Appunti International Management

International Management

Managing in the international environment

• Part 1: Environmental foundation (Economic environment, politics-laws-technology, ethics and CRS)
• Part 2: The role of culture (Managing across culture, communication, diversity)
• Part 3: International strategic management (Strategy, organization, managing risks and decisions)
• Part 4: Organizational behaviour and HR (Motivation, leadership, HR management) (we don’t do this)

Definitions

International Business:

• "All business transactions that involve 2 or more countries" (conducted by private, non-profit or government organizations)
• "A business whose activities involve the crossing of boundaries" (import, exports, investments)
• "Those business activities of private or public enterprises that involve the movement of resources across national boundaries" (raw materials, semi-finished goods, finished goods, services, capital, people, technology).

International Management: International management is defined as a process of accomplishing the global objectives of a firm by:

• Effectively coordinating the procurement (supply chain), allocation and utilization of the human, financial, intellectual and physical resources of the firm and across national boundaries.
• Effectively charting the path towards the desired organizational goals by navigating the firm through a global environment that is not only dynamic but often very hostile to the firm's very survival.

Our unit of analysis: business firm.

International management and MNC

Management is the process of completing activities with and through other people.

International Management is the process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political and cultural contexts.

A Multinational Corporation (MNC) is a firm that has operations in more than one country. International sales and a mix of nationalities among managers and owners.

Globalization, coupled with the rise of emerging market MNCs, has brought prosperity to many previously underdeveloped parts of the world. Italy is the second industry in terms of middle size industry worldwide. Our type of competition is not for large multinationals.

Globalization and internationalization

Globalization: The unit of analysis is based on firms; most players in the global market are MNCs, but the actual players are not exactly the players of the future. For example, Italy competes quite well in the global market without having MNCs.

Globalization is the social, political, economic, cultural and technological integration among countries around the world.

• Offshoring: is when some company activities take place at offshore locations instead of their countries of origin.
• Outsourcing: is contracting out to external organizations activities previously performed by the firm.

Globalization is distinct from internationalization, which is the process of a business crossing national and cultural borders, while globalization is the vision of creating one world unit, a single market entity.

Globalization, anti-globalization and pressures for change

Positive effects of globalization:

• Global trade and investment continue to grow.
• Increase of wealth, jobs, and technology to many regions around the world.

New concerns on globalization:

• Rising inequalities regarding incomes.
• Not all countries benefit from globalization (different economic and social impact).
• Concerns on potential forthcoming of economic globalization (migration, sustainability…).

Who benefits from globalization?

Proponents believe that everyone benefits from globalization (lower prices, greater availability of goods, better jobs, access to technology). Critics disagree, noting that offshoring of jobs does not inherently create greater opportunities at home (the main winners of globalization are the managers of MNCs).

Proponents believe global firms will employ modern, green technology. Anti-globalization activists say the poorest countries relax standards for first-world investment.

From the ’40s (end of II World War), there is the reducing of trade barriers, going from a national level of globalization to a supranational level (Europe instead of Italy), reducing the problem of trade barriers in the negotiations and in international trade. This process continued until 2017, when some countries that were the leaders of this process began to have some problems (e.g., new problems with taxation of big internet companies) leading to the need for solutions at an international level.

There is another period in the history of the world where we have seen a reduction of the globalization process (in the sense of a reduction in international trade and the increase of trade barriers), between the I and II World War. Only the Roosevelt plan after the IIWW and the Marshall Plan in Italy reduced the trade barriers that were created.

Global and regional integration

One important dimension of globalization is the increasing economic integration among countries brought about by negotiation and implementation of trade and investments agreements. Starting from 1947, in the past seven decades, succeeding rounds of global trade negotiations have reduced tariffs and non-tariffs barriers among countries.

The present: uncertainties and slowdown in the globalization process related to the USA President Trump's election (2017-2021):

• The slogan "American first" (nationalistic economic policies, anti-globalist foreign policy, anti-European vision, problems with China, no immigration).
• From multilateral to bilateral agreements.

We’re in a period of uncertainty.

The beginning: the GATT agreement

• The emergence of the General Agreements on Tariffs and Trade (GATT) in 1947 to set fair and common rules for the way each country must conduct its trade with others (23 industrialized countries as founding members).
• Main purposes: reducing tariffs and removing non-tariffs barriers to international trade (open to market equality) partial effects (no sanctions).
• GATT was a temporary entity (8 rounds, the last in 1994 with 117 member countries).

