CH-9-11 International Strategic Alliances: Design and Management – Multinational Management: A Strategic Approach : Chapter Notes

This Document Contains Chapters 9 to 11 CHAPTER 9 INTERNATIONAL STRATEGIC ALLIANCES: DESIGN AND MANAGEMENT Learning Objectives •Know the steps for implementation of successful international strategic alliances •Describe how multinational companies link value chains in international strategic alliances •Understand the importance of choosing the right partners for alliances •Know the important characteristics to look for in potential alliance partners •Distinguish between equity-based international joint ventures and other types of international cooperative alliances •Know the basic components of an international strategic alliance contract •Understand the control systems and management structures used in alliance organizations •Appreciate the unique problems in human resource management faced by managers in alliance organizations •Realize the importance of interfirm commitment and trust for building successful international strategic alliances •Understand how multinational companies assess the performance of their international strategic alliances •Know when companies should continue or dissolve their alliances Introduction •Because strategic alliances are fast and flexible ways of gaining complementary resources, they are among the most popular strategies that companies use to develop new products and to expand into new areas •Alliances fail most often due to poor design or management as opposed to a poor strategic choice to enter into the alliance •Although strategic alliances are attractive, they are inherently unstable and risky •Failure rate ranges from 30 to 60% •Even profitable alliances can be torn by conflict •Successful alliances must make strategic sense but also require good implementation Exhibit 9.1 Implementing a Strategic-Alliance Strategy (Demonstrates the steps necessary to implement a successful strategic alliance) Where to Link in the Value Chain? Exhibit 9.2 Examples of Linking Value Chains in Strategic Alliances (Shows two value chains and the areas in which companies commonly link to gain strategic benefits) •Alliances that combine the same value-chain activities do so to gain efficient scale of operations, to merge compatible talents, or to share risks •In operations alliances, multinational companies often combine manufacturing or assembly activities to reach a profitable volume of activity •Marketing and sales alliances allow companies to increase the scope and number of products sold and to share distribution systems •Output alliances deliver a service and are perhaps the most popular in the airline industry •Alliances linking upstream and downstream components of the value chain can serve the objectives of low-cost supply or manufacturing •For U.S. companies, the majority of international strategic alliances occur in operations Exhibit 9.3 Value Chain Links in U.S. International Strategic Alliances (shows patterns in domestic vs. international strategic alliances) Choosing a Partner: The Most Important Choice? •Most experts attribute success or failure of strategic alliances to how well the partners get along •Experts identify several key criteria for picking an appropriate alliance partner •Seek strategic complementarity - exists when the alliance partners’ strategies are complementary •Pick a partner with complementary skills – which are ones that enhance but do not necessarily duplicate an alliance partner’s skills •Seek out companies with compatible management styles – As Lord Weinstock, the managing director of Britain’s GEC put it, “You have to suppress the ego – it’s absolute poison in a joint venture.” •Seek a partner that will provide the right level of mutual dependency - with a balanced dependency, both partners feel equally dependent on the outcome of the venture •Avoid the so-called anchor partner – which is a partner that holds back the development of a successful strategic alliance because it cannot or will not provide its share of the funding •Be cautious of the elephant-and-ant complex - occurs in a strategic alliances when two companies are greatly unequal in size Exhibit 9.4 International Strategic Alliances for Small Multinational Companies: Incentives and Concerns (Contrasts some of the incentives and concerns for small businesses in international strategic alliances) •Assess operating policy differences with potential partners - need to work out day-to-day operational differences •Assess the difficulty of cross-cultural communication with a likely partner – managers should expect slower communication and more errors of understanding Choosing an Alliance Type •Three main types of strategic alliances •Informal international cooperative alliances •Formal international cooperative alliances •International joint ventures Exhibit 9.5 Types and Characteristics of International Strategic Alliances (Outlines the major differences among the types) Informal and Formal International Cooperative Alliances •Informal international cooperative alliance – a nonlegally binding agreement between companies to cooperate on any value chain activity •Can be agreements of any kind and can provide links between companies anywhere on the value chain •Companies may use them as a test for more formal agreements •No legal protection means limited involvement between companies •Formal international cooperative alliance (ICA) – a nonequity alliance with formal contracts specifying what each company must contribute to the relationship •Sharing of proprietary information or knowledge raises level of involvement between companies •Very popular in some high tech industries because of high costs and risks of R&D International Joint Ventures •International joint venture (IJV) – a separate legal entity in which two ore more companies from different nations have ownership positions •The simplest IJV occurs when two parent companies have 50/50 ownership of the venture •Not necessarily two partners; large number of partners is called a consortium (example: Airbus) – although two-partner joint ventures are the most common •No need for equal ownership •Difficulty arises in determining ownership from equity contributions other than cash •50/50 partnership may not mean both partners have equal influences on the venture Negotiating the Agreement •IJVs and ICAs require contractual agreements be negotiated and signed •The formal agreement is not as important as the ability of managers to get along •IJV negotiation issues – points such as equity contributions, management structure, and “prenuptial” agreements regarding the dissolution of the relationship •In general, experts recommend that negotiation teams with technical and negotiation experience handle an alliance agreement Exhibit 9.6 Selected Questions for a Strategic Alliance Agreement (Shows some of the questions that must be addressed as IJV negotiation issues) Building the Organization: Organizational Design in Strategic Alliances •Design depends on the type of alliance chosen •Informal ICAs often require no formal design •Formal ICAs may require a separate organizational unit •IJVs are separate legal entities, and require a separate organization •Two key issues in managing an alliance organization •Decision-making control •Management structure Decision-Making Control •Two major areas need to be considered •Operational decision making (day-to-day running of the organization) •Strategic decision making (long-term survival of the organization) •Majority ownership does not necessarily mean control of the decision making •In an IJV, strategic decision making is usually at the level of the IJV’s board of directors or the top management team •IJV parent companies who want control of operational decision making usually have most of their people serving as mid- to lower-level managers Management Structures •Mix of strategic and operational decision-making control among alliance partners is often complex and unique •Five typical management structures •Dominant parent – majority owner or contributor who controls or dominates the strategic and operational decision making of the alliance •The dominant parent usually has majority ownership of the IJV •The dominant parent treats the IJV as if it was a wholly owned subsidiary •Shared management structure – occurs when both parent companies contribute approximately the same number of managers to the alliance organization •Split control management structure – partners usually share strategic decision making but split functional-level decision making •At the functional level, partners make decisions independently •Independent management structure – alliance managers act like managers from a separate company •Characteristic of more mature IJVs – seldom occurs in ICAs •Alliances often recruit managers in this structure from outside the parent companies •Rotating management •Key positions in the management hierarchy rotate among partners •Popular for IJV partners from developing countries •Serves to train local management and transfer expertise to the developing country Choosing a Strategic Alliance Management Structure •If one parent has dominant position, then dominant management structure is favored •Equal ownership shares or equal resource contribution: more balanced management structure such as shared, split, or rotating management structures •Key factors considered when designing management structures •If partners have similar technologies or know-how and they contribute this knowledge equally to the alliance, a shared management structure is preferred •If partners have different technologies or know-how and they contribute this knowledge equally to the alliance, a split management structure is preferred •If the alliance has more strategic importance to one partner, a dominant management structure is likely •Mature joint ventures move to independent structures as the IJV’s management team gains more expertise •Joint ventures in countries with a high degree of government intervention produce IJVs with local partner dominance •Independent management structures more likely when the market is expanding, the venture does not require much capital, or the venture does not require much capital, or the venture does not require much R&D input from its parents Commitment and Trust: The Soft Side of Alliance Management •Without trust and commitment, the alliance will either fail entirely or fail to reach its strategic potential The Importance of Commitment and Trust •Commitment – in a strategic alliance, when partners take care of each other and put forth extra effort to make the venture work •Attitudinal commitment – the willingness to dedicate resources and efforts and to face risks to make the alliance work •Fair exchange – in a strategic alliance, when partners believe that they receive benefits from the relationship equal to