DB unit 4 1
DB UNIT 4
Assignment Type:Discussion Board
The Discussion Board (DB) is part of the core of online learning. Classroom discussion in an online environment requires the active participation of students and the instructor to create robust interaction and dialogue.
The purpose of the Discussion Board is to allow students to learn through sharing ideas and experiences as they relate to course content and the DB question. Because it is not possible to engage in two-way dialogue after a conversation has ended, no posts to the DB will be accepted after the end of each unit.
The Acme Company is exploring many strategic options. Whichever global business strategy the Acme Company eventually chooses, the firm inevitably will require the services of a bank to help manage its working capital. Many major multinational banks provide a variety of working capital and multinational cash management services.
Some U.S. banks also have international operations. If your company acquired a company in another country, would you choose to bank with a local bank in that country, or would you select a U.S. bank with international operations? Why would you make this selection? A few US banks with international operations are below:
· Bank of America
In your own words, post a substantive response to the Discussion Board question(s) and comment on other postings. Your response should address the DB question(s) and move the conversation forward. You will be graded on the quality of your postings, including mastery of the concept as well as critical thinking. If asked for your opinion, do not simply state that it is a good or bad idea; elaborate on your reasons and argument. Include enough detail to substantiate your thinking as well as your position on the questions or comments.
Presentation: Working Capital Management
Working Capital Management
When a foreign affiliate operates in a hyperinflation country, cash working capital problems abound. Parents of such affiliates must, at a minimum, be aware their affiliate may be decapitalized. If they cannot raise sales prices faster than the rate of inflation, they must be prepared to invest follow-up capital, year after year until the inflation rate diminishes.
All firms need to finance working capital. The normal sources of funds for financing short-term working capital come from accounts payable to suppliers and borrowing against bank credit lines. MNEs can finance working capital needs through in-house banks, international banks, and local banks where subsidiaries are located.
Some MNEs have found that their financial resources and needs are either too large or too sophisticated for the financial services available in many locations where they operate. One solution to this is the in-house bank that is not a separate corporation, but is a set of functions performed by the existing Treasury department. The purpose of an in-house bank is to provide banking-like services that are not available in many countries or that are higher cost when they are available.
MNEs depend on their commercial banks to handle most of their trade financing needs. Interfacing with banks is done through a variety of different banking offices including:
· Correspondent banks that hold deposits for and provide services to another bank located in another geographic area, on a reciprocal basis.
· Representative offices that provide information, advice, and local contacts for the bank’s business clients and provide a location where business persons from either country can initiate inquiries about the parent bank’s services.
· Branch banks, which are legal and operational parts of the parent bank, with the full resources of that parent behind the local office.
· Banking subsidiaries, which are separately incorporated banks, owned entirely or in major part by a foreign parent, and conducts general banking business.
· Banking Affiliates, which are locally incorporated banks owned in part, but not necessarily controlled by a foreign parent.
· Edge Act corporations, which are subsidiaries of U.S. banks that engage in international banking and financing operations.
Presentation: Working Capital Management
Working Capital Management
Financial managers of MNEs must control international liquid assets in order to maintain adequate liquidity in a variety of currencies while also minimizing political and foreign exchange risk.
The basic steps in international cash management include:
· Cash planning, in which a manager anticipates cash flows over future days, weeks, or months by preparing a comprehensive cash budget showing expected inflows, outflows, and the net of the two.
· Collection, involving shortening the time between the date on which a customer remits payment and the date on which the funds clear the banking system and are available for disbursement.
· Repositioning, which involves moving funds to the geographic location in which the funds are needed.
· Disbursement, which includes avoiding unnecessary early payment, maximizing float, and selecting a disbursement bank.
· Covering cash shortages by borrowing locally or having an affiliate remit funds to the cash-deficit affiliate.
· And whether or not to invest cash surpluses.
A MNE must perform all the tasks required of a domestic firm in each foreign location, and in addition it must consider other techniques that arise because of its international position.
Operational benefits can be gained in any business with widely disbursed operating affiliates by centralizing cash management. All excess funds are remitted to a central cash depository, where a single authority invests the funds in such currencies and money market instruments as best serve the worldwide firm as a whole.
Several advantages of centralized depositories include:
· Information advantage. The information logic of centralization is that an office that specializes and operates with larger sums of money can get better information from banks, brokers, and other financial institutions, as well as better service in executing orders.
· Precautionary balance. The total pool, if centralized, can be reduced in size without any loss in the level of protection.
· Interest rate advantage. One affiliate will not borrow at high rates at the same time that another holds surplus funds idle or invests them at low rates.
· And Location. Central locations offer freely convertible currency, political and economic stability, access to international communications, and clearly defined legal procedures.
Multilateral netting of payments is useful primarily when a large number of separate foreign exchange transactions occur between affiliates in the normal course of business. Netting reduces the settlement cost of what would otherwise be a large number of crossing spot transactions.