At the end, the GATT transformed itself into a body, the WTO:

Major developments favoring free trade

1. WTO
   • World Trade Organization (WTO) is the global organization that oversees rules and regulations for international trade and investment, including agriculture, intellectual property, services, competition, and subsidies (multilateral trade organizations).
   • Emerged in 1995 as an institution, not an agreement, which has the authority to set and enforce rules governing trade between 151 member countries.
   • An elaborate institutional mechanism of councils and committees oversees the implementation of GATT agreement by members.
   • WTO dispute settlement procedures call for the establishment of a panel of trade experts to solve disputes.
   • The country that is found guilty of violating fair-trade rules has 2 choices:
     • Change its law
     • Face sanctions, most likely in the form of tariffs slapped on its exports by the complaining country.
   • WTO has no legal power to change national laws (but can pressure to negotiate between countries and arrive at a reasonable compromise).
2. Regional Trade Blocs
   • In the last 3 decades, we have seen the emergence of different regional trade blocs, such as:
   • 1993: Maastricht Treaty and the expansion of EU – from 13 member states to 27
   • 1991: MERCOSUR in South America, a free trade zone that became a custom union in 1995.
   • 1994: NAFTA (The North American Free Trade Agreement)
   • 2005: CAFTA-DR (Central American Free Trade Agreement-Dominican Republic), a free trade zone.
   • 2008: ASEAN Charter (The Association of Southeast Asian Nations) tried to reinforce the 1967 original regional intergovernmental organization between 10 countries in Southeast Asia.

Obviously, if you reduce trade barriers, then you face a problem of immigration.

Reasons why trade blocs get formed

• Geographical proximity and often the sharing of common borders, as in the EU and NAFTA.
• Common economic and political interests, as in:
  • The EU with the new countries that once belonged to the neo-defunct Soviet bloc.
  • The ASEAN to face China influences.
• Similar ethnic and cultural backgrounds, as in the Free Trade of the Americas (e.g., North vs South Ireland Protestantism).
• Similar levels of economic development, as in the EU.
• Similar views on the mutual benefits of free trade, as in NAFTA.
• Regional political needs and considerations, as in the ASEAN.

Changing global demographics

• The global working-age population declined.
• Global fertility rate decreased.
• Health care spending increases, demand for goods declines.
• Global life expectancy increased. Seen in the development nations.

The shifting balance of economic power in the global economy

There are new emerging economies with new foreign direct investments. So these trade blocks are fighting each other to attract new capital and investments, so as to create "new jobs".

• "BRIC" Economies are predicted to grow by 2025 (now from 8% of global GDP in 2001 to 23% of global GDP in 2018)
• By 2050, the GDP of the Emerging7 (Mexico, Brazil, Russia, China, India, Indonesia, Turkey) is predicted to be 50% higher than the G7.
• The Next-11 may constitute the next wave of emerging markets growth (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, Vietnam).
• The MIST countries are particularly attractive in the short-term between N-11.
• African countries could be the next wave of dynamic emerging markets (now too dependent on commodities prices).

Global trade and investment continue to grow at a healthy rate, outpacing domestic growth in most countries. Uncertainties related to politics struggles, economic crises and health emergencies (Covid-19).

Foreign Direct Investment (FDI), the term used to indicate the amount invested in property, plant, and equipment in another country, has slowed in recent years (but mainly in developed economies).

As nations become more affluent, they begin looking for countries with economic growth potential where they can invest.

Global economic system

Another problem is what type of economy do you have:

• In a market economy, private enterprises own property and monitor the production and distribution of goods and services, while the state supports competition and efficient practices.
• In a command economy, the government has explicit control over the price and supply of a good or service.
• A mixed economy is a combination of a market and a command economy.

The international environment

(Variable that you have to face->)

• The international company:
• Political: governments, ideology, stability, civil strife
• Cultural: customs, values, language, religion
• Economic: trade agreements, trading blocks, GNP/Wages, inflation
• Legal: international law, host country laws, home laws, international piracy
• Infrastructure: communications, internet, transportation, technology

Social media and political change

Social media has enabled revolutionaries, governments, journalists, and even terrorists to organize quickly, communicate globally, and build support for their cause, resulting in serious ramifications for international management.

Some examples regarding the influence of social media on political events:

• "Arab spring" and the role of social media as an organizational tool for protest.
• "Cambridge Analytics": the importance of using social media to map ideas, opinions, and influence future elections (big data analytics, privacy violation).
• Syrian war and the use of social media for refugees, government, revolutionaries for communication, and to give images of human rights violation.
• ISIS Communication Strategy (ideology propaganda, fundraising).
• Brexit, The role of Russian hackers on the vote (fake news).
• The movement "Black Life matters" in the USA (use videos to denounce violence by police officers and violation of human rights).