their contributions •Calculative commitment – alliance partner’s evaluations, expectations, and concerns regarding the potential rewards from the relationship •Trust and commitment go hand in hand •Two types of trust •Credibility trust – the confidence that the partner has the intent and ability to meet promised obligations and commitments •Benevolent trust – the confidence that the partner will behave with good will and with fair exchange •Most experts believe trust develops in “trust cycles” – initial suspicion of partner’s motives; then gradual suspicion decline as each side deals repeatedly with the other Exhibit 9.7 Trust/Commitment Cycle (Illustrates the trust and commitment cycle in strategic alliances) •Why is trust important? •Successful cooperation requires that alliance participants contribute quality inputs into the alliance organization •Formal contracts can never identify all the issues that arise in strategic alliances •The technology and know-how of organizations entail tacit knowledge – rules, procedures, and ways of doing things that are part of the organization’s culture Building and Sustaining Trust and Commitment •Pick your partner carefully: must believe they can trust each other, and that mutual commitment is possible •Know your strategic goals and those of your partner: realize that strategic goals for the ICA or IJV may change •Seek win-win situations: each side must gain something of importance from the relationship •Go slowly. realize that problems arise and take time to work out •Invest in cross-cultural training: cross-cultural sensitivity and language competence leads to more success •Invest in direct communication: greater success in dealings face-to-face •Find the right level of trust and performance: reference Figure 9.8 Exhibit 9.8 The Right Level of Trust and Commitment (Shows the trade-off between the vulnerability that comes with trust and commitment and their benefits) Assessing the Performance of an International Strategic Alliance •Strategic alliances should contribute evenly to their parents’ profitability •Standard efficiency measures of performance are used when immediate results are needed •However, strategic alliances provide direct and indirect benefits •Direct Benefits •Stand alone profit centers provide direct financial benefits to parents •Indirect Benefits •Penetrate risky markets, •Learn new markets or technologies, •Overcome local political barriers, •Develop a presence in the market •Support other competitive tactics •IJV and ICA performance criteria – often must include other than financial criteria, such as organizational learning •Subjective performance criteria •Creating harmony among the partners, •Identifying product adaptations for a new market, •Capturing market share to gain first-move advantages over competitors •“Alliance satisfaction” •Goal accomplishment Exhibit 9.9 Selected Performance Criteria for Strategic Alliances (Shows a list of potential performance measures that parents companies use to evaluate their strategic alliances) If the Alliance Does Not Work •If alliance does not work, managers have two choices: negotiate an end to agreements or improve implementation •Art of managing alliances means knowing when to quit or invest more resources •Escalation of commitment – companies continue in an alliance relationship longer than necessary because of past financial and emotional investments •Plan for the end of the alliance from beginning - “prenuptial agreements” •Death should not be confused with failure – many alliances are intended to be short-term Learning to Partner: Building a Dedicated Strategic Alliance Unit and Key Lessons from Cross-Border Alliances •Alliances are so common today that companies are developing specialized units to manage their design •Experiences companies that have had many strategic alliances are taking the experiences of what has worked and has failed and are developing templates of successful practices •Typically, only the very large multinational companies have enough alliances to dedicate the resources necessary to create a specialized unit •Key lessons learned from successful cross-border alliances •Understand and appreciate business and cultural differences •Keep strong executive support •Communicate •Commitment, trust and dedication •Have checkpoint as the alliance is being implemented •Review alliance’s viability Summary and Conclusions •The use of strategic alliances continues to grow in the global business environment •The most important decision in strategic alliances management is picking the right partner •Strategic alliances have no set structure in ownership, decision making control, of management control •Partners negotiate structures that support their strategic goals •Most experts consider trust and commitment as basic foundations for successful alliances •Because strategic goals for strategic alliances are varied and subtle, strategic alliances performance is difficult to determine •Strategic alliances are inherently unstable and many will fail •International strategic alliances are now so common among the major multinational companies that many have formalized the process of implementing them and their organizations Chapter 9 Case Notes Tata Motors and Fiat Auto: Joining Forces Synopsis In July 2006, Tata Motors, an Indian auto maker, and Fiat Auto, an Italian automaker, announced their intention to form a joint venture to produce passenger cars, engines, and transmissions in India. TM had found its success primarily by operating in the commercial vehicles sector, but when the demand for commercial vehicles fell, it crafted its turnaround strategy based on international growth, in an effort to reduce the dependence on their Indian domestic market. Fiat Auto had gained dominance in the small car sector in its domestic market of Italy, as well as widely throughout Europe and other parts of the world. Due to changing economic conditions in Europe, they lost market share when they were unable to adapt quickly enough. Fiat adopted a growth strategy that entailed the entrance to new markets, of which India was highly attractive. This case reviews the histories of each company in greater detail, and examines the forces that drove the two companies together. The case assignment questions are designed to help the student evaluate the joint venture decision by identifying its strengths and weaknesses, and anticipating the competitive advantages that would or would not come as a result of the joint venture. Case Discussion Questions 1. What is Fiat’s current situation in India? Fiat entered the Indian market in the 1990s, but struggled to gain a significant market share. Its vehicles were considered premium, but they did not resonate with the mass-market appeal needed in India. By 2006, Fiat's presence in India was marginal, with limited dealership networks and service centers. Its sales were poor, and it was in need of a strategy to improve its position in the rapidly growing Indian auto market. 2. What is the business opportunity in India? Do you think that Fiat needs a partner? India’s automobile market was one of the fastest-growing in the world by 2006, especially in the small car and affordable vehicle segments. The growing middle class, economic reforms, and the increasing demand for vehicles presented a significant opportunity. However, India’s market is highly competitive and price-sensitive, dominated by local players like Tata Motors and Maruti Suzuki. Fiat needed a partner to succeed in India due to its poor distribution network, lack of brand awareness, and failure to develop products tailored to the Indian market. Tata, with its established presence, deep local knowledge, and manufacturing capacity, was a strong candidate to help Fiat gain traction. 3. Do you think Fiat and Tata make for good partners? Compare the Fiat-GM relationship with the Fiat-Tata relationship. Fiat and Tata seem to complement each other well in this partnership. Fiat had strong technical expertise and globally recognized brands, but struggled to enter emerging markets like India. Tata, on the other hand, had deep knowledge of the Indian market, strong distribution, and manufacturing capabilities but lacked technical prowess, especially in the passenger car segment. Comparing the Fiat-GM relationship, which ended in a strained breakup, the Fiat-Tata alliance appeared to be more strategically aligned. Fiat and GM had clashing corporate cultures and competing business priorities. The Fiat-Tata partnership seemed more balanced, with each company providing resources the other lacked: Tata’s market access and manufacturing, and Fiat’s technological expertise and global brand recognition. 4. Is the business case convincing for the joint venture? Back up your answer with a financial analysis. The business case appears convincing because: • India’s automotive market is poised for massive growth, and both companies had a lot to gain: Fiat by entering a large, emerging market, and Tata by leveraging Fiat’s global technologies and reputation to enhance its passenger car segment. • Tata could provide cost-effective manufacturing, while Fiat could enhance the product portfolio with better technology and brand appeal. Financial analysis would include looking at the potential cost savings in manufacturing, distribution synergies, and market expansion through Fiat’s product lines. If both companies could capture a significant share of the growing market, the joint venture would deliver long-term profitability. However, more detailed financial data would be needed to confirm this. 5. How would you assess the negotiation process between Fiat and Tata? The negotiation process between Fiat and Tata appeared mutually beneficial, with both companies realizing they had much to offer each other. Tata could enter the passenger vehicle market using Fiat’s technological know-how, while Fiat would gain access to a burgeoning market through Tata’s distribution and manufacturing capacity. The fact that both companies acknowledged their weaknesses and sought complementary strengths suggests the negotiation was collaborative and strategically driven. 6. What would you recommend for the alliance to be successful? • Product Localization: Fiat should work closely with Tata to adapt products to the preferences and needs of Indian consumers, ensuring that models are cost-effective, fuel-efficient, and suited for Indian roads. • Strengthening Distribution and Service Networks: Tata’s vast dealership network should be leveraged to improve Fiat’s service and support in India, which had been lacking. • Continuous R&D Collaboration: Tata and Fiat should continue working together on R&D to create innovative products that blend Fiat’s technical expertise with Tata’s market knowledge. • Brand Positioning: Fiat should clearly position itself as a premium yet affordable brand in India, differentiating itself from competitors. • Cultural Synergy: Both companies must ensure that cultural differences are addressed, and there’s alignment in management practices to avoid conflicts. Analysis 1. What is Fiat’s current situation in India? Fiat’s current position (prior to the JV) was diminishing. One of the main reasons for this was the poor performance of their vehicles. Fiat lacked the ability to focus on what the market demanded, and their customer service was poor. In addition, they did not have a proper distribution network. 