A firm’s operating cash flows are primarily collected from its accounts receivable. Accounts receivable management can be viewed in terms of receivables from independent customers and payment practices.
Management of account receivables from independent customers involves two types of decisions: in what currency should the transaction be denominated, and what should be the terms of payment? At issue is whether export sales should be denominated in the currency of the exporter, the currency of the buyer, or a third-country currency.
Terms of payment are another bargaining factor. Considered by themselves, receivables from weak currencies should be collected as soon as possible to minimize loss of exchange value between sales date and collection date. Accounts receivable resulting from sales in hard currencies may be allowed to remain outstanding longer.
Some banking systems have a predilection toward self-liquidating, discountable bills. In many European countries it is easier to borrow from a bank on the security of bills generated from sales than on the security of physical inventory.
The experience of getting paid for goods or services rendered varies considerably around the world. Typical credit terms and actual payment period differ widely by both region and country, creating substantial problems for multinational firms attempting to reduce the size of current assets.
In this topic we will be learning about
· constraints on positioning funds.
· techniques for moving funds.
· transfer pricing.
· blocked funds.
Multinational firms repatriate funds or transfer them between sister affiliates in order to locate those funds where they are needed or where they can be safe against exchange rates or currency blockages. All other things being equal, funds not needed in the various affiliates are most likely to be repatriated to the parent.
The movement of funds can be from currency to currency, from country to country with no change of currency, or from one country and currency to another. Limitations on the movement of funds include political and tax constraints, foreign exchange transaction costs, and liquidity needs.
A variety of techniques can be used to move funds. These include the concept of unbundling remittances, dividend remittances, and the use of royalties, fees, and home-office overhead remuneration. These techniques result in the rather straightforward movement of funds. Let’s look at each one.
Multinational firms unbundle their transfer of funds into separate flows for specific purposes. Host countries are then more likely to perceive that a portion of what might otherwise be called remittance of profits constitutes an essential purchase of specific benefits that command worldwide values and benefit the host country. An item-by-item matching of remittance to input, in the form of royalties for patents, fees for advice, and so on, is equitable to host country and foreign investor alike, for it allows each party to see the reason for each remittance and to judge its acceptability independently.
Payment of dividends is the classical method by which firms transfer profit back to owners, be those owners individual shareholders or parent corporations. International dividend policy incorporates tax considerations, political risk, and foreign exchange risk, as well as a return for business guidance and technology.
License fees are remuneration paid to the owners of technology, patents, trade names, and copyrighted material. Royalty fees are similar compensation for the use of intellectual property belonging to some other party. Home office overhead is a charge to compensate the parent for costs incurred in the general management of international operations and for other corporate overhead that must be recovered by the operating units.
Funds can also be moved by transfer pricing, in which the movements occur as a part of the normal movement of funds for purchases and sales between affiliates. Nevertheless, changing transfer pricing for the purpose of moving funds involves tradeoffs with other corporate goals, such as tax and tariff minimization and the performance evaluation of both units and individual managers by measuring levels of profits and rates of return.
Blocked funds are funds in one country’s currency that may not be exchanged freely for foreign currencies because of exchange controls. MNEs can react to the potential for blocked funds at three stages:
1. Prior to making an investment, a firm can analyze the effect of blocked funds on expected return on investment, the desired local financial structure, and optimal links with affiliates;
2. during operations, a firm can attempt to move funds through a variety of repositioning techniques; and
3. funds that cannot be moved must be reinvested in the local country in a manner that avoids deterioration in their real value because of inflation or exchange depreciation.
Presentation: Inventory Management
Inventory management provides ways to protect inventory values in the face of adverse exchange rate changes and anticipated price freezes. To circumvent an anticipated price freeze, management can establish the local currency price of an imported item at a high level, with actual sales being made at a discount from this posted price. In the event of devaluation, sales continue at the posted prices but discounts are withdrawn.
If imported inventory is a commodity, another strategy is to purchase the commodity in the forward market. Then if local prices are frozen, the forward contract can be sold abroad for the same currency in which it is denominated. On the other hand, if local price controls are based on a fixed markup over cost, the forward contract can be exercised and the commodity imported at the now-higher local currency cost. This becomes the basis for the markup.
Free-trade zones are useful because they can postpone tariff payment until goods are sold. Free trade zones function in several ways:
· They may be a place to off-load merchandise for the subsequent sale within the country where the zone is located for quick delivery and import duties only when outside the zone.
· A second type of zone involves the assembly of components for subsequent sale within the country where the zone is located. The import duty is only paid when the finished car is removed from the zone.
· A third type of zone is a full-fledged manufacturing center with a major portion of its output re-exported out of the country. The portion of production sold is assessed duties only on the components originally imported.
FAQ: International Management and Leadership
Question 1: What is the Hofstede cultural dimension of power distance?
