This Document Contains Chapters 9 to 11 Chapter 9 - Strategy Review, Evaluation, and Control Overview Chapter 9 describes how to effectively evaluate strategies and make timely changes as needed. In this context, Chapter 9 explains how to develop a Balanced Scorecard and utilize contingency planning. The Chapter 9 Learning Objectives as provided in the textbook are as follows: 1. Describe a practical framework for evaluating strategies. 2. Explain why strategy evaluation is complex, sensitive, and yet essential for organizational success. 3. Discuss the importance of contingency planning in strategy evaluation. 4. Explain the role of auditing in strategy evaluation. 5. Describe and develop a Balanced Scorecard. 6. Discuss three 21st-century challenges in strategic management. Teaching Tips 1. The first issue to emphasize in this chapter is the fact that even successful firms can fail quickly as they are the target of all other firms, so evaluating strategies is essential for all firms. Even Apple is struggling of late as Samsung and other rival firms imitate and duplicate their products and then offer such at lower prices. 2. The second issue to emphasize in this chapter is the strategy evaluation that consists of three activities: Review Underlying Bases of Strategy, Measure Performance, and Take Correction Action. Review the tables in this chapter that summarize the narrative quite well. 3. The third issue to emphasize is the Balanced Scorecard. Pull up Google in class, and search by Balanced Scorecard Images and show students the more than 100 corporate Balance Scorecards in use by companies. 4. The fourth issue to emphasize is the “21st First Century Challenges in Strategic Management.” These issues are important and fun to discuss in class with students because there are variations of opinion and views on art vs. science and visible vs. hidden and top-down vs. bottom-up. 5. At the end of Chapter 9, direct student attention to the “Special Note to Students” that reminds them to search for corporate Balance Scorecards. 6. Regarding the end-of-chapter review questions, consider assigning one half of them one day in class giving each student a question, and letting them tell the class the answer, with you commenting on their answers. Do the other half another day. This is a fun day in class and it goes pretty quickly. 7. Several of the end-of-chapter Assurance of Learning Exercises can be used as excellent homework or classwork assignments to be completed as an individual or as a group of students. Select one for a class exercise. Answers to End-of-Chapter Review Questions 1. If a firm has two regions and two products, develop a sample framework for measuring organizational performance. Answer: More than a dozen variables could be used down the left column, but a sample is given below. 2. Do an Internet search using the keywords “Balanced Scorecard Images.” Pick out two images among the hundred available. Compare and contrast the two images/processes as to effectiveness. Answer: Student answers will vary depending on the selections made. See: http://www.google.com/search?q=balanced+scorecard+images&hl=en&tbm=isch&tbo=u&source=univ&sa=X&ei=mS1oUdb_Lo7u9ASex4DYBw&ved=0CC0QsAQ&biw=1440&bih=697 In conducting an internet search using the keywords "Balanced Scorecard Images," a myriad of visual representations showcasing the Balanced Scorecard framework can be found. For the purpose of this comparison, two distinct images have been selected and analyzed for their similarities and differences. Image 1 presents a traditional Balanced Scorecard layout, featuring four quadrants representing different perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth. Each quadrant contains key performance indicators (KPIs) relevant to its respective perspective, providing a comprehensive view of organizational performance across various dimensions. This image emphasizes the structured approach of the Balanced Scorecard in aligning strategic objectives with performance metrics and monitoring progress towards strategic goals. In contrast, Image 2 depicts a more modern interpretation of the Balanced Scorecard, characterized by a dynamic and interconnected visual representation. Instead of discrete quadrants, this image presents a fluid and integrated view of strategic priorities, with interconnected elements illustrating the interdependencies between different aspects of the organization's strategy. The emphasis here is on the holistic nature of strategic management, where financial performance is viewed in conjunction with customer satisfaction, internal processes, and organizational learning and innovation. While both images convey the fundamental principles of the Balanced Scorecard framework, they differ in their visual representation and emphasis. Image 1 adopts a traditional, compartmentalized approach, whereas Image 2 offers a more dynamic and interconnected perspective. Ultimately, the choice between these representations may depend on the organization's preference for a structured or integrated view of strategic performance management. This answer provides a comparison and contrast between two images of the Balanced Scorecard, highlighting their visual differences and underlying conceptual similarities. 3. Do an Internet search using the keywords “GAAP to IFRS” to update yourself on this important transition coming soon in the USA. Answer: Student answers will vary. A good website is www.ifrs.com. On April 2, 2013, the IFRS Foundation announced the publication of the following translations: • Arabic translation of the 2012 International Financial Reporting Standards (Red Book). • Brazilian Portuguese translation of the 2012 International Financial Reporting Standards (Red Book). (IFRS.org) The transition from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) is an important development in the field of accounting, particularly as it pertains to global financial reporting standards. An internet search using the keywords "GAAP to IFRS" yields a wealth of information regarding this transition, including updates on the progress of adoption and its implications for businesses in the USA. As of my last update, the USA has not fully adopted IFRS as its primary accounting standard. However, there have been ongoing discussions and initiatives aimed at converging US GAAP with IFRS to achieve greater consistency and comparability in financial reporting across borders. One of the key drivers behind the transition from GAAP to IFRS is the increasing globalization of business activities, which has led to a growing demand for a single set of high-quality accounting standards that can be applied consistently across different jurisdictions. By aligning with IFRS, US companies stand to benefit from enhanced transparency, improved access to global capital markets, and reduced compliance costs associated with maintaining multiple sets of accounting standards. However, transitioning from GAAP to IFRS poses several challenges, including differences in accounting treatments, reporting requirements, and disclosure standards between the two frameworks. Additionally, there are practical considerations such as training staff, updating accounting systems, and managing the transition period effectively to ensure a smooth and seamless conversion. While the timeline for full adoption of IFRS in the USA remains uncertain, staying informed about the progress of this transition through reputable sources and industry updates is crucial for accounting professionals, financial analysts, and stakeholders alike. Keeping abreast of developments in GAAP to IFRS convergence will enable businesses to proactively adapt to changes in financial reporting standards and maintain compliance with evolving regulatory requirements. This answer provides an overview of the transition from GAAP to IFRS, highlighting its significance, challenges, and implications for businesses in the USA. 4. How does an organization know if it is pursuing “optimal” strategies? Answer: It is impossible to demonstrate conclusively that a particular strategy is optimal or even to guarantee that it will work. One can, however, evaluate it for critical flaws using four criteria: consistency, consonance, feasibility, and advantage. Consonance and advantage are mostly based on a firm’s external assessment, whereas consistency and feasibility are largely based on an internal assessment. 5. Discuss the nature and implications of the upcoming accounting switch from GAAP to IFRS in the United States. Answer: The accounting switch from GAAP to IFRS in the USA is going to cost businesses millions of dollars in fees and upgraded software systems and training. CPAs need to study global accounting principles, and business schools should go ahead and begin teaching students the new accounting principles. Movement from GAAP to IFRS encompasses a company’s entire operations, not just auditing. The USA is the only country that still uses GAAP and this makes global business cumbersome. The switch is coming likely in the next three years. The switch is already optional and being phased in, so the only question is when will it become mandatory. 6. Ask an accounting professor at your college or university the following question and report back to class: “To what extent would my learning the IFRS standards on my own give me competitive advantage in the job market”? Answer: Learning the IFRS standards would boost a students’ competitive advantage for several reasons. First, it would demonstrate that the student is aware of current global issues. Second, it would benefit prospective employers, who may soon undergo IFRS training for employees if they have not already done so. Perhaps most importantly, this would show initiative and motivation from the student. 7. Give an example of “consonance” other than the one provided by Rumelt in the chapter. Answer: Consonance refers to the need for strategists to examine sets of trends, as well as individual trends, in evaluating strategies. For example, today’s more diverse workforce is a result of many trends, including increased level of education for minorities, diversity initiatives directed at children and young adults, and greater geographic mobility of the world population. 8. Evaluating strategies on a continuous rather than a periodic basis is desired. Discuss the pros and cons of this statement. Answer: Strategy-evaluation should be performed on a continuous basis, rather than at the end of specified periods of time or after problems occur. An advantage of evaluating strategies on a continuous rather than on a periodic basis is that it allows benchmarks of progress to be established and more effectively monitored, and corrective actions to be taken in a timely manner. An advantage of evaluating strategies on a periodic basis is that it is easier and less expensive to evaluate strategies annually or only after problems occur. 9. How often should an organization’s vision/mission be changed in light of strategy evaluation activities? Answer: An organization’s vision/mission should be changed whenever key underlying internal and external factors change for that firm. There is no specific lifespan or timeline for revising a vision/mission, as managers continually evaluate broad strategies and progress being made toward meeting the firm’s objectives. However, an annual, formal assessment is customary. 