2. What is the business opportunity in India? Do you think that Fiat needs a partner? India is one of the fastest-growing automobile markets, so the business opportunities are tremendous. The demand for small passenger vehicles is one of the fastest growing segments of the auto industry, and there are lots of international players anxious to invest in the Indian market. As such, the competition is going to be high which places further pressures on the companies who enter the competitive race. Given that Fiat has been unsuccessful thus-far in the Indian market, and given their poor infrastructure by which they have to grow, Fiat was certainly going to need a significant change in how they operate in order to be a success. A mutually beneficial partner who could strengthen the pieces of the value chain where Fiat was weak, was certainly a viable, if not the best and most realistic option. 3. Do you think Fiat and Tata make for good partners? Compare the Fiat-GM relationship with the Fiat-Tata relationship. The Fiat-Tata partnership was good because: •Fiat-Tata, together, would be targeting the opportunity-rich small car sector •Fiat would gain access to the commercial vehicle sector •It would improve Fiat’s dealership network and customer service by gaining access to TM’s •It would allow TM to gain a greater opportunity for market share in the small and passenger car markets •They will gain access to each other’s manufacturing platforms and technology – thus increasing production capacity •Each would gain operational efficiencies and better utilization of resources – both improvements in the value chain The Fita-Tata partnership was risky because: •TM’s image could be negatively affected by Fiat’s poor reputation of unreliable vehicles and overall poor customer service •They were behind the competition in terms of time to market. The would need to get started quickly if they were going to gain a piece of the market share in India before their competitors released products •The possibility of brand dilution The Fiat-GM relationship would have been undesirable for GM because GM was already struggling to gain entry into the Indian market, so a joint venture with poorly-performing Fiat offered no substantial opportunity for growth into that market. 4. Is the business case convincing for the joint venture? Back up your answer with a financial analysis. Joint ventures are common in the auto industry in general. Auto makers require enormous capital investment and infrastructure that make it difficult to go alone and still remain price competitive. Thus, these stand-alone ventures are fraught with high risk. Fiat was already in a challenging financial position, having received an infusion of credit from private banks with the obligation to either sell or turn the company around. The deal with GM fell through when GM backed out of their plans to purchase Fiat Auto. Fiat found itself in a difficult position. The joint venture with TM allowed Fiat to fulfill its bank loan obligations by improving its competitive position in the market, and gaining financial advantages that would surely come by leveraging efficiencies in the value chain, in partnership with another firm. 5. How would you assess the negotiation process between Fiat and Tata? Key to any negotiation is determining what the other negotiating party’s needs are, and then playing to those needs. Fiat could present itself as attractive to TM by presenting the opportunity for TM to benefit from Fiat’s diesel and petrol engine technology. Since Fiat had dominated the Italian market, Fiat also offered the opportunity for TM to enter the European and South American markets, in order to reduce its dependence on its home market of India. As for Fiat, TM could present the obvious benefit of healing its financial woes, and also bringing credibility back to its brand. It could offer Fiat the access to a better distribution network and service facilities, and also offer a chance to gain ground in the commercial vehicle sector – a sector in which Fiat was lacking. Finally, since Fiat had dominated its home market of Italy, their growth strategy included entrance into new markets. With TM’s large success in the Indian market, Fiat would have been attracted to the significant growth opportunity that a joint venture with TM would have offered. 6. What would you recommend for the alliance to be successful? In order to be successful in this competitive market, they will need to: •Improve efficiencies to the greatest extent possible by focusing on the opportunities along the value chain – take advantage of shared platforms, leverage each other’s technologies, take advantage of shared distribution systems, and negotiate advantages with suppliers by using their leveraged strength in the market place. •Fiat’s side of the business will need to significantly improve its product quality and customer service and after-market support •Launch new and exciting products and be quick to market, so as to stay ahead of the fierce competition •Differentiate their product offerings by customer type and price point so as to avoid competition between the TM and Fiat brands •Maintain separate marketing strategies in order to maintain the distinct characteristics of each brand •In general, Fiat and TM need to identify the strengths of each, and try to leverage those competitive advantages across to the other. Likewise, they need to identify a strategy for reducing each other’s weaknesses. Lessons •This case provides insights into the global auto industry, and the Indian market for this industry in particular •This case also examines the driving factors behind a strategic alliance, and the benefits that come from such a partnership CHAPTER 10 MULTINATIONAL E-COMMERCE: STRATEGIES AND STRUCTURES Learning Objectives •Define the forms of e-commerce •Understand the structure of the Internet economy •Identify the basic components of a successful e-commerce strategy •Know the basic multinational e-commerce business models •Identify the practicalities of running a multinational e-commerce business •Understand the function of enablers in e-commerce operations Introduction •Although still small by comparison to the traditional economy, the Internet economy is booming and growing faster than any other business trend in history •Next generation of multinational managers must address unique challenges in formulating and implementing multinational strategies for the Internet economy •Chapter provides essential background on the nature of e-commerce and the Internet economy The Internet Economy What is E-Commerce? •E-commerce – the selling of goods or services over the Internet •Two types of e-commerce transactions •B2C – business-to-consumer transactions •B2B – business-to-business transactions o Makes up 70-85% of current e-commerce business o Significance of B2B comes from the revolution in supply chain management made possible by electronic links between businesses and suppliers Exhibit 10.1 E-Commerce Value Chain (Shows how e-commerce activities work along the value chain) •New forms of business are spawning through the use of the Internet •C2C – consumer-to-consumer transactions •C2B – consumer-to-business transactions (i.e. price comparison web sites) •Current global presence of e-commerce is measured by two indicators •Secure server – Internet host that allows users to send encrypted data •Internet hosts – computer connected to the Internet with its own Internet Protocol address •OECD (Organization for Economic Cooperation and Development) countries dominate the Internet Exhibit 10.2 Internet Economy as a Percentage of GDP for Selected Countries (Shows the data for G-20 countries.) Exhibit 10.3 Percentage of Households with Internet Access (Shows the trend in the number of households with Internet access in different part of the world) •The OECD sees broadband development as a critical aspect of the Internet and e-commerce •Broadband can result in economic growth, facilitating social and cultural development, and even innovation •A good Internet infrastructure is required to benefit economically from the Internet •Network Readiness Index examines the readiness of countries to benefit from products and services relying on the Internet Fundamentals of E-Commerce Strategy and Structure •E-commerce is evolving quickly •The failure of many start-ups demonstrate that the Internet economy is not without risk Exhibit 10.4 E-Commerce Business Models: Openings & Barriers for Going Global (Provides a summary of the threats and opportunities in each layer in the Internet economy) Steps for Successful E-Commerce Strategy •Seven fundamental requirements 1. Leadership - successful e-commerce is only possible through dynamic and strong leadership 2. Build on current business models and experiment with new e-commerce models – search for ways to reduce costs or enhance traditional services 3. Meet the challenge of developing an e-commerce organization – basic choice is between a separate autonomous entity for e-commerce business and a seamless integration into the current model; also requires strong commitment throughout the organization 4. Allocate resources – commit financial, human, and technological resources to developing e-commerce capabilities 5. Have an e-commerce strategy - companies should ensure that e-commerce is not implemented haphazardly; implement a strong strategic plan 6. Develop appropriate e-commerce systems – to fully benefit from e-comments, there has to be a cultural transformation in how information flows through the organization 7. Measure success - companies need to have metrics in place to measure e-commerce success E-Commerce Strategies: Integrated or Autonomous •Each company needs to decide how e-commerce fits into its existing organizational design and management systems •Brick-and-mortar – traditional or nonvirtual business operation •Degree of interaction between brick and mortar operations and Internet business can occur anywhere in the value chain •The degree of integration can range from the near seamless operations of an Office Depot to the mostly independent operations of Barnes & Nobles and Barnesandnoble.com •Each choice has benefits •The independent operation can move faster and be more entrepreneurial when freed from corporate bureaucracy and it can seek funding from deep pockets of venture