Answer 1: Hofstede’s culture model explains differences in our work culture and managerial behaviors based on a culture model of four dimensions: power distance, uncertainty avoidance, individualism/collectivism, and masculinity/femininity. Power distance refers to the “extent to which less powerful members of institutions and organizations accept that power is distributed unequally” (Hofstede & Bond, 1984).
In high power distance cultures, people blindly obey the orders of their superiors. In these countries, lower level employees follow directives as a matter of procedure. Strict obedience to order is also found among upper level employees in some societies such as Mexico, India, and South Korea. In low power distance countries, employees do not obey directives blindly and often question or challenge the ideas and thoughts expressed by superiors. The United States, Canada, Norway, New Zealand, and Australia are among the countries that have relatively low power distance.
The power distance dimension affects the international management of human resources in several ways. Organizations in high power distance countries tend to be centralized and pyramid-like. These structures have a high degree of bureaucracy, and all decisions are centralized at the top. In countries with low power distance, organizational structures tend to be decentralized and flatter. These organizations also have a thin layer of supervisory employees, and lower level employees tend to be highly qualified. In contrast, organizations in countries with high power distance tend to have a thick layer of supervisory employees, and lower level employees are often semiskilled or unskilled workers. This kind of structure promotes inequality among people in different levels of the organization.
Question 2: What is the Hofstede cultural dimension of uncertainty avoidance?
Answer 2: Uncertainty avoidance is defined as “the extent to which people feel threatened by ambiguous situations, and have created beliefs and institutions that try to avoid these” (Hofstede, 1980). Uncertainty avoidance refers to cultures where people tend to not be risk takers and, instead, prefer security: Risk taking is discouraged in the society. These countries also have a strong belief in experts and expert knowledge. Examples include Japan, Spain, and Germany. These countries have a great deal of structure in organizational activities, rules are clearly defined, and written rules are prevalent. Managers are also less risk taking, and the labor turnover is low as security is very important to these cultures. The employees in general tend to be less ambitious. On the other hand, the populations of countries with low uncertainty avoidance are more willing to accept risks associated with the unknown. They seek new opportunities, roles, and responsibilities. People change careers several times during their work life, and there is less structure in the organizational activities. There are also fewer written rules, and people are encouraged to take greater self-initiative and responsibility in getting the job done rather than being handed instructions. Managers are more likely to take risks and often seek business opportunities with known calculated risks. In these countries, organizations tend to have higher employee turnover as the employees are more ambitious and are constantly trying to achieve higher goals and fulfill higher needs.
For example, in Japan there is a strong uncertainty avoidance, and Japanese businesses like to structure tasks so there is no doubt regarding what is to be done and how it is to be done. In Sweden, however, the uncertainty avoidance is low. Therefore, job descriptions, policy manuals, and similar work-related materials are open-ended or general as opposed to the detailed procedural manuals of the Japanese.
Question 3: What is the Hofstede cultural dimension of individual/collectivism?
Answer 3: Individualism is the “tendency of the people to look after themselves and their immediate family only” (Hofstede, 1980). Hofstede measures this cultural dimension with individualism at one end of the continuum and collectivism on the other end. The idea of collectivism is that people tend to support groups and look after each other in exchange for loyalty to the group.
Countries can be high in collectivism or individualism or somewhere in the middle. Countries that are high in individualism tend to be wealthier. Examples include the United States, Canada, Australia, Sweden, and Denmark, among others. These countries have high gross domestic product (GDP) growth. In addition, these countries tend to support a protestant work ethic and promote greater individual initiatives. Employees are rewarded for taking initiatives at their job level. Promotions are based on market values rather than seniority.
Countries with low individualism (high collectivism) tend to have less support for the protestant work ethic. These countries also tend to be poorer. Examples include Pakistan and a number of South American countries (with lower GDP). The countries that do not promote individual initiative cultivate employees who simply do what is being asked by the management and expect promotions based on seniority rather than merit in return. For example, the Swedish show a moderately high degree of individualism reflected in their emphasis on individual decision making as opposed to group or collective decision making.
Question 4: What is the Hofstede cultural dimension of masculinity/femininity?
Answer 4: Masculinity is defined by Hofstede as “a situation in which the dominant values in society are success, money, and things” (Hofstede & Bond, 1984). On the other hand, the femininity dimension is defined as those values in the society that pay more attention to the care of others and promote quality of life.
Countries with high masculinity, such as Japan, place great importance on earnings and wealth, titles, recognition in the job and personal life, advancement in the career, and challenge. Individuals are encouraged to be independent decision makers, and achievement is defined in terms of recognition and wealth. Due to the importance of these factors, there tends to be higher stress on the job. In fact, many mangers believe that their subordinates do not like their work and must be kept under some degree of control. For example, a great deal of importance is given to money and material symbols of success such as expensive cars, living in an expensive place, and more because of the high masculinity index in Japan. These countries also tend to favor large companies, and economic growth is given more importance. Industrial conflict is common in these countries as well. The education system is modeled toward encouraging high performance. Young men are expected to have careers, and those who do not have careers view themselves as failures. Women in these countries do not often hold higher level jobs, but they find it necessary to be assertive in the workplace.
