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international business and the global companies-organisation and mangement

Lourdes Fuente Mugica

Introduction…………………………………………………… 3
What is globalization? 3
Nature of multinational enterprises…………………………… 4
Global companies ……………………………………………… 6
Strategy management of multinational enterprises………… 6
Authors……………………………………………………… 7
E-Business system…………………………………………… 10
Conclusion……………………………………………………… 11
Bibliography 12
International business is the study of transactions taking place across national borders for the
purpose of satisfying the needs of individuals and organisations. These transactions can be trade
(importing, exporting) and direct investment.
The main focus will be Multinational Enterprises: MNE. MNEs have directly invested billions of
dollars overseas. Most of these foreign investments have been two-way.

MNEs have recently been turning their attention to developing countries. Another international
business activity has been the international joint venture (agreement between two or more partners
to own and control overseas business).
Many small and medium-sized businesses are involved in international business. We include here
service industries that currently employ 70% of work force in USA, Canada and Europe.
Large multinational enterprises tend to influence the success of smaller businesses because they rely
on small business for goods and services.
What is globalization?
We understand globalization as the political, economical, social, cultural and ecological process that
it is happening nowadays. Thanks to this process, there is a bigger economic interrelationship
between different countries, no matter how far they are, and always under the multinational
companies’ control. Each time there more ambits regulated by the free market, neoliberal ideology
is applied with more intensity in almost all the countries and the big corporations achieve each time
more power.
GLOBALIZATION is the process that emerges from:
• The internationalisation of production and services
• Stateless corporations
• The existence of world markets (Ford, McDonalds, Coke, Hollywood, Revlond, Sony, Levy’s)
• Increase integration into the international division of labour: China and Eastern Europe
specialising in cheap labour
• Internationalisation of financial markets: transnational banks and subsidiaries of multinationals.
We can define globalization in some different levels:
 Worldwide level:
Growing economic interdependence among countries reflected in cross border flow of goods,
services, capital and know-how.
 Country level:
Extent of a country’s inter-linkages with the rest of the world
 Industry level:
Degree to which a company’s competitive position within that industry in one country is
interdependent with that in another country
Why is important globalization?
- It can lead into cultural homogenisation
- It make markets to converge
- It leads to globalization of customers
- Globalization is characterised by cost drivers:
- Economies of scale and scope
- Increase in levels of fixed costs
- Globalization has lead to fundamental changes in industry structure (deregulation, privatisation,
technological change)
Nature of Multinational enterprises:
Multi-Domestic Industries vs Global industries:
International trade incorporates many different types of competition and industries differ markedly
in their patterns of international competition.
a- Multi-domestic industries:
- Competition in one country is independent of competition elsewhere
- This lead to a collection of domestic industries
- A firm can and should manage its world-wide activities as a portfolio of independent
subsidiaries in each country.
- The firm therefore should adopt a country-centred strategy.
b- Global industries:
- Competition in one country influenced by competition elsewhere, leads to international rivalry
- To be a leader a firm must develop and implement a strategy that integrates its activities in
various countries but some portions of the firm’s activities must take place in each individual
- The firm should adopt a global strategy.
- Ongoing integration of activities on a worldwide basis.
What are the main characteristics of “Global”?
- Standardisation of large international market segments
- Product standardisation
- Reconfiguration of the value chain (distribution…)
- Global marketing function
- Multi-point competition
- Governments play two roles: “players” and “referees”
The USA has identified over 45,000 MNEs, but the largest 500 account for 80 percent of the entire
world’s foreign direct investment. These firms are engaged in operations such as automobiles,
chemicals, computers, consumer goods, financial goods, industrial equipment, oil and steel
Their main characteristics are:
♦ Looking at the environment in which they operate, there are two major areas of concern: the
home country of its headquarters and the host countries in which it does business (stakeholders
can come from anywhere in the world)
♦ Their affiliates must be responsive to a number of important environment forces, including
competitor, customers, suppliers, financials institutions and government.
♦ The MNE draws on a common pool of resources, including patents, trademarks, information
and human resources
♦ Its affiliates are linked by a common strategic vision.
Firms become multinationals to:
♦ Protect themselves from the risks and uncertainties of the domestic business cycle (International
♦ To tap the growing world market for goods and services
♦ In response to increased foreign competition and to protect world market share.
♦ To reduce costs
♦ To overcome tariffs walls by serving a foreign country from within
♦ To take advantage of technological expertise by manufacturing goods directly rather than
allowing others do it under a license (for example). MNEs are better able to protect their
international competitiveness than companies that have license agreements.
Global companies:
MNEs are also called global companies:
“A global company is one which operates with resolute constancy at low relative cost-as if the
entire world (or major regions of it) were a single entity; it sells the same things in the same way
anywhere” T. Levitt, 1983, HBR
Philosophy of MNEs:
MNEs make decisions primarily based on what is best for the company even if this means
transferring funds or jobs to other countries.
MNEs make whatever agreements are in their best interest, even if this means bringing in firms
from three or four different countries
It is the ability of MNEs to understand different consumer tastes in segmented regional markets and
to respond to different national standards and regulations that are imposed by autonomous
governments and agencies.
Strategic management of Multinational Enterprises
MNE affiliates are linked by a strategic plan. Basic nature of strategic management process consists
of: Strategy formulation, strategy implementation, evaluation and control of operation.
These functions encompass a wide range of activities: environmental analysis of external and
internal conditions and an evaluation of organisational strengths and weaknesses.
Steps in the strategic management process:
Strategic planning: typically begins with a review of the company’s basic mission, which is
determined by answering the question: What is the firm business? What is its reason for existence?
After determining its mission, the MNE will evaluate the external and internal environment. The
goal of external environmental analysis is to identify opportunities and threats that will need to be
Internal and external analysis will help the MNE to identify both long-range goals (2-5 years) and
short-range goals (less than 2 years).
Globally strategic planning:
Strategic planning is the process of evaluating the enterprise’s environment and its external
strengths, next identifying long and short-range objectives and then implementing a plan of action
for attaining these goals. MNEs rely on this process because it provides them with both general
direction and specific guidance in carrying out their activities.
International Human Resources Management is made more complex by:
-Different labour markets
-International Mobility Problems
-National Management and Labour Supply Styles and Practices
-Strategy and Control Issues
Cultural Issues:
Some aspects of culture differ significantly across national borders and have great impact on how
business is conducted.
Effective international management depends partially on recognising and accommodating these
cultural differences.
Cultural values:
Two cultural variables shape the characteristics of a culture’s values
- Religion: Religion rules and events: Example: Muslim religion, effects closing times, use of
alcohol, regulates daily timetable, praying, eating behaviours…
- Language: is used to transmit culture but is an important influence in itself. Different languages
have different thought patterns and effects the way we look at things and problem…
The development of genuinely transnational business organizations therefore requires managerial
approaches and systems which allow for variations deriving from such diversity. This might be
"national" cultural diversity between nations, races or ethnic groups (e.g. in a two-nation joint-
venture), intra-national diversity involving the range of cultures within a single nation (e.g. in the
USA), or internal cultural diversity where managers need to deal with foreign-owned transnational
companies in their own country (e.g. a British manager dealing with a Korean manufacturer in the
We can find different authors talking about the importance of the culture on business:
 Hofstede ’s view of the cultural exchange (Uncertainty avoidance, verbal and non-verbal
communication, power distance and the male/female ratio), is to be considered, in order to
understand properly how to handle an international negotiation. As a matter of fact, the
analysis of each component, of the Hofstede scheme, will help the manager in his
understanding of eventual cultural barriers and though allow him to adapt to the current
situation. I will explain the hofstede’s cultural values:
 Power Distance Index (PDI) focuses on the degree of equality, or inequality,
between people in the country's society. A High Power Distance ranking indicates
that inequalities of power and wealth have been allowed to grow within the society.
These societies are more likely to follow a caste system that does not allow
significant upward mobility of its citizens. A Low Power Distance ranking indicates
the society de-emphasizes the differences between citizen's power and wealth. In
these societies equality and opportunity for everyone is stressed.