capitalists •The integrated operation can benefit from cross-promotion of shared products, shared customer information, increased large-quantity purchase leverage, and economies of scale by using the same distribution channels •Best option for companies is something in between independent and integrated Exhibit 10.5 Key Decisions in Web Business Integration (Shows a decision model with the questions that managers must consider when choosing the best level of integration for the e-commerce unit) •Ways companies can integrate their online and offline operations •Keep customers informed •Share customer data across channels Additional Operational Challenges for an E-Commerce Business •Findings of the Towers Perrin Internetworked Organization Survey •Many companies have difficulty finding partnerships and alliances with customers or third parties •Because of shortage of people with e-commerce skills, it is difficult to attract, retain, and develop employees in the e-commerce unit •Training and development in e-commerce are not yet adequate •Finding ways to provide individuals with growth opportunities and job satisfaction drives employee retention in e-commerce •Deciding what e-commerce functions to outsource is difficult •How can companies meet these challenges? •Develop information and management systems to respond to rapid growth •Maintain rapid decision making, creativity, innovation, and flexibility •Build external relationship with e-commerce support companies and customers •Attract and retain e-commerce-capable talent •Develop an effective management team •Traditional companies with e-commerce must: •Build a common vision and commitment to the e-commerce operation throughout the organization •Change the organization structure to emphasize quick reconfiguration of assets and capabilities •Change the organization culture to create a supporting environment for e-commerce •Attract and retain e-commerce-skilled employees •Alter HR programs to suit the different skill requirements of e-commerce employees Exhibit 10.6 Recent and Expected Organizational Changes in Major Multinational Companies Building E-Commerce Businesses (Shows the organizational changes multinational companies are making to implement their e-commerce strategies) •E-commerce security – degree to which customers feel that their private and personal information is safeguarded by companies collecting it •Cyber criminals are becoming increasingly sophisticated •As the Internet becomes a crucial medium of international trade and commerce, countries are also being urged to improve Internet security •Multinationals also are being encouraged to beef up their Internet security. •Companies need to be concerned about a number of information security issues. •Confidentiality - making sure that private information is protected •Availability - ensuring that information is accessible to authorized users •Integrity - ensuring that the information collected is accurate and reliable •Authentication - having systems in place to ensure that persons using the systems are legitimate •To ensure that these Internet security issues are addressed, experts suggest the use of: 1. firewalls, antivirus protection software, 2. to encrypt data and to require several levels of authentication for users, and to 3. abide by privacy rules Globalizing Through the Internet •The increase in information exchanges and efficiency due to the Internet and e-commerce has made it possible for companies to reach customers worldwide •However, the Internet also is enabling the emergence of a new form of multinational, the born-global firms. •Although a Web site immediately gives the entire world access to a company’s products or services, many of the challenges of globalization faced by traditional brick-and-mortar companies remain •A company must still solve the global-local dilemma Multinational E-Commerce Strategy Formulation: The Nature of the Business •What kind of e-business is easiest to make global? •Depends to a large degree on the types of products or services offered through e-commerce •E-Commerce companies work in three areas •Some move bits or computerized information •Others move money in payment flows •Others move physical products •Each type of operation requires an infrastructure to support the transactions •There is a hierarchy of difficulty in e-commerce depending on infrastructure requirements •Portals and infomediaries, are the simplest, and provide gateways to the internet •At the next level are businesses such as travel services, digital music, and software vendors – must rely on local infrastructure to take payments for their products •Most difficult are e-commerce businesses that rely on a physical infrastructure •Large multinational firms that enter e-commerce with an existing global presence often have an advantage Basic Opportunities and Threats of Multinational E-Commerce •Major attractions of e-commerce globalization are: •Cost reduction – relatively inexpensive to reach international customers via Web •Technology – readily available •Efficiencies – electronic communication and processes can be very efficient •Convenience – Web is in operation all the time regardless of location •Speed of access – company’s products or services can be accessed from anywhere in the world •Some deterrents include: •Return/receipt burden and cost of delivery – if pattern follows catalogue sales, companies should expect 30-40% return rate •Costs of site construction, maintenance, upgrades – can cost millions of dollars per year •Channel conflicts – a company’s websites can conflict with distributors and retailers selling the company’s products •Easily copied models – competitors can easily see and copy product/service/business model •Cultural differences – Web sites must be multilingual and culturally appropriate •Traditional cross-border transaction complexities – exchange rates, varying taxes, and government regulations •Standard or local Web sites – decision to standardize or tailor to local context •Customer trust and satisfaction – determine whether customers abroad will trust and be satisfied Picking a Market •Web entrepreneurs should target countries based on two factors •Attractive market for e-commerce are those with market inefficiencies – ex: formerly state-controlled economies •Target markets with attractive demographics – includes locations with: o Internet population of at least 5% o High literacy rate o A country that participates in at least one free trade agreement o Government with viable legal system •E-commerce potential is great in South America because of the Mercosur trade group and in Southeast Asian countries in the ASEAN trade group •The European Union is the next boom for e-commerce because many countries such as France, Italy, and Germany have retained market inefficiencies of the pre-Union days •Not all countries are equally e-commerce ready •The population must have access to computers and infrastructure links to the Internet •Governments and financial institutions must be ready to protect and process e-commerce transactions Exhibit 10.7 Web Index for Selected Countries (Shows a ranking of the e-commerce readiness of selected countries) •Growth in e-commerce shows that benefits outweigh the risks •Competition is heating up – achieving sustainable competitive advantage is difficult where competitors can easily copy business models Multinational E-Commerce Strategy Implementation •Successful implementation of a multinational e-commerce strategy requires building an appropriate organization and developing the necessary technical capabilities to conduct electronic transactions The Multinational E-Commerce Organization •Amazon.com and Yahoo! provide the most likely models •They are three-tiered, mixing global and local functions •Corporate headquarters provide the vision, strategy, and leadership that drive the electronic marketing •Headquarters provides shared services •Local subsidiaries, which actually deliver goods, take charge of functions better done locally such as managing the supply chain and dealing with regulations Exhibit 10.8 Organizational Structure of the Multinational E-Corporation (Illustrates the Levels and Functions of the Multinational E-Corporation) Technical Capabilities and Implementation Options for Multinational E-Commerce •Components of a successful multinational online presence require electronic capabilities and support throughout the value chain, such as: •Software to process pricing in multiple currencies •Systems that calculate and show purchase information on international shipping, duties, and local taxes such as VAT •Systems that check regulatory compliance with local and international laws •Ability to give support in multilingual service centers •Fraud protection •Electronic payment models in addition to credit cards Web Sites: Localize or Standardize? •Standardized web site – web site that is similar in design and layout around the world •Localized web site – web site that is adapted to the local cultures •Decision to standardize or localize should consider cultural factors, language differences, need for information flow, and customer demands Exhibit 10.9 Major Problems Identified in Web Site Globalization (Suggests that organizational challenges are among the most important issues affecting Web site globalization) To Build or Outsource Technical Capabilities? •Two basic options: •Run all e-commerce functions themselves •E-commerce enablers – fulfillment specialists that provide other companies with services such as Web site translation (as an outsource option) •The enablers provide services and software that translate Web sites, calculate shipping, value-added taxes, duties, and other charges unique to each country •E-commerce enablers exist because many companies do not have the internal resources or capabilities to conduct all e-commerce functions •Many enablers now exist that specialize in helping companies globalize their e-commerce •In addition to e-commerce enablers that provide transaction services, numerous companies also offer web translations •Some have automated the process •Culturally sensitive enablers go beyond simple translation - Web sites must be sensitive to cultural and religious differences •Discussion forums, blogs, and social networking sites are creating new opportunities for companies •Consumers are using user-generated content (UGC) to make purchasing decisions Summary and Conclusions •Chapter introduced basic concepts of general and multinational e-commerce •E-commerce is expanding geometrically •Although the US dominates e-commerce, other areas of the world are catching up •Fundamentals of e-commerce strategy emphasize building on traditional business models and experimenting with cost reductions and areas of differentiation that Internet use might provide •Companies conducting multinational operations via the Internet face some of