On the other hand, countries with low masculinity index (high in femininity) tend to place great importance on cooperation. People are encouraged to work together in teams and share greater responsibilities together. The atmosphere in the workplace is friendly, and organizations provide employment security to the employees. Group decision making is a norm, and achievement is fulfilled and defined in terms of human contacts and the living environment. The workplace tends to be characterized as a low-stress environment because there is little industrial conflict. Managers view their employees as responsible for their work and allow them more freedom. These countries also tend to favor small companies, and the education system is modeled toward social adaptation. Some men and women in these countries want careers and others do not. Women generally do not find it necessary to be assertive in the workplace.
For example, Swedes score low on the masculinity scale, which means interpersonal relations and the ability to interact with other workers and discuss job-related matters are very important for the people of this country.
Question 5: What are some of the issues and challenges involved in doing business in countries like China and India?
Answer 5: China and India hold great opportunity for growth and other opportunities. However, many European and U.S. multinationals have found that doing business in China can be a challenging, grueling process that can often lead to failure. Although many firms are trying to grab a piece of the Chinese economy, they are yet to make serious profits. However, there have been lots of benefits resulting from cheap manufacturing and mass production of the manufacturing work from China.
The challenges and issues faced by multinational corporations mostly result from the reason that many of the multinational corporations (MNCs) do not completely appreciate the role of Chinese culture and its impact on doing business in India. For example, to experienced Chinese businesspeople, technical competency is considered very critical to doing business.
The Chinese place great importance on value and principles above money and convenience. Chinese do not like to get to the business right away on meeting the other party. Business meetings typically start with pleasantries such as tea and general conversation about the other party's trip to the country, inquiries about the local accommodations, and questions about family. The Chinese also like to give an indication to the other party as to the appropriate time to start the discussion of business in the meeting. The proper time to conclude is indicated to the guest as well.
The Chinese are slow in formulating a plan of action; however, once they get started, they make fairly good progress in moving things ahead with the project. Once a decision has been made about who the best partner is among different possible business partners and what the best way in which to implement the project or any activity, the Chinese tend to stick with these decisions. In negotiations, Chinese follow the policy of give and take. In other words, reciprocity is very important in negotiations. If the Chinese provide some discounts or concessions, then they expect the same from the other party in the negotiation as well. Chinese do not like to lose face in any business meetings. They are aware that oftentimes in business negotiations one party has the upper hand to the other and a win-win situation does not necessarily take place in every deal. Hence, they like to conduct the whole process of negotiations through intermediaries. Chinese do not like to express excessive emotion of any kind. Expression of anger, frustration, or impatience can be viewed as disruptive and rude. Of course, just as in every negotiation, ones with the Chinese should be viewed with a long-term perspective. The MNCs that realize they are investing in a long-term relationship are often successful in doing business with the Chinese.
Doing business with and in India is different due to the different dynamics of that culture. Foreign trade is critical to India's economy, and its growth is critical to the world economy. Since the liberalization policies introduced in the early 1990s, India has been particularly interested in promoting exports and creating import substitutions. In India, the government plays an important role in this process in approval for investments. It is also highly protective and selective and typically granting businesses and contracts only on a case-by-case basis.
There are also some cultural issues to keep in mind while doing business in India. Contrary to the popular belief that Indians are not time conscious, it is very important to be on time for meetings in India. Even if the Indian counterparts do not actually start the meeting on schedule, it is critical that the guest be on time. It is advisable not to ask any personal questions unless the other individual is a friend, family, or close associate. Status quo is very important to Indian people, so titles are a very important factor when addressing someone in India. For example, lawyers, doctors, and professors should be addressed accordingly. In most cases, it is expected that junior management address the senior management as “Sir” or “Madam.”
In India, social norms are very clear and well defined. For example, public displays of affection are considered inappropriate. Behaviors like touching others while talking or casually backslapping is not considered appropriate business behavior. The distance between the male and female genders is well defined and maintained in the workplace.
Public gestures of beckoning are done with the palm turned down in India. Indians do not consider pointing at a person appropriate, so pointing is often done with the chin. The usage of the left and right hand is also well defined. The left hand is considered unclean, and the right hand is used for eating, offering, and accepting things. People greet each other in a formal environment with a gesture of joining the palms together (called namaste).
Bargaining is considered a birth right of consumers in India. Hence, bargaining for goods and services is common. This contrasts with Western traditions where bargaining might be considered rude or abrasive.
Question 6: What are some of the issues involved in doing business in the cultural environments of France and Russia?