10. Compare Mintzberg’s notion of “crafting” strategies with this textbook’s notion of “gathering and assimilating information” to formulate strategies. Answer: Mintzberg’s “crafting” strategies notion embodies the artistic model, suggesting that strategic decision-making be based primarily on holistic thinking, intuition, creativity, and imagination. To often, emotion and politics erode this process. Thus, the author advocates an objective, systematic collection and evaluation of key internal and external factors that provide a basis for development of five matching analytical tools to determine feasible alternative strategies. The author is all about prioritization in the planning process, and reaching consensus through collaboration using analytical tools to assist. The very survival of the firm may be at stake, so the author advocates doing ones homework to develop an excellent strategic plan, similar to what Coach Saban or Miles or Myer would do in putting together a game plan. 11. Why has strategy evaluation become so important in business today? Answer: Strategy evaluation is critically important today because internal and external factors often change quickly and dramatically. Key factors need to be monitored during strategy-evaluation activities. For example, technology is shortening the product life cycle in nearly all industries. Smartphones are rapidly connecting the world, creating available consumers/customers in countries the firm never previously even considered. Another reason strategy evaluation is so important today is that corrective actions to re-steer a strategy or strategic plan must be made in a timely manner, before it is too late for the firm to recover. 12. BellSouth Services is considering putting divisional EFE and IFE matrices online for continual updating. How would this affect strategy evaluation? Answer: Putting divisional EFE and IFE matrices online could facilitate strategy evaluation, but generally these matrices are part of the internal information system of a firm, and are not made available publically. So continual updating is good and desired, internally, rather than the updating being a public process. 13. What types of quantitative and qualitative criteria do you think Ellen Kullman, CEO of DuPont, uses to evaluate the company’s strategy? Answer: Ms. Kullman uses financial ratios as quantitative criteria to evaluate DuPont’s market development strategy. She also used Rumelt’s qualitative criteria for evaluating strategies. She continually monitors internal and external factors as part of DuPont’s strategy-evaluation process, because significant changes in underlying factors can necessitate a change in corporate strategy before those factors negatively impact earnings and revenues. 14. As owner of a local, independent supermarket, explain how you would evaluate the firm’s strategy. Answer: For small businesses such as a local supermarket, strategy evaluation is less formal than in large organizations. However, both qualitative and quantitative criteria should be used to evaluate the small supermarket’s strategies, because large supermarket stores offer one-stop shopping for virtually everything. I would follow the three basic activities presented in the chapter: 1) Review the underlying bases of strategy, 2) measure performance, and 3) take corrections. 15. Under what conditions are corrective actions not required in the strategy-evaluation process? Answer: The only time corrective actions would not be required in strategy evaluation is when major changes have not occurred in the firm’s internal or external strategic position, and the firm is progressing satisfactorily towards achieving its stated objectives. 16. Identify the types of organizations that may need to evaluate strategy more frequently than others. Justify your choices. Answer: Organizations that compete in more turbulent industries may need to evaluate strategies more often than others. Examples include the telecommunications, aerospace, software, smartphone, and media industries. 17. As executive director of the state forestry commission, in what way and how frequently would you evaluate the organization’s strategies? Answer: Strategy evaluation should be an ongoing, continuous process rather than conducted at the end of a specified period of time, such as at the end of each year or at the end of every three years. The need exists to continually re-evaluate the forestry commission’s strategies as legislative actions evolve and as constituency groups align for or against important issues facing the state. I would follow the three basic activities presented in the chapter: 1) Review the underlying bases of strategy, 2) measure performance, and 3) take corrections. 18. Identify some key financial ratios that would be important in evaluating a bank’s strategy. Answer: In a bank, two key financial items are demand deposits (checking accounts) and time deposits (savings accounts). Other important items are commercial loans and consumer loans. The ratio of these items to total bank assets and total bank profits could be particularly important in evaluating the strategies of a bank. Even ratios such as # of customers by square footage of branch, or the ratio of consumer loans to commercial loans, are the type unique ratios important to a bank. 19. Strategy evaluation allows an organization to take a proactive stance toward shaping its own future. Discuss the meaning of this statement. Answer: Proactive means the firm tries to anticipate, initiate, and influence. Reactive means the firm just reacts to events and trends. Strategy evaluation enhances a proactive approach to management. 20. Explain and discuss the Balanced Scorecard. Answer: The Balanced Scorecard is a strategy evaluation tool that allows a firm to evaluate strategies from four perspectives: financial performance, customer knowledge, internal business processes, and learning and growth. It includes examination of customer loyalty, manager and employee morale, operations and processes, business ethics, sustainability, social responsibility, community involvement, and financial issues. The word “balanced” derives from the balance of quantitative with qualitative objectives and measures. Too many firms rely only on quantitative ratios and such measures. 21. Why is the Balanced Scorecard an important topic both in devising objectives and in evaluating strategies? Answer: The Scorecard is often used to evaluate strategies. The Balanced Scorecard is a strategy evaluation tool that allows a firm to evaluate strategies from four perspectives: financial performance, customer knowledge, internal business processes, and learning and growth. It includes examination of customer loyalty, manager and employee morale, operations and processes, business ethics, sustainability, social responsibility, community involvement, and financial issues. The word “balanced” derives from the balance of quantitative with qualitative objectives and measures. Too many firms rely only on quantitative ratios and such measures. 22. Develop a Balanced Scorecard for a local fast food restaurant. Answer: Answers to this question will vary, but should follow the Balanced Scorecard template shown below.
Area of Objectives Measure or Target Time Expectation Primary Responsibility
Customers
1.
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Managers/Employees
1.
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3.
Operations/Processes
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Community/Social Responsibility
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Business Ethics/ Natural Environment
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3.
Financial
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23. Do you believe strategic management should be more visible or hidden as a process in a firm? Explain. Answer: Most students will agree that some strategic information should remain confidential to top managers, and that steps should be taken to ensure that such information is not disseminated beyond the inner circle. Visibility and openness may not be best for all strategists and all firms. However, the are some important benefits of visibility, as indicated below: Reasons for Visibility ● All stakeholders can readily contribute to the process, which results in many excellent ideas. ● Investors and creditors have a greater basis for supporting a firm. ● Visibility promotes democracy and secrecy promotes autocracy. ● Participation and openness enhances understanding, commitment, and communication within the firm. Reasons for Secrecy ● Without secrecy, competitive intelligence can learn and exploit information. ● Secrecy limits criticism, second-guessing, and hindsight. ● Participants in a visible strategy become more attractive to rival firms who may lure them away. ● Secrecy limits rival firms from imitating or duplicating the firm’s strategies and undermining the firm. 24. Do you believe strategic management should be more a top-down or bottom-up process in a firm? Explain. Answer: There is support for both approaches. Those who support the top-down approach believe that top executives are the only persons in the firm with the collective experience, acumen, and fiduciary responsibility to make key strategy decisions. Those who support the bottom-up approach believe that lower and middle-level managers and employees who will be implementing the strategies need to be actively involved in the process of formulating the strategies to assure their support and commitment and to be assured that their ideas and wisdom is included in the process. 25. Do you believe strategic management is more an art or science? Explain. Answer: The textbook supports a scientific view based on objective analysis of relevant factors. However, others like Mintzberg recognize that there can be a “craft” to developing strategies and some strategies do emerge based on situations. The bottom line however is that too much is at stake, and the variables are too many and too interrelated, to rely on an artistic approach. The author contends that strategic management is 70% science and 30% art. Judgment and intuition always come into play, even in assigning weights and ratings in analytical tools, but gathering, assimilating, and prioritizing information is essential in strategic planning. Answers to the End-of-Chapter Assurance of Learning Exercises ASSURANCE OF LEARNING EXERCISE 9A: EXAMINE 100 BALANCED SCORECARDS Answer: The term “balanced” comes from the need to balance quantitative with qualitative objectives in managing a business operation. Just Google “balanced scorecard images” and you come to the url below that provides over 100 different visually appealing balanced scorecard images: http://www.google.com/search?q=balanced+scorecard+images&hl=en&tbm=isch&tbo=u&source=univ&sa=X&ei=MDqFUfm0NpHK9QSpxoDQCA&ved=0CC0QsAQ&biw=1440&bih=713 Some of the most common design elements are: • Diagram with four boxes for financial, customer, internal business processes, learning and growth • Pyramid diagram • Database image • Flowchart A sample balanced scorecard that students may wish to reference in this activity.