the same challenges faced by brick-and-mortar multinationals •The Web will probably be one of the most important drivers of globalization in the future Chapter 10 Case Notes Yumcha.com.au Synopsis Set in November 2007, the case is about a soon-to-launch social networking website (Yumcha) in Australia intended for the country's significant Asian population and diaspora. The case describes the process that Yumcha's founder went through in establishing the entity, including her initial motivations and business rationale. The case goes on to describe the dilemma facing the founder in choosing a web developer for the site, including whether to source the developer from new online bidding platforms. The challenges involved in this relatively new means of sourcing and bidding for technical talent are presented. The case also outlines the strategy questions facing the founder concerning expanding the social networking venture in an external environment that has seen the rapid development and expansion of numerous other social networking websites. Case Discussion Questions 1. Analyze Tan’s strategic decision to fund the venture without seeking venture capital from others. What were her reasons for the decision? Is the decision correct, in your view? Tan’s decision to fund Yumcha without seeking venture capital reflects a desire for greater control over the business. She likely wanted to maintain ownership, avoid dilution of equity, and keep full decision-making authority, which can be restricted when venture capitalists (VCs) get involved. Additionally, by avoiding external investors, Tan would not be pressured to focus on short-term profitability or immediate scaling, giving her time to refine the product and grow the business at her own pace. Is the decision correct? This approach has both advantages and disadvantages: • Advantages: • Full control over the business and its strategic direction. • Freedom to experiment with ideas without pressure from investors. • Ability to grow organically without the urgency to provide rapid returns on investment. • Disadvantages: • Lack of funding can limit the company’s ability to scale quickly and compete with better-funded rivals. • The absence of venture capital support might also mean missing out on valuable guidance, expertise, and industry connections that VCs often bring. In my view, the decision could be considered correct if Yumcha was intended as a niche, community-focused project with modest growth expectations. However, if the goal was to scale quickly and compete with established social networking giants, the lack of VC funding could be a limiting factor. 2. What strengths and weaknesses does Yumcha have? Strengths: • Niche Target Audience: Yumcha is specifically tailored for the Asian community in Australia and the diaspora, which could create a sense of belonging and a unique community that general social networks may overlook. • Cultural Relevance: It focuses on a culturally specific demographic, allowing for tailored content, language options, and culturally relevant networking features. • First Mover Advantage (in Australia): Given that no other major social network had specifically targeted the Asian population in Australia at the time, Yumcha could capture this audience early and establish loyalty. Weaknesses: • Lack of Financial Resources: Without VC funding, Yumcha might struggle to invest in essential areas like marketing, technical development, and customer support, all of which are crucial for growth in a competitive online environment. • Competition from Global Social Networks: The rapidly expanding global platforms like Facebook, MySpace, and others could make it difficult for Yumcha to establish itself, especially if these global platforms began to offer similar features to the Asian community. • Uncertainty in Developer Selection: Sourcing talent from online bidding platforms introduces risk in terms of quality, reliability, and consistency. Technical issues or poor development could result in a subpar user experience, affecting growth and reputation. 3. Given the development and expansion of multiple social networking websites since Tan prepared her initial business plan, how can she differentiate her services? Tan can differentiate Yumcha in several ways: • Community-Centric Features: Yumcha could provide culturally specific features such as language options (Mandarin, Cantonese, etc.), content related to Asian-Australian interests, and events for community members. • Focus on User Privacy and Security: As global platforms faced concerns over data privacy, Yumcha could position itself as a more secure, trustworthy alternative, offering features like better user control over data sharing, privacy settings, and community monitoring. • Exclusive Partnerships: Yumcha could collaborate with local businesses and organizations that cater to the Asian community in Australia, offering promotions, partnerships, or exclusive deals that cater to its niche market. This would create a stronger sense of community and offer tangible benefits to users. • Local Event Integration: The platform could feature events, news, and networking opportunities specific to the Asian diaspora in Australia, making it more relevant to daily life than a broader platform like Facebook. • Mobile-First Approach: As smartphones were becoming more popular in 2007, Tan could prioritize mobile app development to reach her audience, ensuring the platform is easy to use and accessible anywhere. These differentiators, combined with Yumcha’s focus on the Asian community in Australia, could create a unique selling proposition in a crowded social networking landscape. Analysis 1. Analyze Tan’s strategic decision to fund the venture without seeking venture capital from others. What were her reasons for the decision? Is the decision correct, in your view? Tan made the decision to avoid venture capital in order to avoid losing ownership control of her venture, to avoid debt-related covenants, and also to avoid being beholden to the agendas of her investors. All of these eventualities would mean that she would lose control of the venture as she envisioned it, and this she wanted to avoid. As a result, she has decided to fund the business entirely on her own, getting support where she can from organizations willing to contribute, and by funding the major portion of the business with advertising revenue and, in the future, with membership fees. Tan is certainly charting her own path. All of the other major social media websites had major funding, including Facebook, MySpace, LinkedIn. They either took venture capital funding, or were well financed by their corporate owners. They have all been successful. As to whether Tan is correct, that is, will the business succeed without venture capital funding, the answer is unknown. Even with funding, there is no guarantee of success. Perhaps Tan will try to do it on her own, and if funding becomes critical, she can rethink the issue of venture capital. 2. What strengths and weaknesses does Yumcha have? Strengths include: •The advantages of being the first to provide a social networking site dedicated to Asian-Australians, and potentially capturing a large market share •An apparent market for the service, from professionals, advertisers, social groups and governments •A group of potential members with attractive demographics Weaknesses include: •Lack or scarcity of funding •An increased number of potential competitors •The need for a web developer •The need for continuing web update and development at low cost •A survey of potential members which is out of date •A survey of potential advertisers which is out of date 3. Given the development and expansion of multiple social networking websites since Tan prepared her initial business plan, how can she differentiate her services? Some of the many ways Tan might differentiate her services are: •Host offline events similar to those offered by Oriented.com, so that members may meet one another, and expand their social and professional networks •Consider adding a group within the website for those who are willing to share a talent, such as Tan’s ability to perform as a jazz singer. Members who are willing could perform at offline events sponsored by Yumcha. This would be a unique function for a professional social networking site. •Consider adding a group within the website for development and enrichment, calling on experts who may or may not be members, who are willing to share their expertise. Such topics may include how to develop a business plan, how to raise venture capital, and the like. •Offer discounted trips to Singapore, China and Japan as a feature to current members, and a way to expand membership in the target country. The event could be promoted both in Australia and in the target country as “Yumcha goes to Singapore,” or “Yumcha in Singapore.” Current members would travel from Australia to Singapore, and Yumcha would host an event in Singapore to recruit members from Singapore. In addition, current members would expand their network to Asians in Singapore, and would help in recruiting. Tan may have advertisers who provide travel or lodging, who would likely be amenable to offering a discount for Yumcha members. In addition, Tan can call on the government missions in Sydney of countries like Singapore, China and Japan, who might be helpful through their tourism offices and business outreach facilities to assist in arranging such trips. In this way, Tan could leverage Australia’s increasing ties to Asia. She may even be able to elicit help from Australia’s government. Students will think of a variety of creative ideas. Lessons •This case showcases the myriad questions and difficulties of starting a web-based business. •The case shows the need to differentiate oneself from competitors in an over-crowded market. •The case demonstrates ways of leveraging available resources with creativity. CHAPTER 11 INTERNATIONAL HUMAN RESOURCE MANAGEMENT Learning Objectives •Know the basic functions of human resource management •Define international human resource management •Understand how international human resource management differs from domestic human resource management •Know the types of workers that multinational companies use •Explain how and when multinational companies decide to use expatriate managers •Know the skills necessary for a successful expatriate assignment •Understand how expatriate managers are compensated and evaluated •Appreciate the issues regarding expatriate assignments for female managers •Know what companies can do to make the expatriate assignment easier for their female expatriates •Understand the relationship between choice of a multinational strategy and international human resource management Introduction •More multinationals are seeking internationally experienced managerial talent to run their operations in the global