Answer 6: After the crumble of the Soviet Union in the late 1980s, the newly born Russian economy has experienced severe problems. However, Russia has huge potential for multinational corporations, and if MNCs follow certain guidelines in relating to the Russian culture, then they can reap potential opportunities.
Contracts in Russia are not easy to enforce legally. When there are contract disputes between partners, there is little or no protection for an MNC because of the time and effort needed to legally enforce the agreement. Building good personal relationships with a Russian partner is a good strategy to follow for better protection in case any issues and challenges with Russian partners arise. The Russian economy has gone through so much change, so the rules of business have changed in recent years.
There is also the issue of business ethics in doing business in Russia. In the United States, exchanging gifts with the person who wants to transact business is considered unethical and illegal. In Russia, it is tradition to give gifts to those with whom one wants to transact business. An experienced businessperson would say to always be patient; it takes a lot of patience to get something done in Russia. It often takes months of waiting in Russia before the business moves forward. Russians prefer exclusive arrangements, and often negotiate with just one firm at a time. This preference also adds to the time and the slow process. Russians prefer face-to-face meetings or deals rather than letters, phone, or faxes. They usually do not respond to negotiations that are not face-to-face.
If a business is trying to work on a merger deal with a Russian firm, it should keep in mind that Russians prefer to keep financial information to themselves. Russians wait until they know their partner well enough and feel comfortable before sharing financial data. The Western idea of a win-win deal in negotiations also works well in Russia, and good negotiators will place emphasis on mutual gain. Language is also a big barrier in Russia. Most of the work has to be translated into Russian, so it is better to keep the terminology of the contract simple. The business leader should check and make sure that the other party clearly understands the proposal, knows what is expected and when, and is agreeable to the deal. Russians see compromise as a sign of weakness, so one should not agree to or settle things too quickly in business deals.
Many people in the United States believe that it is more difficult to get along with the French than with other Europeans. The French culture is markedly different from that of the United States. One simple example is the handshake. Americans like to shake hands firmly and often hold the shake until names are exchanged. The French prefer a quick hand shake with some pressure in the grip. Being on time is also very important for both business and social meetings. On business visits, people should try very hard to be cultured and sophisticated. During lunch or any meal, personal questions and the subject of money should never be discussed. It is acceptable to engage in pleasant conversation about whether and other light topics.
The French do not like to discuss personal or family details in the first few meetings. They tend to be suspicious of early friendliness, dislike using first names, and usually dress more casual (e.g., not wearing one's suit jacket in business). The French try to find out the aims and demands of the other party at the beginning of negotiations, but they reveal their own hand only late in the negotiations. They like to make decisions in their own familiar setting and do not like being rushed into making a decision. In fact, they rarely make important decisions inside the meeting. Their approach is very logical and precise, and they will not make or offer concessions in negotiations unless they feel that their logic in not providing the promotions or concessions has been defeated.
Question 7: How can cultural differences across countries affect the final marketing message received by a global customer?
Answer 7: Cultural differences can affect the final message received by the global customer in several ways along the communication path. For example, a problem can arise at the information source because the global manager does not truly understand the needs and wants of the target foreign market. This is especially true if the global manager relies on the self‑reference and makes the naive assumption that if it sells in one country, it would sell in another. For instance, the bicycles designed and sold in the United States to consumers to fulfill recreational and exercise needs cannot be successfully sold for the same reasons in a country where the primary use of the bicycle is transportation (such as villages and towns in China). The encoding step of the communication process can also cause problems because such factors as colors, values, beliefs, tastes, and other symbols utilized by the global manager do not correctly symbolize the message intended.
The message channel may create problems because of the difficulty of effectively reaching target foreign markets in many countries. Problems such as illiteracy and the availability and types of media create problems at this level. Decoding problems are generally created by improper encoding. The decoding process is one in which the receiver interprets the message in terms of his own culture thereby receiving an incorrect message. For example, one product's slogan, “Come Alive,” was decoded by many as “Come out of the grave.” Sometimes decoding can create problems even when the encoder purposely attempts to develop a message with no symbolism. Another example is a brand that uses a ram as its symbol. The term "ram" decodes into a popular Hindu god worshiped by millions of Hindus in India. If the company tried to market their product in India without changing the name, it could lead to a huge boycott across India. Finally, the feedback step can create problems in the sense that companies do not use feedback to effectively measure their communication efforts and attempt to correct any problems that may have been created by the other steps.
The major problem is that the encoder is in one culture using his or her own self-reference, and the message is decoded in another culture where the decoder is using his or her own self- reference. The encoder must be certain that the message is being encoded in such a manner that it will be decoded in the other culture in the manner in which it is intended.
Question 8: How does Maslow’s motivation theory apply to international management of human resources?
Answer 8: Motivation is an important topic of interest in international management and human resource management. Many multinational corporation managers assume that they can motivate their offshore employees with the same plans and approaches that are used to motivate home country employees.