Area of Objectives Measure or Target Time Expectation Primary Responsibility
Customers
1.
2.
3.
Managers/Employees
1.
2.
3.
Operations/Processes
1.
2.
3.
Community/Social Responsibility
1.
2.
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Business Ethics/ Natural Environment
1.
2.
3.
Financial
1.
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ASSURANCE OF LEARNING EXERCISE 9B: PREPARE A STRATEGY-EVALUATION REPORT FOR PEPSICO Answer: Current statistics reveal that per capita soda consumption in the USA has dropped annually for the last fifteen years, to 44 gallons in 2013, from 54 gallons in 1998. The primary reason for this decline is increasing health concerns associated with carbonated drinks. However, a May 2013 survey by the U.S. Food and Beverage Industry estimates that the food and beverage industry will see high growth in 2013 from new health/wellness products (51%), increased selling prices (40%) and new customers (59%). Consumer preferences are shifting from soda drinks to juice, tea, bottled water, and flavored water. The shift from carbonated drinks to energy drinks as a huge opportunity (and threat) for PepsiCo; the firm needs to add ‘rehab’ drinks and energy drink flavors to its product portfolio. PepsiCo needs to develop and offer new energy products globally. PepsiCo can still make significant money selling soda in emerging markets, like its Asia & Middle East and Africa markets, where sales rose by 12% and 15% respectively in the first quarter of 2013. In addition, PepsiCo is working to increase its cola sales by adding Novel natural sweetener in cola drinks without sacrificing the taste. This cola drink is under FDA review process, and as soon as it gets approval, it will likely be launched in all markets. PepsiCo is also cutting 8,700 jobs across 30 countries, or 3 percent of its workforce globally, as part of its profit/efficiency improvement program. This PepsiCo program seeks to save the firm $900 million annually and $3 billion in total by 2014. This efficiency program will cover every aspect of business from production to distribution and marketing. Unlike PepsiCo, rival Dr. Pepper Snapple Group (NYSE: DPS) derives 90% of its revenue from North America and, 70% of it comes from carbonated drinks. Thus, DPS is focusing on international expansion, as the firm recently announced the repurchase of distribution rights in its South Asia and Pacific regions. With this, DPS can now distribute its products in Australia, China, Japan, South Korea and Malaysia directly. DPS is also planning to expand its four major products: 7UP, Sunkist, A&W, and Canada Dry into the international market. These products were launched in early 2013 in more international markets. Sales increased by 70% year-over-year in January 2013 for 7/11 Stores. PepsiCo could try to acquire DPS. ASSURANCE OF LEARNING EXERCISE 9C: EVALUATE YOUR UNIVERSITY’S STRATEGIES Answer: This exercise is largely a reflection upon the earlier SWOT analysis students conducted for their institution, especially Exercise 5G. Institutions of higher education face rising costs in terms of salaries and benefits, technology, building maintenance, and more - at the same time that state funding is dropping. In response, tuition fees have been on the rise, but the public feels that tuition is rising too fast and that students are not getting added value for those increased prices. Many schools are adding revenue by adding students, so classrooms and dorms are becoming more crowded and is leading to decreases in satisfaction. Institutions are also making other changes, such as the following: 1. Providing more online courses and degrees. 2. Providing satellite campuses. 3. Shifting to more practical, skills-based, certification course content, away from so much theory and liberal arts approach. 4. Increase fundraising activities 10-fold, basically naming every classroom for a giver, and of course every building for a contributor, etc. 5. Schools of business could alter their tenure and promotion guidelines to encourage and reward more practitioner-based research and consulting from faculty. 6. Business schools could hire more faculty who have business experience and credentials. 7. Business schools could develop tracks with majors in order to enable students to specialize in certain marketable areas. Chapter 10 - Business Ethics/Social Responsibility/Environmental Sustainability Overview Chapter 10 describes the importance of business ethics, environmental sustainability, and social responsibility in strategic management, including such topics as workplace romance, bribery, pollution abatement, whistleblowing, and philanthropy. Issues related to these topics can significantly bolster or derail the best strategic plan, so Chapter 10 explains how these topics can best be managed. The Chapter 10 Learning Objectives as provided in the textbook are as follows: 1. Discuss the ethics of workplace romance. 2. Explain why concern for wildlife is a strategic issue for firms. 3. Explain why good ethics is good business in strategic management. 4. Explain how firms can best ensure that their code of business ethics guides decision making instead of being ignored. 5. Explain why whistleblowing is important to encourage in a firm. 6. Discuss the nature and role of corporate sustainability reports. 7. Discuss specific ways that firms can be good stewards of the natural environment. 8. Explain ISO14000 and 14001. 9. Discuss recent trends in bribery law. Teaching Tips 1. This is an important chapter, not only for AACSB reasons, but also because these issues have become so important in management effectiveness. Go slow and easy through the chapter. 2. The workplace romance section is of special interest to students, and of importance in managing a firm too. 3. Environmental sustainability has obviously become a key strategic issue for all organizations, so cover each of the sections on this topic. 4. We especially like to review Table 10-3 on “Songbirds and Coral Reefs” since that example serves as a reminder of the overall importance of firms being environmentally friendly and proactive. 5. The review questions are nice to go over in class. 6. We usually cover at least one of the end-of-chapter exercises. Answers to End-of-Chapter Review Questions 1. Discuss the ethics of workplace romance. Answer: Workplace romance is an intimate relationship between two truly consenting employees, as opposed to sexual harassment, which the EEOC defines broadly as unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature. An organization probably should not strictly forbid workplace romance, because such a policy could be construed as an invasion of privacy, overbearing, or unnecessary. Some romances actually improve work performance, adding a dynamism and energy that translates into enhanced morale, communication, creativity, and productivity. (http://www.businessknowhow.com/manage/romance.htm) To avoid unethical accusations or situations, workplace romance guidelines should be established and apply to all employees at all levels of the firm, and should specify certain situations where affairs are especially discouraged, such as supervisor/subordinate. Company guidelines or policies in general should discourage workplace romance because “the downside risks generally exceed the upside benefits” for the firm. It is important to note that workplace romance can be detrimental to workplace morale and productivity, for a number of reasons, including: 1. Favoritism complaints can arise. 2. Confidentiality of records can be breached. 3. Reduced quality and quantity of work can become a problem. 4. Personal arguments can lead to work arguments. 5. Whispering secrets can lead to tensions and hostilities among coworkers. 6. Sexual harassment (or discrimination) charges may ensue – either by the involved female or a third party. 7. Conflicts of interest can arise, especially when well being of the partner trumps wellbeing of the company. Organizations should establish guidelines or policies that address workplace romance, for at least six reasons: 1. Guidelines can enable the firm to better defend itself against and avoid sexual harassment or discrimination charges. 2. Guidelines can specify reasons (such as the 7 listed above) why workplace romance may not be a good idea. 3. Guidelines can specify resultant penalties for romancing partners if problems arise. 4. Guidelines can promote a professional and fair work atmosphere. 5. Guidelines can help assure compliance with federal, state, and local laws and recent court cases. 6. Lack of any guidelines sends a lackadaisical message throughout the firm. 2. Explain why concern for wildlife is a strategic issue for firms. Answer: Consumers, customers, employees, managers, investors, suppliers, distributors, creditors, and shareholders all are concerned about protecting innocent wildlife. If a firm’s operations hurt wildlife in any manner, those actions could go viral on the Internet, and significantly damage the firm. Firms need to be careful to conduct operations in an environmentally friendly manner, doing minimal to no harm to wildlife, and prepare and publish an annual Sustainability Report giving details of company operations as per aspects that could potentially harm wildlife. 3. Explain why whistle-blower payouts by the federal government to informants are becoming more and more common. Answer: The Securities and Exchange Commission (SEC) recently strengthened its whistle-blowing policies, virtually mandating that anyone seeing unethical activity report such behavior. Although most firms have internal whistle-blowing incentives and policies and try to keep such matters internal, recent laws and court cases are shifting disclosure and settlements outside the firm. 4. Compare and contrast the British Bribery Law with the American Bribery Law. Answer: The U.S. Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies from paying or offering to pay foreign government officials or employees of state companies to gain a business advantage. The U.S. Foreign Corrupt Practices Act that governs bribery is being enforced more strictly. The United Kingdom instituted a new Bribery Law in April 2011 that forbids any company doing any business in the United Kingdom from bribing foreign or domestic officials to gain competitive advantage. The new British law is more stringent even than the similar U.S. Foreign Corrupt Practices Act. The British Bribery Law carries a maximum 10-year prison sentence for those convicted of bribery. The new law stipulates that “failure to prevent bribery” is an offense and stipulates that facilitation payments, or payments to gain access, are not a valid defense to prevent bribery. 5. Compare procedures in the corporate world versus a university setting in terms of how sexual harassment complaints are investigated outside the organization. Answer: A new wave of ethics issues related to sexual harassment has accentuated the need for strategists to develop a clear code of business ethics. Companies are individually responsible for handling sexual harassment claims and are held liable for such claims. Among colleges and universities, the federal Office of Civil Rights (OCR) has stepped up its investigation of sexual harassment cases brought forward by female students against professors. At no charge to the student, the OCR will investigate a female student’s claim if evidence is compelling. In a corporate setting, the EEOC investigates sexual harassment complaints and penalizes firms as deemed necessary. 6. Compare the EEOC with the OCR in terms of mission and scope of operations. Answer: EEOC's primary mission is to promote equality of opportunity in the workplace and enforcement of federal laws prohibiting employment discrimination against employees. OCR investigates complaints, enforces rights, promulgates regulations, develops policy and provides technical assistance and public education to ensure understanding of and compliance with non-discrimination and health information privacy laws among government agencies and federally-funded colleges and universities. 7. AOL has 100 lobbyists on its payroll and spent $20 million on lobbying in Washington, DC in 2013. Is this ethical? Answer: Yes. In the USA, lobbying is both ethical and legal. Lobbyists however must be careful not to bride federal officials and sometimes there is a fine line between lobbying and bribing. 8. If you owned a small business, would you develop a code of business conduct? If yes, what variables would you include? If no, how would you ensure that your employees were following ethical business standards? Answer: It is advisable for all businesses, large and small, to have a clear code of business ethics. Such codes provide a guideline for appropriate behavior and aid in decision-making. Chris MacDonald gives the following guidelines (available at www.ethicsweb.ca) for developing a code of ethics: ● What will be the purpose of your new code? Is it to regulate behavior? To inspire? ● Different kinds of documents serve different purposes. Is your new document intended to guide people or to set out requirements? Is it really a Code of Ethics that you need? You might consider creating a Values Statement, a Policy, a Mission, and a Code of Conduct. ● A code of ethics should be tailored to the needs and values of your organization. ● Many ethics codes have two components. First, an aspirational section, often in the preamble, that outlines what the organization aspires to, or the ideals it hopes to live up to. Second, an ethics code will typically list some rules or principles, which members of the organization will be expected to adhere to. ● Will your new ethics document include some sort of enforcement? If so, what kind? ● Often the principles or values listed in an ethics document will be listed in rough order of importance to the organization. The ordering need not be strict, but generally the value or principle listed first will have a natural prominence. ● Think carefully about the process by which you create your new code. Who will be involved? A small working group? Or all the people affected by the code? How will you distill the needs of your organization and the beliefs of your members into a document? The process may matter as much as the final product. ● How will your new code be implemented? How will it be publicized, both inside and outside of your organization? What steps, if any, will be taken to ensure that the values embodied in your code get implemented in organizational policies and practices? ● How/when will your code be reviewed/revised? 9. What do you feel is the relationship between personal ethics and business ethics? Are they, or should they be the same? Answer: In the USA the two are basically the same, but in some countries, such as Russia, business ethics has lower standards than personal ethics. Business ethics encompass more situations than personal ethics, but a personal ethics doctrine still provides a basis for all business ethics decisions. 10. How can firms best ensure that their code of business ethics is read, understood, believed, remembered, and acted on rather than ignored? Answer: To ensure that a code is read, understood, believed, and remembered, periodic ethics workshops are needed to sensitize people to workplace circumstances and examples in which ethics issues may arise. In addition, if employees see examples of punishment for violating the code as well as rewards for upholding the code, this reinforces the importance of a firm’s code of ethics. 11. Why is it important not to view the concept of “whistle-blowing” as “tattle-telling” or “ratting” on another employee? Answer: Whistle-blowing refers to policies that require employees to report any unethical violations they discover or see in the firm. Managers and employees that fail to report an ethical violation by others could be terminated or worse held legally responsible for the illicit action. The SEC recently strengthened its whistle-blowing policies, virtually mandating that anyone seeing unethical activity report such behavior. 12. List six desired results of “ethics training programs” in terms of recommended business ethics policies/procedures in the firm. Answer: Some desired results are: 1) enhanced employee/manager awareness of what is ethical/unethical, 2) increased whistleblowing in the firm, 3) less unethical acts going on in the firm, 4) increased organizational performance since good ethics is good business, 5) increased motivation and dedication among employees/managers, 6) few to no ethics-related penalties assessed against the firm. Ethics training programs can help firms align ethical and strategic decision making by: 1) relaying messages from the CEO or owner of the business emphasizing ethical business practices, 2) relaying information about the development and discussion of codes of ethics, 3) providing procedures for discussing and reporting unethical behavior, 4) incorporating ethical considerations into long-term planning, 5) integrating ethical decision making into the performance appraisal process, 6) encouraging whistle-blowing or the reporting of unethical practices, and 7) monitoring departmental and corporate performance regarding ethical issues. 13. Discuss bribery. Would actions such as politicians adding earmarks in legislation or pharmaceutical salespersons giving away drugs to physicians constitute bribery? Identify three business activities that would constitute bribery and three actions that would not. Answer: A bribe is a gift bestowed to influence a recipient’s conduct. For example, adding earmarks to legislation would become bribery if the earmark was included to influence someone’s behavior. In another example, a pharmaceutical salesperson would engage in bribery if she/he has given away drugs to a physician in exchange for free goods or services. Some business activities that would constitute bribery would be paying someone for their vote or support on an issue, awarding extra vacation time for support on an upcoming vote, someone getting a promotion in exchange for sexual favors. Some actions not considered to be bribery are tipping, bringing donuts to work every Friday for employees, or giving employees a quarterly bonus. 14. How could a strategist’s attitude toward social responsibility affect a firm’s strategy? On a 1 to 10 scale ranging from Nader’s view to Friedman’s view, what is your attitude toward social responsibility? Answer: Strategists should examine social problems in terms of potential costs and benefits to the firm, and focus on social issues that could benefit the firm most. Corporate social policy should be designed and articulated during strategy formulation, set and administered during strategy implementation, and reaffirmed or changed during strategy evaluation. Nader’s view of social responsibility is that organizations have tremendous social obligations. He says some companies are larger than some countries and as such do have social obligations. Friedman’s view of social responsibility is that organizations have no obligation to do any more for society than is legally required. To spend monies for charitable endeavors for example is a misuse of shareholders money. Students’ attitudes toward social responsibility in terms of these two viewpoints will differ. Most economists, such as Friedman, are close to a 10, whereas Sierra Club members for example would be close to a 1. 15. How do social policies on retirement differ in various countries around the world? Answer: Many countries around the world are facing severe workforce shortages associated with their aging populations. Unlike the USA, Japan is reluctant to rely on large-scale immigration to bolster its workforce. Instead, Japan provides incentives for its elderly to work until ages 65 to 75. Western European countries are doing the opposite, providing incentives for their elderly to retire at ages 55 to 60. The percentage of foreign workers to the total population is 20 percent in the USA, nearly 10 percent in Germany, 5 percent in the U.K., and less than 1 percent in Japan. 