market •Key ingredient of any successful multinational strategy includes using compatible human resource management (HRM) policies International Human Resource Management Defined •Human Resource Management – recruitment, selection, training and development, performance appraisal, compensation, and labor relations •Deals with the overall relationship of the employee with the organization •Major goals are managing and developing human assets •Basic HRM functions: •Recruitment: identification of qualified individuals for a vacant position •Selection: choosing an individual for the position •Training: providing opportunities to help the individual perform •Performance appraisal: assessing the individual’s performance •Compensation: providing the adequate reward package •Labor relations: the relationship between the individual and the company International Human Resource Management and International Employees •International human resource management (IHRM) – all the HRM functions, adapted to the international setting •Two added complexities compared to domestic HRM •Mixture of workers of different nationalities •Necessary to decide how much HRM policies should be adapted to national culture, business culture, and social institutions Types of Employees in Multinational Organizations •Expatriate – employee who comes from a country that is different from the on in which they are working •Home-country nationals – employees who come from the parent firm’s home country •Third-country nationals – expatriate workers who come from neither the host nor home country •Host-country nationals – local workers who come from the host country where the unit is located •Inpatriates – employees from foreign countries who work in the country where the parent company is located •Flexpatriates – employees who are sent on frequent but short-term international assignments •International cadre (or globals) – managers who specialize in international assignments •Given the high cost of expatriate assignments, flexpatriates and short-term assignments are becoming more popular Multinational Managers: Expatriate or the Host-Country •Deciding on how many expatriates or local managers to use depends on a company’s multinational strategy •A firm can approach this staffing decision by answering questions such as: •Given our strategy, what is our preference for this position (host country, home country, or third country national)? •For Expatriate Managers: •Is there an available pool of managers with the appropriate skills for the position? •Are these managers willing to take expatriate assignments? •Do any laws affect our assignments of expatriate managers? •For Host Country Managers: •Do our host country managers have the expertise for the position? •Can we recruit managers with the desired skills from outside our firm? Is the Expatriate Worth It? •IHRM decisions using expatriates must take into account the costs of such assignments •Compensation packages depend on the cost of living in the host country Exhibit 11.1 Percent of Millenials who want to Work Outside of their Home Country During their Careers (Shows the percentage, by country, of Millenials who want to work outside their home countries.) •Even with such high costs, the success of an expatriate manager is not guaranteed •Surveys show that U.S. multinational often have failure rates for managers in overseas assignments ranging from 10 to 40% •Typical reasons for U.S. expatriate failure •Individual o Personality of the manager o Lack of technical proficiency o No motivation for international assignment •Family o Spouse or family members fail to adapt to local culture or environment o Family members or spouse does not want to be there •Cultural o Manager fails to adapt to local culture or environment o Manager fails to develop relationship with key people in the new country because of the complexities of cultivating networks with diverse people •Organizational o Excess of difficult responsibilities or international assignment o Failure to provide cultural training and other important pre-assignment training such as language and cultural acquisition training o Failure of company to pick the right people for the job o Company’s failure to provide the technical support domestic managers are used to o Failure of company to consider gender equity when considering candidates •Some companies sees international assignments as having a key strategic role •Benefits •International assignments help managers acquire skills necessary to develop successful strategies in a global context •Expatriate assignments help a company coordinate and control operations dispersed geographically and culturally •Global assignments provide important strategic information •Global assignments provide crucial detailed information about local markets •Global assignments provide important network knowledge Exhibit 11.2 Expatriate Success Factors and Selection Methods (Based on Economist Intelligence Unit, 2012.) The Expatriate Manager •Successful multinational organizations develop IHRM policies that maximize their effectiveness Selecting Expatriate Managers •US multinationals traditionally assumed that domestic performance predicts expatriate performance •Besides professional and technical competence, other factors are important for success •Key success factors for expatriate assignments are relational abilities, family situation, motivation, and language skills •Technical and managerial skills: only managers with excellent technical, administrative, and leadership skills have strong likelihood of success •Personality traits: to be able to deal with uncertainties and novelty, expatriate must be flexible, willing and eager to learn new things, be able to deal with ambiguity, have an interest in other people and cultures, and have a good sense of humor •Relational abilities: need the skills to be able to adapt to strange or ambiguous situations; to modify their own behaviors and attitudes •Family situation: consider family situation as the assignments affect spouse and children •International Motivation: managers must have motivation to accept expatriate assignments •Stress tolerance: the ability to tolerate stress, to maintain composure in the face of extreme stressors •Language ability: ability to speak, read, and write the host country language enhances other success factors •Emotional intelligence: being aware of oneself, understanding and relating to others, being empathetic, and managing one’s emotions Exhibit 11.3 Expatriate Success Factors and Selection Methods (Shows some of the key success factors and selection techniques used in the expatriate selection process) •Priority of success factors depends on four assignment conditions: •Assignment length: short-term assignments focuses primarily on technical and professional qualifications •Cultural similarity: between home and host country •Amount of required interaction and communication: with local people •Job complexity and responsibility Exhibit 11.4 What Percentage of Companies are Using more Short Term Assignments? (Based on latest trends as reported by Mercer Consulting.) Exhibit 11.5 Selecting Expatriates: Priorities for Success Factors by Assignment Characteristics (Summarizes issues to consider in setting priorities in the expatriate selection process) Training and Development •Cross-cultural training – increases the relational abilities of future expatriates and, in some cases, of their spouses and families •Many multinational companies still do not invest heavily in cross-cultural training •Training rigor – extent of effort by both trainees and trainers required to prepare the expatriate •Low rigor training lasts for a short period and includes techniques such as lectures and videos on the local culture and briefings concerning company operations •High rigor training may last for over a month and contains more experiential learning, extensive language training, and often interactions with host country nationals Performance Appraisal for the Expatriate •Conducting a reliable and valid performance appraisal is one of the greatest IHRM challenges •Some issues that make expatriate performance appraisals difficult •Fit of international operation in multinational strategy – companies often enter international operations for strategic reasons other than immediate profits •Unreliable data – local subunit data may not be comparable to home country data or from other international operations •Complex and volatile environments - international environment can change rapidly •Time differences and distance separation – expatriates are often out of sight, out of mind •Steps to improve the process •Fit the evaluation criteria to strategy - use appropriate performance measures •Fine tune the evaluation criteria - consider carefully all objectives for the international operation •Use multiple evaluators with varying periods of evaluation - complexity of international situation demands more information than similar appraisals done at home Exhibit 11.6 Building Cross-Cultural Training Rigor: Techniques and Objectives (Shows various training techniques and their objectives as the rigor of the cross-cultural training grows) Exhibit 11.7 Training Needs and Expatriate Assignment Characteristics (Suggests a need for increased training rigor) Exhibit 11.8 Evaluation Sources, Criteria, and Time Periods for Expatriate Evaluation (Shows several common components of expatriate performance appraisals) Expatriate Compensation •Expatriate compensation presents significant challenges to companies •Companies must manage high cost of expatriate assignments with appropriate packages needed to entice expatriates to relocate and motivate performance •Compensation packages tend to include many common factors. •Local market cost of living •Housing •Taxes •Benefits The Balance Sheet Approach •Balance sheet method attempts to equate purchasing power in the host country with purchasing power in the expatriate’s home country •Aim is that the expatriate should not be any better or worse financially as a result of taking the assignment •Typically provided additional salary to include adjustments for differences in taxes, housing costs, and basic goods and services Exhibit 11.9 A Balance Sheet Approach to Expatriate Compensation (Provides a simple view of how the balance sheet approach works) •Other allowances and perquisites •Foreign service premiums - from 10% to 20% of base pay for accepting the individual and family difficulties associated with an overseas assignment •Hardship allowance: extra money for difficult posting due to issues such as high risk or poor living conditions •Relocation allowances: often one month’s salary paid at beginning and end of assignment for miscellaneous costs of relocating •Home-leave allowances: transportation costs for expatriates and families to return home once or twice a year Other Approaches •Headquarters-based compensation system – paying home-country wages regardless of location •Works well when home country wages are high compared to local assignment’s cost of living •Wean expatriates gradually from dependence on perks and allowances •Host-based compensation system – adjusting wages to local lifestyles and costs of living •Expects the expatriate to become an efficient consumer •Global pay systems – worldwide job-evaluations, performance appraisal methods, and salary scales are used •Often used for multiple and continual global assignments •Reduces waste from expatriate perquisites, eliminates steep differences in compensation, and maintains compensation equity for long-term international cadre managers The Repatriation Problem •Bringing expatriate employees home and back into full participation in the company is a difficult problem for many organizations •Repatriation problem – the difficulties that managers face in coming back to their home countries and reconnecting with their home organizations •“Reverse culture shock” - people must relearn the subtleties of their own cultural norms, values, and beliefs •The expatriate must adapt to what is often a new work environment and organizational culture of the home office •Expatriates and their families must relearn to communicate with friends and coworkers in the home and organizational culture •Many expatriates need time to adapt to the basic living environment such as school, food, and weather •Strategies for successful repatriation •Provide a strategic purpose for the repatriation •Establish a team to aid the expatriate •Provide home country information sources •Provide training and preparation for the return International Assignments for Women •Only 12% of expatriates are women •Statistics show that, although multinational companies are willing to promote women domestically, they are reluctant to post them overseas •Personnel managers believe foreigners would be prejudiced against women managers •Very women few have top management positions •North American companies use more women in international positions than do Asian or European companies •Expatriate glass ceiling – the organizational and structural barriers preventing female managers from receiving international assignments •Why are there such strong barriers? •Two important “myths” •Myth 1: Women do not wish to take international assignments: not true, survey showed that three-quarters of women would choose an international position •Myth 2: Women will fail in international assignments because of the foreign culture’s prejudices against local women: survey showed that over 95% of women reported successful expatriate assignments Successful Women Expatriates: Foreign, Not Female •Women are considered as foreigner, not female •Cross-cultural interactions depend more on how host country people react to people of another nationality than on how they react to an expatriate’s gender The Woman’s Advantage and Disadvantage •The woman’s advantage •They are more visible •More likely to excel in relational skills, a major factor in expatriate success •A wider range of interaction options •The woman’s disadvantages •Face the glass ceiling •Need to balance work and family responsibilities •Need to worry about accompanying spouse What Can Companies Do to Ensure Female Expatriate Success? •Due, in part, to an increase in dual-career couples, fewer men are willing to take assignments •Some potential steps to ensuring success: •Provide mentors •Provide opportunities for networking with other working women •Identify and remove barriers Multinational Strategy and IHRM •Examine IHRM orientation or philosophy to ascertain a company’s approach to IRHM IRHM Orientations •IHRM Orientation – a company’s basic tactics and philosophy for coordinating IHRM activities for managerial and technical workers Exhibit 11.10 IRHM Orientation and IHRM Practices for Managers and Technical Workers (Shows how the IHRM orientations relate to some of the basic HRM functions) Ethnocentric IHRM Orientation •Ethnocentric IHRM – all aspects of HRM for managers and technical workers tend to follow the parent organization’s home country HRM practices •Past performance at home and technical expertise govern selection criteria for overseas assignments •Managers’ performances assessed using the same criteria and measures used at home •Ethnocentric conditions limit and discourage cultural adjustments for expatriates •Benefits of Ethnocentric IHRM: •Little need to recruit qualified host country nationals for higher management •Greater control and loyalty to home country nationals •Little need to train home country nationals •Key decisions centralized •Costs of Ethnocentric IHRM: •Possibly limited career development for host country nationals •Host country nationals may never identify with the home company •Expatriate managers are often poorly trained for international assignments and make mistakes Regiocentric and Polycentric IHRM Orientations •More responsive to the host country differences in HRM practices •Both emphasize adaptation to cultural and institutional differences among countries •Regiocentric IHRM – region-wide HRM policies are adopted •Polycentric IHRM – firm treats each country-level organization separately for HRM purposes •Both recruit and select managers from host countries or regions, but regiocentric companies may also look to home country for candidates •Usually place home country nationals in top-level management or technical positions •Tendency for international assignments to have negative effects on the managerial careers of home country nationals •Benefits of polycentric and regiocentric IHRM policies •Reduced training expenses •Fewer language and adjustment issues •Lessened hiring and relocation costs •Costs: •Coordination problems with headquarters based on cultural, language, and loyalty differences •Limited career path opportunities for host country and regional managers •Limited international experience for home country managers Global IHRM Orientations •Global IHRM – recruiting and selecting worldwide, and assigning the best managers to international assignments regardless of nationality •Fit of the manager to the requirements of the job is most important •Capable managers adapt easily and well to different cultures •Usually bilingual or multilingual •International assignment necessary for a successful career •Managers need continual training for cultural adaptation •Benefits of Global IHRM •Bigger talent pool •High international expertise •Development of transnational organizational cultures •Costs: •Difficulty in importing managerial and technical employees •Added expense Summary and Conclusion •When HRM are applied in an international setting, it becomes IHRM •Two key issues in IHRM are the mixture of expatriate and host country managers, and knowing how to adapt home company HRM practices to the host country’s situation •Expatriate managers have some benefits and costs •As companies face a global shortage of mangers, they will increasingly rely on their women managers to fulfill expatriate responsibilities •It is therefore imperative that multinationals become more aware of the significant barriers their women managers face in taking international assignments •Multinationals need to take the necessary measures in order to facilitate the female expatriate experience •Successful IHRM presents one of the most important challenges in the 21st century Chapter 11 Case Notes The Road to Hell Synopsis This is a relatively short case that nevertheless has strong lessons regarding expatriates and the challenges they face in their overseas assignments. The case begins with Baker, a British expatriate, considering how to approach Rennalls, a local but well-connected manager in fictitious Barracania. Baker will be leaving Barracania and therefore needs to appoint a successor. To do so, he meets with Rennalls for a performance appraisal. Baker decides to make a breakthrough with Rennalls by discussing what he thinks are strengths and weaknesses of Rennalls. However, not surprisingly, Rennalls finds the performance appraisal (and Baker’s comments) very offensive and resigns the following day. Case Objectives 1. Provides some insights in some of the challenges facing expatriates 2. Discusses the need to reassess one’s cultural ‘knack’ even after a series of foreign assignments – shows that each culture is really different 3. Illustrates the cultural appropriateness of Western based performance appraisal systems – such as the plus and minus technique Case Discussion Questions. 1. What are the strengths and weaknesses of the performance review technique used by Baker? Strengths: • Honesty and Direct Feedback: Baker’s intent to provide Rennalls with candid feedback reflects a typical Western performance appraisal approach, which values open dialogue and constructive criticism to foster professional growth. • Structured Approach: The "plus and minus" technique used by Baker, where both strengths and weaknesses are discussed, can provide a balanced review and help identify areas for improvement. Weaknesses: • Lack of Cultural Sensitivity: Baker’s approach fails to consider the cultural context of Barracania, where a more indirect style of communication may be preferred. Criticism, even if constructive, can be perceived as disrespectful or insulting in certain cultures. • Power Imbalance: As an expatriate and a senior manager, Baker's critique may have felt more like an assertion of dominance rather than constructive feedback, especially in a culture where hierarchy and respect play a significant role. • Failure to Personalize Feedback: Baker treated the performance review as a one-size-fits-all process, applying a Western method to a local employee without adapting to Rennalls’ personal and cultural background. 2. Should Baker have anticipated Rennalls’ reaction to his performance review? Why? Yes, Baker should have anticipated Rennalls’ reaction. Rennalls was likely sensitive to how his performance would be perceived by a departing expatriate, especially since he was well-connected locally and likely felt pride in his cultural background. Rennalls may have interpreted Baker’s comments not just as individual criticism, but as a critique of his values, heritage, or qualifications, which could have been seen as an insult to his status and local expertise. Baker, despite his international experience, failed to consider the nuances of local cultural sensitivities, where direct criticism can be seen as personal rather than professional. 