While there are similarities across cultures, there are many differences that affect motivation. For example, in the United States, personal achievement is an important need, and individual success and more money may be an important goal. In China, group affiliation is an important need, and harmony is an important goal. The motivation process is the same, but the needs and goals may be different because of the differences in the two cultures.
Abraham Maslow, a well-known American psychologist, developed a theory of motivation and postulated that everyone has five basic needs constituting a need hierarchy: physiological, safety, social, esteem, and self-actualization.
· Psychological needs are food, clothing, shelter, and other basic, physical needs.
· Safety needs are the desire for security, stability, and the absence of pain.
· Social needs are the need to interact and affiliate with others, and to feel wanted by them.
· Esteem needs are the need for power and status.
· Self-actualization needs are the desire to reach one's full potential by becoming everything one is capable of becoming.
There are a number of basic assumptions with this theory of motivation. The first assumption is that lower level needs must be satisfied before higher level needs become motivators. A second assumption is that once a need is satisfied, it no longer serves as a motivator. A third assumption is that there are more ways to satisfy higher level than lower level needs. These assumptions have driven much of the international research on Maslow’s theory.
Do people throughout the world have needs that are similar to those described in Maslow's need hierarchy? International research in this area shows that they do. Research has been mostly focused on managers and shows that all needs are important to the respondents across different cultures. In countries like Latin Europe, the United States, the United Kingdom, and Nordic Europe, the upper level needs of self-actualization were considered the most important. Research also shows that while self-actualization and esteem needs are more important for professionals and managers, security, earning benefits, and physical conditions are more important to the unskilled and lower level employees. When it comes to employee motivation, one can notice greater differences among job categories than among countries.
In terms of motivating the employees in different countries, it is recommended that multinational corporations focus heavily on giving personal rewards to unskilled and lower level personnel, and developing and creating an environment of challenge for professional managers that can satisfy their self-actualization and esteem needs. This fosters cooperation between middle- and senior- level managers. However, it would be wrong to assume that high compensation packages are not motivating to the senior professionals.
Question 9: Discuss the two-factor motivation theory of Herzberg in its application on international management.
Answer 9: The research has shown that the need hierarchy theory is useful in helping identify motivational behaviors and factors for international human resource management. However, this theory itself is not enough to explain the motivational factor of international human resources management.
Frederick Herzberg and his colleagues formulated the two-factor theory of motivation. The two-factor theory is closely linked to the need hierarchy of Maslow.
Herzberg’s theory holds that there are two sets of factors that influence job satisfaction: hygiene factors and motivators.
· Motivators: These include the job content factors such as achievement, recognition, responsibility, advancement, and the work itself. In relation to Maslow’s theory, these can be considered the self-actualization and esteem needs.
· Hygiene factors: These include the job context variables such as salary, interpersonal relations, technical supervision, working conditions, and company policies and administration. In relation to Maslow’s theory, these are the social, safety, and physiological needs.
According to the two-factor theory, if hygiene factors are not taken care of and well-provided for, there will be dissatisfaction among managers. However, if hygiene factors are taken care of, there may be no dissatisfaction as long as motivators are also provided. In short, this theory postulates that hygiene factors help to prevent dissatisfaction, but only motivators lead to satisfaction for the managers. According to this theory, motivation of human resources must include recognition, a chance to achieve and grow in the organization, advancement opportunity in the career, and constant interesting and challenging work.
How does this theory fare in application to the international management of human resources? Research has been conducted on the application of Herzberg’s theory, and in many cases, Herzberg’s findings are supported. For example, George Hines surveyed 218 middle managers and 196 salaried employees in New Zealand using ratings of 12 job factors and overall job satisfaction. Based on the findings, he concluded that, “the Herzberg model appears to have validity across occupational levels” (Hines, 1973).
A number of cross-cultural studies related to job satisfaction measures developed by Herzberg have also been conducted in recent years. This research and comparison shows that Herzberg's motivators tend to be of more importance to job satisfaction than are hygiene factors. Hygiene factors are factors that are controlled by the organization. Such factors include working conditions, working hours, salary, job security, benefits, and promotions. On the other hand, the motivators are those factors that are internally controlled by the employee. Such factors include responsibility of the work assigned, personal achievement, and the work itself.
Question 10: How do motivational theories of job design, value of work, and job satisfaction apply in different cultures?
Job design: Assembly line employees in Japan will work at a rapid pace for hours and have very little control over their work activities. In Sweden, assembly line employees work at a more relaxed pace and have a great deal of control over their work activities. United States assembly line employees are somewhere in between Japan and Sweden—less demanding than Japanese but more structured than Sweden. Why is job design so different in these countries?
Job design is typically a function of the work done by an individual or a group and the way in which the management wants the job to be carried performed. Job design describes the job contents and the way in which the job relates to the others in the organization. Job design factors help explain why the same type of work may have a different impact on the motivation of human capital in different cultures, and it also results in different quality of life.