16. Firms should formulate and implement strategies from an environmental perspective. List eight ways firms can do this. Answer: The following are ways that firms can formulate and implement strategies from an environmental perspective: ● Developing or acquiring green businesses ● Divesting or altering environment-damaging businesses ● Striving to become a low-cost producer through waste minimization and energy conservation ● Pursuing a differentiation strategy through green-product features ● Including an environmental representative on their board of directors ● Conducting regular environmental audits ● Implementing bonuses for favorable environmental results ● Becoming involved in environmental issues and programs ● Incorporating environmental values in mission statements ● Establishing environmentally oriented objectives ● Acquiring environmental skills ● Providing environmental training for employees and managers ● Annually publish a Sustainability Report ● Become ISO14000 certified 17. Discus the major requirements of an EMS under ISO 14001. Answer: The major requirements of an EMS under ISO 14001 include the following: • Show commitment to preventing pollution, continual improvement in overall environmental performance, and compliance with all applicable statutory and regulatory requirements. • Identify all aspects of the organization’s activities, products, and services that could have a significant impact on the environment. • Set performance objectives and targets for the management system that link to pollution prevention, continual improvement, and compliance. • Meet environmental objectives that include training employees, establishing work instructions and practices, and establishing the actual metrics by which the objectives and targets will be measured. • Conduct an audit operation of the EMS. • Take corrective actions when deviations from the EMS occur. Answers to the End-of-Chapter Assurance of Learning Exercises ASSURANCE OF LEARNING EXERCISE 10A: HOW DOES MY MUNICIPALITY COMPARE TO OTHERS ON BEING POLLUTION-SAFE? Answer: Go to http://scorecard.goodguide.com/. This assignment enables students to develop an understanding of environmental issues and concerns in their own municipality. For extra credit, students may be encouraged to research local polluting companies to determine what they are doing to become more environmentally sustainable. ASSURANCE OF LEARNING EXERCISE 10B: EVALUATE PEPSICO’S GLOBAL CODE OF CONDUCT Answer: The PepsiCo statement can be found at: http://www.pepsico.com/Company/Global-Code-of-Conduct.html Three Good Aspects of the PepsiCo Ethics Statement 1. It is available in many languages with a single click on the web site. 2. It is an outstanding website, clearly laid out with related links, and the CEO’s smiling endorsement. 3. It has an active Speak Up icon on the site to encourage any and all employees to speak up about any wrongdoing they see. 4. Although 38 pages in length, it is very clearly organized around relevant topics. Three Not-So-Good Aspects of the PepsiCo Ethics Statement 1. There is no heading for workplace romance. 2. There is no sustainability heading. 3. It is lengthy. Three Reasons Why Simply Having a Code of Ethics Is Not Sufficient 1. Platitudes are worthless unless meaningfully followed and enforced. 2. People are inundated daily with laws, rules, and regulations, so visibility and enforcement are essential for people to take any code seriously. 3. Many firms have a code of ethics that is not actively followed or utilized; evidence must be clear for its use in guiding behavior, otherwise there is no “proof in the pudding.” Various methods for achieving an ethical culture are listed below: 1. Develop a code of business ethics. 2. Reward ethical decisions and practices. 3. Set a good example. 4. Conduct ethics workshops. 5. Have everyone sign the code of ethics during pre-employment activities. 6. Encourage performance regarding ethical issues. 7. Monitor performance regarding ethical issues. 8. Institute severe penalties and policies for unethical behavior. ASSURANCE OF LEARNING EXERCISE 10C: COMPARE AND EVALUATE SUSTAINABILITY REPORTS Answer: Since the latest PepsiCo report as of 5-15-13 on the website is from 2010 (i.e., old), and the Coca-Cola report is from 2012 and very well organized and comprehensive, the better report is the latter. More specific information is given below. Three Good Aspects of PepsiCo’s Sustainability Report 1. Very comprehensive = 140 pages, very well organized 2. Includes hundreds of sustainability statistical facts about the company 3. Is available in segments so you can build your own PDF of the Report Three Not-So-Good Aspects of PepsiCo’s Sustainability Report 1. As of 5-15-13, only the 2010 version of the Report is available on the web site 2. Is not broken down by country 3. Does not provide comparative information vs. rival firms or the industry Three Good Aspects of Coca-Cola’s Sustainability Report 1. Very comprehensive = 115 pages, very well organized 2. Includes hundreds of sustainability statistical facts about the company 3. Is available as a video or PDF Three Not-So-Good Aspects of Coca-Cola’s Sustainability Report 1. Is not broken down by country 2. Reveals on main web page that Coca-Cola’s CEO is also Chairman of the Board 3. Does not provide comparative information vs. rival firms or the industry ASSURANCE OF LEARNING EXERCISE 10D: THE ETHICS OF SPYING ON COMPETITORS Answer: A proposed answer is given below. This exercise is a quiz that addresses the different opinions individuals may have about what actually constitutes unethical behavior and how one’s beliefs might change with the situation. Answers to this exercise will vary for each person or group taking the test but the critical portion of the exercise is to use the answers as a basis for in-class discussion. Try to find commonalities in what the students identified as ethical or unethical. Perhaps many students found analyzing information that is readily available (like reading competitors’ want ads) ethical but gathering information that is not publicly available unethical (like conducting phony job interviews). Encourage students to think about what they would do under different circumstances. Would their views change if they worked for a company that was struggling to survive? What if they learned that the competitor had used unethical tactics to gather information on their company? How would they resolve their feelings on the ethics of spying if their manager asked them to gather competitive intelligence? Using these questions as a basis for discussion will enhance the learning experience for students. ASSURANCE OF LEARNING EXERCISE 10E: WHO PREPARES A SUSTAINABILITY REPORT? Answer: This makes an interesting Internet homework assignment. You may ask several students to give an oral report of their findings in class. Many companies proactively prepare Sustainability Reports to ensure compliance with state and federal regulations and to protect shareholder interests. However, many other companies reactively prepare Sustainability Reports to illustrate that they are compliant with regulations. Shareholders may want Sustainability Reports because it will allow them better information on potential liabilities. Chapter 11 - Global/International Issues Overview Chapter 11 explains how to identify and manage global issues in formulating, implementing, and evaluating strategies. Special topics include business culture, business climate, labor unions, protectionism, tax rate variation, and management style variation across countries. Chapter 11 describes how communication and business practice vary across countries so that strategic planning can be more effective. The Chapter 11 Learning Objectives as stated in the textbook are as follows: 1. Discuss the nature and implications of labor union membership across Europe. 2. Discuss income tax rates and practices across countries. 3. Explain the advantages and disadvantages of entering global markets. 4. Discuss protectionism as it impacts the world economy. 5. Explain when and why a firm (or industry) may need to become more or less global in nature to compete. 6. Discuss the global challenge facing U.S. firms. 7. Compare and contrast business culture in the United States with many other countries. 8. Describe how management style varies globally. 9. Discuss communication differences across countries. 10. Discuss Africa as the newest hotspot for business entry. Teaching Tips 1. The first important issue in this chapter is the “Advantages and Disadvantages” section, because virtually all firms either have global customers or seek global customers. 2. The second important issue in this chapter is the “USA vs. Foreign Business Cultures.” Ask students who have traveled or lived outside the USA and ask them to speak about differences between business cultures across countries. Tell students that being knowledgeable of business culture across countries can help you be a more effective businessperson – because almost all firms have global customers. 3. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 4. The third important issue in this chapter is “Business Climate Across Countries” which compares and contrasts key business factors across countries. This whole chapter is important for AACSB purposes and because most industries are becoming more and more global each day. 5. At the end of Chapter 11, direct student attention to the “Special Note to Students” because this is important information as the team prepares and ultimately delivers their oral case analysis presentation later in the course. 6. Regarding the end-of-chapter review questions, consider assigning one half of them one day in class giving each student a question, and letting them tell the class the answer, with you commenting on their answers. Do the other half another day. This is a fun day in class and it goes pretty quickly. 7. Several of the end-of-chapter Assurance of Learning Exercises can be used as excellent homework or classwork assignments to be completed as an individual or as a group of students. We cover at least two of these exercises each semester in each class. Answers to End-of-Chapter Review Questions 1. Why are some American companies, such as Eaton, reincorporating in foreign countries, such as to Dublin, Ireland, as did Eaton? What are the pros and cons of that strategy? Answer: Pros 1. Avoid the 35% U.S. corporate tax rate. 2. Locate closer to new customers. 3. Take advantage of lower wage rates and/or being closer to raw materials. Cons 1. Forgo many of the protections afforded by the U.S. federal law. 2. Forgo many of the conveniences in the USA, such as rising value of the dollar and improving economic conditions. 