 Individualism (IDV) focuses on the degree the society reinforces individual or
collective achievement and interpersonal relationships. A High Individualism
ranking indicates that individuality and individual rights are paramount within the
society. Individuals in these societies may tend to form a larger number of looser
relationships. A Low Individualism ranking typifies societies of a more collectivist
nature with close ties between individuals. These cultures reinforce extended
families and collectives where everyone takes responsibility for fellow members of
their group.

 Masculinity (MAS) focuses on the degree the society reinforces, or does not
reinforce, the traditional masculine work role model of male achievement, control,
and power. A High Masculinity ranking indicates the country experiences a high
degree of gender differentiation. In these cultures, males dominate a significant
portion of the society and power structure, with females being controlled by male
domination. A Low Masculinity ranking indicates the country has a low level of
differentiation and discrimination between genders. In these cultures, females are
treated equally to males in all aspects of the society.

 Uncertainty Avoidance Index (UAI) focuses on the level of tolerance for
uncertainty and ambiguity within the society - i.e. unstructured situations. A High
Uncertainty Avoidance ranking indicates the country has a low tolerance for
uncertainty and ambiguity. This creates a rule-oriented society that institutes laws,
rules, regulations, and controls in order to reduce the amount of uncertainty. A Low
Uncertainty Avoidance ranking indicates the country has less concern about
ambiguity and uncertainty and has more tolerance for a variety of opinions. This is
reflected in a society that is less rule-oriented, more readily accepts change, and
takes more and greater risks.
 Long-Term Orientation (LTO) focuses on the degree the society embraces, or does
not embrace long-term devotion to traditional, forward thinking values. High Long-
Term Orientation ranking indicates the country prescribes to the values of long-term
commitments and respect for tradition. This is thought to support a strong work ethic
where long-term rewards are expected as a result of today's hard work. However,
business may take longer to develop in this society, particularly for an "outsider". A
Low Long-Term Orientation ranking indicates the country does not reinforce the
concept of long-term, traditional orientation. In this culture, change can occur more
rapidly as long-term traditions and commitments do not become impediments to
 Ed Schein has defined culture as: “A pattern of shared basic assumptions that the group
learned as it solved its problems of external adaptation and internal integration that has
worked well enough to be considered valid and, therefore, to be taught to new members as
the correct way you perceive, think, and feel in relation to those problems.” He has also
defined different levels of culture:
 On surface
 Visible products
Style: clothing, manners of address, myths, stories
 Easy to observe
 Difficult to decipher
 Symbols are ambiguous
 Problems in classification
Espoused Values
 All group learning reflects original values
 Those who prevail influence group: the leaders
 First begins as shared value then becomes shared assumption
 Social validation happens with shared learning.
 Initially started by founder, leader and then assimilated.
Basic Assumptions
 Evolve as solution to problem is repeated over and over again.
 Hypothesis becomes reality
 To learn something new requires resurrection, re-examination, frame breaking
 Culture defines us:
What we pay attention to
What things mean
React emotionally
What actions to take when
 Humans need cognitive stability
Defence mechanisms
 Different cultures make different assumptions about others based on own values
etc: see them with our eyes not theirs.
 Third party may help solve differences between 2 cultures
 Each new member comes with own assumptions.
 Trompenaars and Hampden-Turner (1997) classified cultures along a mix of behavioural
and value patterns. Their research focuses on the cultural dimensions of business executives.
In their book "Riding The Waves of Culture" (1997), Trompenaars and Hampden-Turner
identify seven value orientations:
 Universalism versus particularism
 Communitarianism versus individualism
 Neutral versus emotional
 Defuse versus specific cultures
 Achievement versus ascription
 Human-Time relationship and
 Human-Nature relationship
Some of these value orientations can be regarded as nearly identical to Hofstede's dimensions.
Others offer a somewhat different perspective:
Of these seven value dimensions, two reflect closely the Hofstede dimensions of
Collectivism/Individualism and to a lesser extent power distance. Trompenaars and Hampden-