All job designs tend to reflect the cultural values of the country. The biggest challenge for multinational corporations (MNCs) is to adjust the job based on each of the host country’s cultural values. For example, when Japanese companies enter the United States, they are often surprised to find that people in the United States resent control. Japanese firms operating in Sweden find that the quality of life is the main concern of the employees there and that less structure and a more participative management style is needed to succeed in Sweden. Each country has a different cultural profile (as discussed in the Hofstede culture model) that helps explain why similar jobs may be designed differently from country to country. For example, in Japan, there is a strong uncertainty avoidance and desire to structure tasks, so there is no doubt regarding what is to be done and how it is to be done. The individualism is low, so there is a strong emphasis on job security, and risk taking is discouraged. The masculinity index is high, which puts a great deal of importance on money and material symbols of success. Japanese structure tasks so that the work is performed within these cultural boundaries.
Value of work: Although work is an important part of the lifestyle of most people, there are still a large number of misconceptions held about other countries. For example, one reason that the Japanese work such long hours does not relate particularly to an extremely high value of work in the culture. Rather, it is a very pragmatic reason: The cost of living is very high and hourly employees cannot afford to pass up the opportunity for extra money. In addition, salaried employees, such as managers who are not paid extra for working overtime, expect their subordinates to work long hours. Over the years, this culture has become a requirement of the job.
Job satisfaction: In addition to the implications that value of work has for motivating human resources across cultures, another interesting contrast is job satisfaction. For example, recent evidence revealed that Japanese office workers may be less satisfied with their jobs than their U.S., Canadian, and European Union counterparts. Recent studies have also revealed that work has become a greater part of the average U.S. employee's life when compared to the Japanese worker’s life.
It is critical to keep in mind that effective motivation is also grounded in a sound understanding of culture. The way in which a manager motivates employees in one culture is often different from that which will be used in another culture. These findings suggest that MNCs should develop motivational packages that address the specific needs of a country’s culture.
Hines, H. G. (1973, December). Cross-cultural differences in two-factor motivation theory.Journal of Applied Psychology, 376.
Hofstede, G. (1980).Culture’s consequences: International differences in work-related values. Beverly Hills, CA: Sage.
Hofstede, G., & Bond, M. (1984, December). Need for the synergy among studies.Journal of Cross-Cultural Psychology, 419–420.
Implementing Performance Management
A good performance management system helps employees meet company expectations while simultaneously protecting the company from being sued by employees. The following are some aspects of implementing a performance management system:
· Setting expectations: Employers must provide employees with clear instructions of what the company expects of them.
· Notification of not meeting expectations: An employee discharge is unfair if the employee has not been told previously that his or her job is in jeopardy.
· Nonpunitive discipline: Employees have the right to be treated like adults and should be counseled on their job shortcomings in a direct and nonpunitive manner.
· Deficiencies, not causes: When addressing workplace problems, focus only on what actually takes place at the workplace. Do not inquire or speculate as to what may be the real underlying cause.
· Avoid intent: When employees do not meet the company’s expectations, it does not mean that they are bad and do not care. You cannot prove an employee does not care, but you can prove missed deadlines and defective work.
· Avoid delay: Do not delay in disciplining employees. Employees should be given a chance to improve and should not be judged prematurely.
When disciplining employees, allow them the opportunity to defend themselves. Employees should have a reasonable opportunity to improve. Any discipline should be progressive with reasonable time between each step. Any discharges should be the same for similar situations. Double standards and favoritism will cause legal problems later as comparisons are made.
Performance appraisals and merit rating plans sometimes fail. The following are possible reasons:
· When pay raises and promotions are linked to the appraisal, employees may be more interested in the final result. Pay raises and promotions should be discussed at later sessions.
· Self-rating and supervisor ratings may differ, requiring further discussion.
· When there is a lack of managerial support, both parties will realize that little will result from the evaluation and therefore put little effort into the sessions.
· When the company is unionized, the major cause of evaluation problems is using seniority as the basis for pay increases, promotions, and other work-related benefits.
The appraisal interview provides managers the opportunity to discuss an employee’s performance record and to explore areas of possible improvement and growth. It also provides the opportunity to identify employee attitudes and feelings more thoroughly to improve communication.
This interview format depends on the purpose of the interview, the type of appraisal system used, and the organization of the interview form. Most appraisal interviews attempt to give feedback to employees on how well they are performing and to make plans for future development.
Fairness is critical in the appraisal interview. It increases the company’s employee loyalty. The result is satisfied, committed employees who are willing to demonstrate extra job effort.
Because highly motivated and committed people are more apt to burn out, the company can lose its best people. Increasing acknowledgement and showing appreciation is a good way of reducing burnout. These rewards should be distributed fairly to employees because an unfair allocation increases negativism.