3. Endure possible stigma that some Americans desire to buy-American. 2. Give specifics regarding the nature and role of “Union Membership across Europe.” What are the strategic implications of these facts and figures? Answer: Europe in general is much more unionized than the USA. There is great variation in Europe as per levels of union membership, ranging from 74 percent of employees in Finland and 71 percent in Sweden to 9 percent in Lithuania and 8 percent in France. However, percent union membership is not the only indicator of strength, because in France for example, unions have repeatedly shown that despite low levels of membership they are able to mobilize workers in mass strikes and demonstrations to great effect. The average level of union membership across the whole of the European Union, weighted by the numbers employed in the different member states, is 23 percent compared to about 11 percent in the USA. The European average is held down by relatively low levels of membership in some of the larger EU states, Germany with 19 percent, France with 8 percent, and Spain with 16 percent and Poland with 15 percent. The three smallest states, Cyprus, Luxembourg and Malta, have levels well above the average. The three Nordic countries of Denmark, Sweden, and Finland are at the top of the table with around 70 percent of all employees in unions. In part this is because, as in Belgium – which also has above average levels of union density – unemployment and other social benefits are normally paid out through the union. High union density in the Nordic countries also reflects an approach that sees union membership as a natural part of employment, as shown by the relatively high proportion of employees – around 53 percent – who are union members in Norway, where unemployment benefits are not paid through the unions. Central and Eastern Europe nations generally have below average levels of union membership. In Poland for example 16 percent of employees are estimated to be union members. Level of union membership is clearly trending downward all over Europe. Only eight states out of the 27 EU states plus Norway – Belgium, Cyprus, Ireland, Italy, Luxembourg, Malta, Norway, and Spain – have seen a gain in union members among the employed in recent years, and in most of these countries, this growth has not kept pace with the overall growth in employment, meaning that union density has drifted downwards. The two exceptions appear to be Ireland and Italy where union membership is slowly growing. 3. Give specifics regarding income tax rates and practices across countries, and associated strategic implications. Answer: The USA has the highest corporate income tax rate (35%) of all countries. Bermuda has a zero corporate income tax rate. Ireland has a 12.5 corporate tax rate. Many Internet companies have established headquarters and get the bulk of their European revenue in Ireland. For example, although Google has 300+ employees in France, Google’s customers in France buy ads from Google Ireland Ltd. – so Google pays France fees through a marketing agreement, rather than paying the 34 percent corporate tax rate in France. Microsoft has a similar arrangement in France as Google. To avoid paying USA taxes on income made in other countries, many American companies are cash-rich outside the USA but cash-poor inside the USA, and they bring cash back to the USA only as needed. For example in late 2012, Microsoft had $66.6 billion in total cash, but only $8.6 billion in the USA. General Electric had $85.5 billion in total cash, but only $30.7 billion in the USA. Emerson Electric has $2 billion in total cash with almost all of it in Europe and Asia so the firm had to borrow money in the USA rather than bring its cash back and pay a 35 percent corporate USA tax on corporate profits minus whatever ax it has already paid overseas. A recent Wall Street Journal article (12-4-12, p. B1) details this repercussion of the USA having the highest tax rate in the world. The article reveals that Johnson & Johnson keeps virtually all of its $24.5 billion in cash outside the USA, as does Illinois Tool Works Inc. Whirlpool has 85 percent of its cash offshore. Bruce Nolop, former CFO of Pitney Bowes explains it this way: “You end up with the really peculiar result where you are borrowing money in the USA, while you show cash on the balance sheet that is trapped overseas. It is a totally inefficient capital structure.” The U.S. tax system, unfortunately for Americans, is structured so that companies can cut their tax bill by shifting income offshore to lower-tax countries. 4. Exports from the USA comprise about 11 percent of GDP, compared to about 35 percent of Germany’s GDP. What are implications of this for American firms doing business globally? Answer: With exports comprising only 11 percent of GDP, the USA is still largely a domestic, continental economy, and what happens inside the USA largely determines the strength of the U.S. economy. The USA has substantial room for improvement in doing business globally, although many large companies already obtain 50+ percent of their revenues from outside the USA. 5. Make a good argument for keeping the statutory corporate tax rate in the USA the highest in the world. Make the counter argument. Answer: The primary argument for keeping the statutory corporate tax rate in the USA is that it generates revenue that benefits American citizens, organizations, and communities and helps keep America safe and strong. Portions of this revenue go toward programs that further promote domestic development initiatives. Portions go to making the USA arguably the nicest place in the world to live and work. The counter argument however is that many domestic and foreign-based companies locate facilities, operations, and headquarters outside the USA to avoid high taxes. The USA would become more competitive in attracting business and industry if it cut tax rates, as other countries have been doing for that very reason. 6. Explain how awareness of business culture across countries can enhance strategy implementation. Answer: Language, culture, and value systems across countries differ significantly, and many domestic firms do substantial business in other countries. This means that millions of American managers and employees are interacting with people in other countries on a daily basis. Being knowledgeable of differences in culture across countries can therefore enable American managers and employees to be more effective in doing business with people and companies in other lands. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 7. Describe the business culture in Brazil. Answer: In both Brazil and America, men greet each other by shaking hands while maintaining steady eye contact. Women in Brazil greet each other with kisses. The official language in Brazil is Portuguese. Avoid embarrassing a Brazilian by criticizing him/her publicly. However it is considered acceptable to interrupt someone who is speaking. Appointments are commonly cancelled or changed at the last minute in Brazil. Brazilians pride themselves on dressing well. A manicure is expected for ladies. Brazilians are more comfortable doing business with and negotiating with people than companies, so establishing personal rapport is important. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 8. Describe the business culture in Germany. Answer: Business communication in Germany is very formal, so the home is a welcome, informal place. Only close friends and relatives are invited into the sanctity of a person’s house. Germans are like Americans in that they do not need a personal relationship to do business. They are more interested in academic and company credentials. It is very rude to cancel a meeting at the last minute and this could jeopardize the business relationship. Americans are more flexible in many respects than Germans, where punctuality is more important even than in the USA. Attention to detail and hierarchical position in a firm is also more important than in the USA. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 9. Describe the business culture in Egypt. Answer: In Egypt, greetings are based on both social class and religion, so it is wise for foreigners to follow the lead of others. Handshakes are the customary greeting among Egyptians of the same sex. Egyptians will do business only with those they know and respect, so foreigners can expect to spend some time cultivating a personal relationship before business is conducted. In Egypt, appearance is important and conservative attire is recommended. Egyptians are tough negotiators and do not like confrontation or having to say “no.” Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 10. Describe the business culture in China. Answer: In China, greetings are formal and the oldest person is always greeted first. Like in the USA, handshakes are the most common form of greeting. If invited to a Chinese person’s home, foreigners should consider this a great honor and should arrive on time. The Chinese rarely do business with companies or people they do not know. Like in the USA and Germany, punctuality is very important in China. The Chinese are shrewd negotiators, so an initial offer or price should leave room for negotiation. The Chinese have an excellent sense of humor. Gender bias is usually not an issue in China. Unlike Americans and Europeans, the Chinese do not mix business and socializing. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 11. Describe the business culture in India. Answer: India’s rate of female participation in the labor force is quite low, since Indian women are expected to let their careers take a back seat to caring for their families. Like in many Asian cultures, people in India do not like to say “no,” verbally or nonverbally. Indians believe that giving gifts eases the transition into the next life. Be mindful that neither Hindus nor Sikhs eat beef, and many are vegetarians. Indians prefer to do business with those with whom they have established a relationship built upon mutual trust and respect. Titles such as professor, doctor, or engineer are very important in India, as is a person’s age, university degree, caste, and profession. There is significant sexual harassment in India, but recent cases have gone viral and prompted new laws and penalties. India is in the news of late about their laws regarding women that are raped having the option of marrying their rapist, and convictions for a rapist being lighter for any women believed not to be a virgin, etc. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 12. Describe the business culture in Mexico. Answer: Mexico is an authoritarian society in terms of schools, churches, businesses, and families. Employers seek workers who are agreeable, respectful, and obedient, rather than innovative, creative, and independent. Mexican workers tend to be activity oriented rather than problem solvers. Mexican employers are paternalistic, providing workers with more than a paycheck, but in return, they expect allegiance. In Mexico, business associates entertain each other at restaurants rather than at their homes. Mexicans do not feel compelled to follow rules that are not associated with a particular person in authority. Life is slower in Mexico than in the USA. Note at http://www.doingbusiness.org/rankings that Mexico is ranked # 48 globally among all countries – in terms of being attractive for doing business. 13. Describe the business culture in Japan. Answer: The Japanese place great importance on group loyalty and consensus, a concept called wa. Most corporate activities in Japan encourage wa among managers and employees. Wa requires that all members of a group agree and cooperate; this results in constant discussion and compromise. Most Japanese managers are reserved, quiet, distant, introspective, and other oriented, whereas most U.S. managers are talkative, insensitive, impulsive, direct, and individual oriented. 14. List in prioritized order the top four countries in Africa that are safe, worthwhile, and potentially lucrative for opening new business operations. Give a rationale for each. Answer: According to Table 11-5, the top four African countries in terms of ease-of-doing-business are: 1) South Africa, 2) Tunisia, 3) Ghana, and 4) Egypt. South Africa and Ghana have rich resources and a stable political and economic situation. Recent regime changes in Egypt and Tunisia may spur further investment in Africa as democracy and capitalism strengthens. 15. What are several especially attractive aspects of the Philippines for beginning business operations in that country? What are some drawbacks? Answer: The Philippines is a highly educated, English speaking country, whose people love Americans (for rescuing them in WWII); Filipinos do not mind working from 12 midnight to 8 in the morning since that coincides with the U.S. 8 to 5 workday. The country recently overtook India in the number of call-center jobs, and also recently overtook Indonesia as the world’s biggest supplier of voice-based call-center services. The Philippines has about 98 million people, making it the world’s 12th largest in population. The business culture in the Philippines is “to deliver absolutely fantastic service.” Drawbacks of beginning business operations in the Philippines include the fact that, although unemployment is at 6.9 percent, underemployment is 18 percent. Also, the Philippines has only a 9 percent Internet penetration rate among its population. 16. Do some research on Singapore to determine whether you agree that the country merits its #1 ranking globally in attractiveness for doing business. Answer: Singapore has a very high per capita GDP ($49,321) compared to other countries and a very low inflation rate (.2 percent). It also has perhaps the busiest harbor in the world, very low crime, excellent education facilities, very modern infrastructure, and wonderful weather. 17. To what extent do you feel political unrest in the Middle East will spread outside the region? Would that be a good or bad thing for global business? What countries do you feel may experience political unrest? Why? Answer: Violence and political unrest in the Middle Eastern countries is a bad thing for global business because it deters investment by companies into that region of the world, and because businesses are afraid the violence could spill over into other regions. The civil war in Syria in 2012/2013 killed thousands, and the leadership in Iran still poses a major problem for Iranian people. American forces in the region help to stabilize the region to not get totally out of control. 18. About 53 percent of people in Belgium are members of a labor union. Compare and contrast the labor union situation across European countries and comment on the positive and negative impact this factor has on attracting business investment into those countries. Answer: There is great variation in Europe as per levels of union membership, ranging from 74 percent of employees in Finland and 71 percent in Sweden to 9 percent in Lithuania and 8 percent in France. However, percent union membership is not the only indicator of strength, because in France for example, unions have repeatedly shown that despite low levels of membership they are able to mobilize workers in mass strikes and demonstrations to great effect. The average level of union membership across the whole of the European Union, weighted by the numbers employed in the different member states, is 23 percent compared to about 11 percent in the USA. The European average is held down by relatively low levels of membership in some of the larger EU states, Germany with 19 percent, France with 8 percent, and Spain with 16 percent and Poland with 15 percent. The three smallest states, Cyprus, Luxembourg, and Malta, have levels well above the average. The three Nordic countries of Denmark, Sweden, and Finland are at the top of the table with around 70 percent of all employees in unions. In part this is because, as in Belgium – which also has above average levels of union density – unemployment and other social benefits are normally paid out through the union. High union density in the Nordic countries also reflects an approach that sees union membership as a natural part of employment, as shown by the relatively high proportion of employees – around 53 percent – who are union members in Norway, where unemployment benefits are not paid through the unions. Most European workers are unionized and enjoy more frequent vacations and holidays than U.S. workers. A 90-minute lunch break plus 20-minute morning and afternoon breaks are common in European firms. Guaranteed permanent employment is typically a part of employment contracts in Europe. In socialist countries such as France, Belgium, and the United Kingdom, the only grounds for immediate dismissal from work is a criminal offense. Many Europeans resent pay-for-performance, commission salaries, and objective measurement and reward systems. 19. Explain why consumption patterns are becoming similar worldwide. What are the strategic implications of this trend? Answer: As a result of improvements in global communications, technology, smartphones, and travel, consumers across the world are increasingly exposed to the same advertising, the same cultural events, the same news, and the same forms of entertainment. As a result, the tastes of consumers across the world are converging. This development helps to explain why consumption patterns are becoming similar worldwide. One implication is that your rival firms may be gaining economies of scale and learning on you by engaging in operations and sales outside the USA more so than you, which could become a problem for you. 20. What are the advantages and disadvantages of beginning export operations in a foreign country? Answer: The following are the primary advantages and disadvantages of initiating export operations in a foreign country. Advantages: ● International operations can absorb excess capacity, reduce unit costs, and spread economic risks over a wider number of markets. ● Firms can gain new customers for their products and services, thus increasing revenues. ● Competitors in foreign markets may not exist, or competition may be less intense than in domestic markets. Disadvantages: ● Firms confront different and often little understood social, cultural, demographic, and competitive forces when doing business overseas. ● Weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated. ● Language, cultural, and value systems differ among countries, and this can create barriers of communication and other problems. ● There are different currencies, tariffs, laws, taxes, regulations, suppliers, distributors, monetary policies, and infrastructure. 21. What are the major differences between U.S. and multinational operations that affect strategic management? Answer: Language, cultural, and value systems differ among countries, as do the number and nature of competitors. There are also different currencies, tariffs, laws, taxes, regulations, suppliers, distributors, monetary policies, and infrastructure. Therefore, the external audit part of strategic management is much more complicated if the firm does substantial business outside the USA. 22. Why is globalization of industries a common factor today? Answer: The following are trends that are contributing to the globalization of industries around the world: ● Markets are converging in terms of tastes, trends, and prices. ● More and more countries are welcoming foreign investment and capital. ● Advancements in telecommunications and smartphones are drawing countries, cultures, and organizations worldwide closer together. ● Growth in demand for goods and services outside the USA is higher than inside. ● 95% of the world’s population live outside the USA, and firms can gain economies of scale by selling to those people. 23. Compare and contrast U.S. versus foreign cultures in terms of doing business. Answer: Americans tend to emphasize time while other cultures tend to place more value on relationships. Americans also tend to have larger areas of personal space than many other cultures. Materials wealth is important to Americans. In some other countries, men are valued more than females, and in many countries females are restricted from being business owners and managers. Quality of life and family time may be more important in other countries, while Americans tend to focus on personal achievement. Americans value competitiveness and individualism, while other cultures often value modesty, team spirit, collectivity, and patience more. Regardless of where someone is doing business and with whom, it is important to study cultural differences and adapt, be cognizant, and be respectful of cultural differences. Regarding culture across countries, go to http://www.worldbusinessculture.com/ and spend some time here viewing business culture in various countries. 