Turner's communitarianism / individualism value orientation seems to be virtually identical to
Hofstede's Collectivism/Individualism. Their achievement/ ascription value orientation, which
describes how status is accorded, appears to be linked to Hofstede's power distance index, at least if
one accepts that status is accorded by nature rather than achievement, and that this reflects a greater
willingness to accept power distances. It is, however, not a complete match, as Hofstede's power
index does not only relate to how status is accorded, but also to the acceptable power distance
within a society, an area that is not touched upon by Trompenaars and Hampden-Turner.
Trompenaars and Hampden-Turner's other dimensions seem to focus more on some resulting
effects of underlying value dimensions. For example, their neutral/emotional dimension describes
the extent to which feelings are openly expressed, i.e. a behavioural aspect rather than a value in
Their universalism/particularism value orientation, describing a preference for rules rather than
trusting relationships, could be interpreted as part of Hofstede's uncertainty avoidance dimension on
the one side, and to some extent the collectivist/individualist dimension. Their diffuse/specific value
orientation, describing the range of involvement, seems to have no direct link to any of Hofstede's
E- Business System
The Internet is creating a new economy where business must be won on price and service at every
interaction. To compete effectively on the Web, each business must determine for itself how it will
be an “Internet company” - how it will leverage its unique practices, processes, and expertise to add
new value through digital commerce. Successful eBusiness also requires a new kind of commerce
system that adapts to changing business conditions between one transaction and the next. The
available information must be reinvented at each encounter, uniquely suited to the needs of the
customer and the business situation. Webridge understands the business and technological issues of
Thanks to technology, today’s marketplace is increasingly crowded. New production methods and
technologies are eroding product differences and shortening product lifecycles, which, in turn,
shortens the competitive life of each product. In the past, companies have competed on price, while
maintaining profits through process automation. But now most companies have realized the benefits
of simple process automation, and the Internet and the ease of on-line comparison shopping are
undermining customer loyalty and increasing market pressures even further for both business-to-
consumer and business-to-business commerce.
No comprehensive solution to the problems of cultural diversity has yet been conceived. As a
matter of fact, I doubt that a solution will ever be found since diversity implies the fact that, what is
right for one might be wrong for another. In that case, a management style might be efficient in a
certain situation but totally ineffective in a different context, because everything depends on the
Understanding might be the key word for managing intercultural differences. Besides, this so called,
“understanding” the others is not just a matter of training but also of experience and personal
“reconsideration”. Yet it is clear that preparation for the successful management of such diversity in
all its ramifications will be a vital component of long-term success in the global market. For while
business is already global, management remains culture-bound.
Understanding the importance of managing cultural differences is the key to building successful
relationships. Cultural differences do not just refer to relationships with other countries.
We also have to consider the big transformation of the technology, and that those changes have an
enormous influence on business, as I have explained on the previous part.
The managers have to adapt the way of manage to the “new market”. Speaking diverse languages
will be very important, and so will be the new technologies adaptation to daily work. There should
even be special education to make managers able to comprehend other cultures’ behaviours, such as
important traditions or special expressions of the concrete foreign language.
As conclusion, the cultural issues and the technological changes are really important in the
international business nowadays, and the multinational companies should bear in mind this, because
it is one of the most important keys to succeed.
- Avila, Felipe, Estrategias de promoción en comercio exterior, 3a. Ed., Trillas, México, 1996
- Harris, Philip R. et Robert T.Moran, Managing Cultural Differences, 3a. ed., Gulf Publishing, EUA, 1991
- http://pacific.commerce.ubc.ca/keith/book/
- http://www.globalizate.org/
- http://feweb.uvt.nl/center/hofstede/index.htm
- http://www.ebusinessforum.com/
- http://www.onepine.info/pschein.htm

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