40 national samples
according to four cultural dimensions, each of which probed an important question about the
prevailing culture:

Power distance. 'the extent to which the less powerful members of organizations and
institutions (like the family) expect and accept that power is distributed unequally'
Uncertainty avoidance. 'intolerance for uncertainty and ambiguity'
Individualism-collectivism. 'the extent to which individuals are integrated into groups'
Masculinity-femininity. How important are masculine attitudes (assertiveness, money
and possessions, and performance) versus feminine attitudes (concern for people, the
quality of life, and the environment)?

Hofstede scored the 40 countries in his sample from low to high on each of his four cultural
dimensions. The United States ranked moderately low (15 out of 40) on power distance, low
(9 out of 40) on uncertainty avoidance, very high (40 out of 40) on individualismcollectivism, and moderately high (28 out of 40) on masculinity-feminity. The marked
cultural differences among the 40 countries led Hofstede to recommend that American
management theories should be adapted to local cultures rather than imposed on them.
Ouchis Theory Z: The marriage of American and Japanese management:
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A management scholar named William Ouchi identified a type of US company that

successfully melded the American way of managing with some aspects of management in
another culture. Ouchi began his study by contrasting characteristics of Japanese and
American companies. He identified type of companies that combine American and Japanese
styles. He called these Theory Z organizations. The Japanese-like qualities are identified as
long-term employment, slower promotions, cross-functional career paths, greater emphasis
on self-control, participative decision making, and a concern for the whole employee. Unlike
Japanese organizations, Theory Z organizations emphasize individual responsibility, a
distinctly American trait. The principal lesson from this example and from Hofstedes and
Ouchis research is clear. Successful geocentric managers are not prisoners of their own
culture.
A Cross-Cultural Study of Work Goals:
What do people want from their work? A survey of 8,192 employees from seven countries
found general disagreement about the relative importance of 11 different work goals. They
were asked to rank 11 work goals. Interesting work got a consistently high ranking.
Opportunity for promotion and working conditions consistently were near the bottom of
each countrys rankings. Beyond these few consistencies, general disagreement prevailed.
The main practical implication of these findings is that managers need to adapt their
motivational programs to local preferences.
An International Contingency Model of Leadership:
Like motivational programs, leadership styles must be adapted to the local culture. There are
four styles of management; directive, supportive, participative and achievement-oriented. We
will define these styles in more detail in a later class. According to the model, participative
leadership is the most broadly applicable style. Participative leadership is not necessarily the
best style; it simply is culturally acceptable in many different countries.
STAFFING FOREIGN POSITIONS
In todays global economy, successful foreign experience is becoming a required
steppingstone to top management. Unfortunately, too many Americans find it very difficult to
become competent global managers. According to the Centre for International Briefing,
roughly 25 percent of American managers fail overseas. Thats three to four times higher than
failure rates experienced by European and Asian companies. American managers thus needs
to do a much better job of preparing for foreign assignments.
Why is the US expatriate failure rate so high?
A survey of 80 US-based multinational companies uncovered some important facts about the
reasons for corporate expatriate failures. As follows in descending order of importance:
1. Inability of the managers spouse to adjust to a different physical or cultural
environment
2. The managers inability to adapt to a different physical or cultural environment
3. Other family-related problems
4. The managers personality or emotional immaturity
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5. The managers inability to cope with the responsibilities posed by overseas work
6. The managers lack of technical competence
7. The managers lack of motivation to work overseas
American managers tend to be technically competent, but their families are not good at
adapting.
Cross-Cultural Training:
It is difficult to distinguish the individual from his or her cultural context. Consequently,
people tend to be very protective of their cultural identity. Careless defiance of cultural norms
or traditions by outsiders can result in grave personal insult and put important business
dealings at risk. Cultural sensitivity can be learned, fortunately, through cross-cultural
training.
Specific techniques. Cross-cultural training is defined as any form of guided experience
aimed at helping people live and work comfortably in another culture. Following is a list of
five basic cross-cultural training techniques, ranked in order of increasing complexity and
cost.

Documentary programs. Trainees read about a foreign countrys history, culture,

institutions, geography, and economics. Video presentations are often used.
Culture assimilator. Cultural familiarity is achieved through exposure to a series of
simulated intercultural incidents, or typical problem situations.
Language instruction. Conversational language skills are taught through a variety of
methods.
Sensitivity training. Experiential exercises teach awareness of the impact of ones
actions on others.
Field experience. Extensive firsthand exposure to ethnic subcultures in ones own
country or to foreign cultures heightens awareness.

Is one technique better than another? A study of 80 managers from a U.S. electronics
company attempted to compare the relative effectiveness of different training techniques. A
documentary approach was compared with an interpersonal approach. The latter combined
sensitivity training and local ethnic field experience. Both techniques were judged equally
effective at promoting cultural adjustment, as measured during the managers three-month
stay in South Korea.
An integrated expatriate staffing system. Cross-cultural training should be part of an
integrated, selection-orientation-repatriation process focused on a distinct career path. The
ultimate goal should be a positive and productive experience for the employee and their
family and a smooth professional and cultural reentry back home.
American women on foreign assignments:
Recent evidence has shown that American women have enjoyed above-average success on
foreign assignments. Their biggest obstacles were found to be home-country prejudice.