Political environment

International management must understand ideology, e.g., looking at China. The political system or system of government in a country greatly influences how its people manage and conduct business. Underlying the governmental actions is the ideology of the beliefs, values, behaviour, and culture of the nation and its political system.

A political system can be evaluated along 2 dimensions:

• Ideology of the system (focuses on the rights of citizens-ranging from fully democratic to totalitarian).
• The degree of individualism or collectivism (based on the focus of the political system).

Effective international management occurs when these different ideologies and philosophies are recognized and understood.

Individualism

The political philosophy that people should be free to pursue economic and political endeavours without constraint. (→ capitalism and connected to a free-market society)

Collectivism

The political philosophy that views the needs and goals of society as a whole as more important than individual desires (→ national socialism, fascism)

The political system

2 basic anchors to political systems as representative of an "ideal type":

• Democracy – a political system in which the government is controlled by the citizens either directly or through elections.
• Totalitarianism – a political system in which there is only one representative party, which exhibits control over every facet of political and human life.
  • The political system consists of a set of "players", each with its own unique set of aspirations and goals:
  • Government
  • Social groups (legal and illegal)

Each societal group has its unique political ideology (set of values and beliefs on how a society should be organized).

Consensus and legitimacy

The power is based on consensus:

• Consensus - Is the widespread acceptance of the decision-making process in the political system by the individuals and groups in the system.
• It is the instrument by which a government itself becomes legitimized.

Legitimacy - is the use of the power of the state by officials in accordance with prearranged and agreed-on rules.

A legitimate act is legal, but a lawful command is not always legitimate.

We have some countries that are more individualistic, and others that are more collectivistic.

Ideologies

The ideological dimension of political systems focuses on the right of citizens under governments, ranging from fully democratic to totalitarianism. In reality, there are many gradations along the two extremes.

Adopters of Individualism adhere to the philosophy that people should be free to pursue economic and political endeavours without constraint. Government interest should not solely influence individual behaviour. Capitalism systems encourage diversity, competition, and private property.

Collectivism views the needs and goals of society at large as more important than individual desires. Societal goals and the decision of how to keep people focused on them differ greatly among national cultures.

Socialism is a moderate form of collectivism in which there is government ownership of institutions, and profit is not the ultimate goal. Social democracy refers to a socialist movement that achieved its goals through nonviolent revolution.

Legal system

When analysing the legal environment, first you have to analyse very well national laws, and in some countries also the religious laws, and then you have international laws (treaties, conventions, UN, WTO, …). So international law is quite complicated, and you have different "voices" that can intervene. Obviously, the law must be approved by society, so there is someone who tells us how to behave.

The requirements for an effective legal system:

• The people in society must clearly understand and have knowledge of what the society prescribes as legal behaviour.
• The members of society must have agreed that the laws deserve to be obeyed.
• An effective system for punishing illegal behaviour must be in place.

Sources of International Law:

• International Treaties
• International Customs
• General Principle of law
• Judicial decisions and Teaching

The role of the World Court and the WTO:

• 3 scenarios under which disputes could arise:
  • Between two countries
  • Between a country and a company
  • Between two companies
• The international court of justice can adjudicate disputes between two countries only when both governments involved agree to submit to its authority.
• The WTO has a dispute settlement system. Under the WTO process, the winning country or trade bloc receives automatic approval to undertake retaliatory measures against the offending country.

Host-country-specific laws

Different nations have their own unique and peculiar laws. Some common areas include:

• Advertising
• Finance
• Environment
• Patent protection
• Personnel
• Ownership of subsidiaries
• Manufacturing

Managing technology and knowledge

Technology in the next decade: the industry 4.0 revolution: dimensions of the technological environment currently facing international management.

• The internet of things – equipping of physical objects with sensors, software, and network connectivity, allowing them to share information and data with each other.
• Blockchain technology – idea of using an open ledger to record transactions and ownership.
• AI and machine learning – Machine Learning is a subset of AI, and it entails the concept that devices will be able to learn, complete, and improve upon tasks they were never trained how to do.
• Robotics paired with any of these.

Technological environment and global shifts in production:

• Technological advancements connect the world and aid in the increased quality of products, information gathering, and R&D.
• Hunger and poor health care are worldwide issues—biotechnology is working to raise the standards.

Biotechnology = the integration of science and technology.