3. What issues of cultural sensitivity are germane for understanding the case? Was it the performance review or Baker’s interaction style that prompted Rennalls’ resignation? Key issues of cultural sensitivity include: • Directness vs. Indirectness: In Western cultures, direct feedback is often valued, but in other cultures, especially those with high-context communication styles (like Barracania might represent), indirect feedback is more appropriate. • Respect for Local Norms and Hierarchies: Baker may have overlooked the importance of showing deference and respect for Rennalls’ local knowledge and position. His critique could have been interpreted as undermining Rennalls’ abilities and his potential to succeed as a local leader. • Perceptions of Foreign Influence: Rennalls might have felt that Baker, as a British expatriate, was imposing foreign values on local management, which could have been seen as disrespectful. It was likely a combination of both Baker’s performance review and his interaction style that led to Rennalls' resignation. The review was delivered in a culturally insensitive manner, and the interaction style lacked the awareness needed to navigate Rennalls’ pride and sensitivities. 4. Why was Baker’s extensive international experience not helpful in dealing with Rennalls? Baker’s previous international experience might have involved working in environments with different cultural dynamics, which did not prepare him for the specific cultural nuances of Barracania. Each country has its own unique social norms, and Baker’s assumption that his prior experience would apply universally led to his failure. He did not reassess his approach or adapt his management style to fit Barracania's cultural expectations. His over-reliance on a Western, performance-centric approach demonstrated a lack of flexibility and awareness. 5. If you were Baker, what would you do now? If I were Baker, I would: • Immediately Apologize and Clarify Intentions: I would reach out to Rennalls, acknowledging the potential cultural misstep and explaining that my intent was to support his growth, not to insult or undermine him. • Seek Cultural Guidance: I would consult with local managers or cultural experts to better understand how to navigate performance reviews and leadership transitions in Barracania, adapting my approach to better fit local expectations. • Offer Rennalls a Second Conversation: I would propose a second meeting with Rennalls to better understand his concerns, opening the floor for him to share his thoughts on his role and how he envisions his future leadership within the company. • Reflect on Cultural Sensitivity: I would reflect on how I could be more culturally sensitive in my interactions and ensure that future performance reviews or managerial decisions are aligned with local norms and values. This approach could help repair the relationship and potentially convince Rennalls to reconsider his resignation. Additionally, it would show respect for local customs and demonstrate Baker’s willingness to learn from the situation. Analysis 1. What are the strengths and weaknesses of the performance-review techniques used by Becker? Strengths •Plus and minus technique – let people know of both positives and negatives in a constructive manner •Allowed Rennalls to respond to criticisms – important to leave room for appeal •Started with positives – and then moved on negatives constructively Weaknesses •No preset agenda for meeting •No objective criteria used •Became too personal during performance appraisal – brought in issues of race etc. condescendingly •Cultural insensitivity •Relied on words of another expatriate to make claims regarding Rennalls 2. Should Baker have anticipated Rennalls’ reactions to his performance review? Why? Yes, Baker should have anticipated Rennalls’ reactions to his performance review. There were a number of clues that would certainly indicate that Rennalls’ would not respond favorably to the negative feedback that Baker was delivering. •First, there were several occasions during the performance review where Rennalls’ body language provided subtle clues that he was not accepting the feedback well. Specifically, on several occasions, Rennalls was “stiffened/tensed” while sitting in the chair during the feedback session – a clear indicator that he did not approve of the feedback and/or the way in which it was being delivered. •Similarly, Baker was aware (from the time that Rennalls attended London University) that he was sensitive to any sign of condescension from expatriates. Baker (himself an expatriate) should have been cognizant of the fact that Rennalls could interpret the feedback that he was delivering as condescending in nature, and thus, should have anticipated that he might not respond favorably to it. •Finally, when Rennalls responded to the issues that Baker had brought to his attention, he assured Baker that his responses to Jackson and Godson were based solely on the demanding and condescending ways in which these individuals had interacted with him – which he deemed inappropriate. •He further assured Baker that the color and/or national origin of these two individuals had nothing to do with his response in these situations (which Baker only half-heartedly acknowledged). Why? Baker ignored several issues of cultural sensitivity in this situation. •First, as a guest expatriate in Barracania, his approach to delivering feedback to Rennalls was not in line with cultural norms. He failed to recognize that Barracanians (including Rennalls) are very proud, independent, spiritual people who are proud of their history and for the strides toward independence that they have made in recent years. •Baker’s feedback style (in his meeting with Rennalls) was positioned in a manner that was derogatory and disrespectful of Rennalls and the Barracanian culture. Baker intimated that his own “Western” culture (specifically English speaking and commerce-driven) was superior to that of the Barracanian people (who had only in recent years “found/accepted” this). •Similarly, he indicated that it would be “some time” before other Barracanians would occupy senior positions (which could be construed as having a negative/derogatory tone). •Additionally, Baker failed to acknowledge Rennalls’ popularity/respect with the Barracanian staff within the company and his overall good working relationships with other senior expatriate staff (all positive traits). •Baker should have spoken with/collected more data from the other expatriates in the office to see if the few “incidents” were isolated and if they were truly warranted because of the demeaning manner in which Jackson and Godson had actually treated Rennalls. Baker failed to do this. •Baker conducted the review in a manner in which a former boss of his had given him feedback and not in a way that was compatible with Barracanian style and culture. 3. Based on your understanding of national culture dimensions, where do you think Barracania stands? What elements of the case can you use to support your claims? What issues of cultural sensitivity are germane for understanding this case? Was it the performance review of Baker’s interaction style that prompted Rennalls’ resignation? This question can be answered by looking at relevant Hofstede’s and Trompenaar’s cultural dimensions and making inferences based on case material •Power distance – Barracania is probably a high power distance society – this could explain why Rennalls was not willing to break the invisible barrier – this may also explain the preference for British degrees for position •Individualism – this is likely a more collectivist society – the perception of the expatriates that the Barracanians stick together may be evidence of this attitude – also typical of many former colonies •Achievement vs. ascription – this is most likely an ascription society as managers are nominated based on their family backgrounds, university degrees and family connections •Neutral vs. affective – this is more of a neutral culture – Rennalls did not display too much emotion – but that may be an individual trait What prompted Renalls’ resignation? •Based on the above factors, it is clear that it was not the performance review, but rather Baker’s interaction style that prompted Rennalls’ resignation. •The plus and minus technique may not necessarily work in all cultures – however, it is clear from the case that it’s Baker’s condescending attitude that made Rennalls react the way he did 4. Why was Baker’s extensive international experience not helpful in dealing with Rennalls? Baker’s extensive international experience perhaps limited his ability to appreciate the differences in the Barracanian culture, as compared to the rest of / Western world. His previous track record of (his perceived) success in dealing with people from other cultures could have also made him a bit too confident in his ability to have success with ALL people. The fact that he couldn’t break through to Rennalls completely seemed to frustrate him, which drove him push the issue too far (and in the wrong way) in an effort to break through to him. 5. If you were Baker, what would you do now? Baker is facing a situation where his performance appraisal backfired. His conversation with Rennalls obviously led to Rennalls resigning. The major issue is that Rennalls is very valuable to the company: not only does he possess all of the skills to succeed Baker but he also has political clout. He also gets along very well with everyone in the organization. As such, any proposal’s main objective is to get Rennalls back to work for the company. There are various open-ended possibilities: profuse apologies about the misunderstanding, etc. etc. •Also, maybe he should reanalyze his own assumptions about his ‘knack’ to do well in foreign cultures •One should also realize the possibility that maybe Rennalls can be replaced by somebody else – if that’s the case, maybe find ways to groom somebody else •Also, it seems here that power distance may be high – in other words, Rennall was treating Baker (his superior) with respect – but Baker saw the respect as Rennalls being cold •OR maybe put the performance evaluation in perspective – is Rennall’s behavior interfering with his work? Is it absolutely essential that everyone be treated the same way? •In addition to the short-term measures mentioned above, it is also necessary to discuss long term measures: how can such mistakes be prevented in the future? Should all managers/expats be trained? •In addition, it is necessary to provide suggestions for the long-term: what should be done so that such incidents don’t happen again. Some possibilities include more cross-cultural training etc. etc. Lessons •Shows some major challenges facing expatriates •Discusses cultural appropriateness of Western-based plus or minus techniques •This also shows that seasoned expatriates are not immune from cross-cultural blunders occasionally •Provides some insights into cultures like Barracania and what to do when such blunders occur •Ultimately provides some perspective on the expatriate life Instructor Manual for Multinational Management: A Strategic Approach John B. Cullen, Praveen K. Parboteeah 9781285094946