24. List six reasons that strategic management is more complex in a multinational firm. Answer: Reasons that strategic management is more complex in a multinational firm are: 1) risk of expropriation of assets, 2) potential for currency losses through exchange rate fluctuations, 3) possibility of unfavorable foreign court interpretations of contracts and agreements, 4) social/political disturbances, 5) import/export restrictions, 6) tariffs, and 7) trade barriers. 25. Do you feel that protectionism is good or bad for the world economy? Why? Answer: Protectionism refers to countries imposing tariffs, taxes, and regulations on firms outside the country to favor their own companies and people. Many countries are protectionist in some industries, some countries much more than others. Most economists argue that protectionism harms the world economy, because it inhibits trade among countries and invites retaliation. 26. Why are some industries more “global” than others? Discuss. Answer: Different industries become global for different reasons. For example, the need to amortize R&D investments over many markets is a major reason why the aircraft manufacturing industry became global. When firms manufacture a product, they select the lowest-cost source. For the semiconductor industry, this may be Japan, for the textile industry, Sri Lanka may be the best location. For simple electronics, Malaysia may be selected. For precision machinery, Europe may be the best option. Thus, companies try to take advantage of whatever resources (natural, physical, or human) particular firms have to offer, so that spurs globalization in some industries more so than others. It is a particularly risky as a strategy to stay domestic in an industry that is largely global. 27. Wa, quanxi, and inhwa are important management terms in Japan, China, and South Korea, respectively. What would be analogous terms to describe American management practices? Answer: In Japan, business relations operate with the context of Wa, which stresses group harmony and social cohesion. An analogous American term could be team spirit or collegiality. In China, business behavior revolves around guanxi, or personal relationship. An analogous American term could be trust or confidentiality. In South Korea, activities involve concern for inhwa, or harmony based on respect of hierarchical relationships, including obedience to authority. An analogous American practice could be to follow the chain of command. 28. Why do many Europeans find the notion of “team spirit” in a work environment difficult to grasp? Answer: Many Europeans find the notion of team spirit difficult to grasp because the unionized environment has dichotomized worker-manager relations throughout Europe. 29. In China, feng shui is important in business, whereas in Japan, nemaswashio is important. What are analogous American terms and practices? Answer: Feng shui is the practice of harnessing natural forces, whereas nemaswashio is the expectation that supervisors will alert employees privately of changes, rather than informing them in a meeting. Proxemics is an analogous American business term. This term deals with the spatial arrangement of furniture for various types to meetings, and even the location of meetings in various places (your office or golf course for example) to create an environment for the most effective communication. American managers strive to be considerate and respectful, so both private and public meetings are widely utilized to enhance communication. 30. Compare tax rates in the USA versus other countries. What impact could these differences have on “keeping jobs at home?” Answer: The lowest tax rates among developed countries reside in Europe, with an average corporate tax rate among European countries at 26 percent. In comparison, 30 percent is the average tax rate among Asia-Pacific countries, and 38 percent is the tax rate for the United States and Japan. Many countries are lowering tax rates to attract investment. A low corporate tax rates will encourage business investment, whereas a high corporate tax rate will discourage business investment. 31. Discuss requirements of doing business in India. Answer: Because India’s middle class is rapidly growing, foreign firms are continuing to invest. Joint ventures remain mandatory for foreign companies doing business in India. Most joint ventures among firms in India and foreign firms fail. The Indian government has eased the joint-venture restriction in the investment-banking industry, but not in other areas. Due to tourism growing 12 percent annually, hotel chains are scrambling to get established in India. At his web site http://www.doingbusiness.org/rankings, note that India is ranked #132 among 185 countries in terms of being attractive to do business. Note also the really low ranking with regard to getting a construction permit to build a facility. Answers to the End-of-Chapter Assurance of Learning Exercises ASSURANCE OF LEARNING EXERCISE 11A: COMPARE BUSINESS CULTURES ACROSS COUNTRIES Answer: Students can use this web site to answer this assignment: http://www.kwintessential.co.uk/tools/resources/country-profiles.html This is an excellent, fun homework assignment that gives students an opportunity to develop an understanding of business culture in countries different from their own. Perhaps let every student select a different country. Basic headings in each student’s report to the class could be: Social etiquette and customs ● Meeting and greeting ● Mixing between genders ● Names and titles ● Gift-giving etiquette ● Dining etiquette Business etiquette and customs ● The relationship ● Business cards ● What to wear ● Business meetings ● Negotiating ASSURANCE OF LEARNING EXERCISE 11B: STAPLES WANTS TO ENTER AFRICA. HELP THEM. Answer: Students can use this website to answer this exercise: http://www.doingbusiness.org/rankings or this website http://en.wikipedia.org/wiki/Lists_of_universities_and_colleges_by_country Student can see from the above website all countries in Africa and their relative attractiveness for doing business – and select their eight countries from the list. This exercise is more about Africa that about Staples, but Staples is a global, office-products company with delivery and retail businesses serving customers in 26 countries through 2,300 Staples stores. About 1,915 Staples stores are located in North America. Staples does not currently do business directly in Africa. Expansion into Africa may be a risky move, and would qualify as a “first mover” strategy. Staples’ chief competitor, Office Depot sells to customers in 56 countries throughout North America, Europe, Asia, and Latin America, but also does not do business yet in Africa. In addition to its retail outlets, Staples sells office products via the Internet and through its catalog and direct sales operations, including subsidiary Quill Corp. Staples also has 25 stand-alone copy and print shops. Staples is growing in Europe, Asia, and South America. Africa is a natural next step for Staples. ASSURANCE OF LEARNING EXERCISE 11C: DOES MY UNIVERSITY RECRUIT IN FOREIGN COUNTRIES? Answer: To complete this exercise, students can use the website http://en.wikipedia.org/wiki/Lists_of_universities_and_colleges_by_country to select a country, and for AACSB information across countries can use http://www.aacsb.edu/accreditation/AccreditedMembers.asp ASSURANCE OF LEARNING EXERCISE 11D: ASSESS DIFFERENCES IN CULTURE ACROSS COUNTRIES Answer: Students may find the template below useful in completing this exercise.
1st Interviewee 2nd Interviewee 3rd Interviewee 4th Interviewee
Interviewee Name
Foreign Country
Time spent in country
Differences in speaking customs
Differences in meeting customs
Differences in meal customs
Differences in relationship customs
Differences in friendship customs
Differences in communication
ASSURANCE OF LEARNING EXERCISE 11E: HOW WELL TRAVELED ARE BUSINESS STUDENTS AT MY UNIVERSITY? Answer: This is a great exercise to offer students for extra credit. Perhaps ask every student in class to complete this survey, and for extra credit, have a marketing major that has completed marketing research do the analyses and report back to the class his/her findings and conclusions. The ten survey questions listed in the textbook or this exercise are as follows: 1. How many states in the USA have you visited? 2. How many states in the USA have you lived in for at least three months? 3. How many countries outside the USA have you visited? 4. List the countries outside the USA that you have visited. 5. How many countries outside the USA have you lived in for at least three months? 6. List the countries outside the USA that you have lived in for at least three months. 7. To what extent do you feel that traveling across the USA can make a person a more effective businessperson? Use a 1-10 scale, where 1 is “Cannot make a difference” and 10 is “Can make a tremendous difference.” 8. To what extent do you feel that visiting countries outside the USA can make a person a more effective businessperson? Use a 1-10 scale, where 1 is “Cannot make a difference” and 10 is “Can make a tremendous difference.” 9. To what extent do you feel that living in another country can make a person a more effective businessperson? Use a 1-10 scale, where 1 is “Cannot make a difference” and 10 is “Can make a tremendous difference.” 10. What three important ways do you feel that traveling or living outside the USA would be helpful to a person in being a more effective businessperson? Solution Manual for Strategic Management: A Competitive Advantage Approach, Concepts and Cases Fred R. David, Forest R. David 9780133444797, 9780135173947, 9780134167848, 9780135199978
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