Unless deficiencies are brought to an employee’s attention, these deficiencies might continue. Clarify the employee’s responsibilities to put him or her in a position to take the corrective action.
There are many reasons for ineffective performance. Each individual has a unique pattern of strengths and weaknesses that play a part in ineffective performance. The appraisal of ineffective performance should focus on three elements: skill, effort, and external conditions. A skill problem could involve a knowledge, ability, or technical competency. An effort problem might be a motivational issue. And an external condition problem can be anything from poor working conditions to supply shortages.
Once the cause of ineffective performance is known, a course of action can be planned. Training or a transfer to another department might enable the employee to become more effective.
When demotion is the only option, take a formal approach to a progressive discipline program. Appropriate discipline usually begins with the first step being a verbal warning; the second, a written warning; and third, a final written warning indicating the disciplinary action.
The performance management process is designed to assist employees to develop their full potential. Optimal performance occurs when employees produce outstanding or optimal results. For this to happen, the employee must be selected to perform in a particular work environment requiring that person’s unique talents.
The Multinational Organization
In this topic we will be learning about
· the parent company.
· the subordinate structure.
To carry out operations internationally, large business firms take on different organizational structures. The simplest such firm is thenonmultinational, in which a business organized in one country contracts with a foreign firm to carry out sales or purchasing in that firm's country. Neither the principal nor the agent are truly multinational enterprises because neither operates outside of its home state. Next is thenational multinational firm that establishes wholly owned branches and subsidiaries overseas. Branches are a unit or part of the parent, such as an overseas purchasing office, assembly plant, manufacturing plant, or sales office. A subsidiary is a company organized as a separate legal entity that is owned by the parent. The next most complex structure is theinternational multinational made up of two or more parent firms from different countries that co-own operating businesses in two or more states. The most complex structure is the public transnational, which is a government-controlled multinational enterprise created by treated between two or more states.
To carry on an international business, a company must establish a foreign presence. This requires the creation of subordinate entities. These are
· representative offices, which provide foreign contact points for clients.
· agencies that serve as independent representatives.
· branches, which are units of the parent firm.
There are some disadvantages to these subordinates. First, the parent has to assume all of the risk of investing abroad. Second, a foreign firm (or its agent or branch) is often taxed at higher rates than local firms. Finally, many developing state require local participation in order for a foreign firm to either invest or expand its local investment.
Let's review the firms that are not subject to the direct control of the parent:
· Subsidiaries, which are independently and locally organized firms. The subsidiary's company status insulates the parent from unlimited liability. Locally organized companies are commonly entitled to certain tax benefits that foreign branches are not.
· Holding companies, which are subsidiaries that own other subsidiaries. The reason for setting up holding companies is to establish a consolidated management team for a group of subsidiaries or subsidiaries owned by different parents. Tax advantage is another reason. Holding companies most commonly take the form of a limited liability company whose shares are held by its parent or parents.
· Joint ventures, which are associations with other firms. Joint venture may be any type of business form. Joint ventures have two main advantages: the investors share risk and entry into foreign markets is usually easier for a multinational that is affiliated with a local joint venturer.
The Multinational Corporation (MNC): International Regulation of Enterprise and Foreign Investment
Beyond the Host-State Investment Code
In the world of foreign direct investment, business persons often think that the focus of due diligence is on the investment code of the proposed host state. That is logical, but it is a first step—not the whole process. It is equally important to recognize that other host-state laws not formally designated as part of the investment code may equally impact the viability of the investment your businesses is contemplating. In some cases, laws outside of the foreign investment code may actually create the greatest risk to the investment under consideration.
Local and Provincial Regulation Impact
These host-state laws tend to pose the greatest risk when they are not transparent. In other words, the greatest risks are posed by laws when two factors are present. The first factor is when they are not part of the national legal system. The second factor is when they are not administered or controlled by the national government but by some political subdivision—provincial, state, or even local.
Depending on how a country’s legal resources are catalogued, such laws can be extremely challenging to find. They may not even be known to the national government or to many host state investment lawyers. Depending on the allocation of power between the national government and political subdivisions within a country, the provincial, state, or local laws may be administered completely independent of determinations made by the national government.
A Cautionary Tale
More than one company has learned this first hand. In the early years after ratification of the North American Free Trade Agreement, a treaty known as NAFTA, a company spent many millions refurbishing a facility (DePalma, 2000, 2001a, 2001b). The investment seemed poised to pay off handsomely with a ready-made market.
However, this dream of profits became a nightmare. The company had done its due diligence and received permits for its project from the federal regulators in the host country. However, as the project was completed, it became subject to protests from the local citizens. The state government where the plant was situated delivered the coup de gras. A state law was invoked that allowed the site to be designated as a protected ecological preservation zone (DePalma, 2000, 2001a, 2001b).
The federal authorities in the country were helpless to intervene. That country's constitution, like the U.S. Constitution, creates a federal system of power sharing between its states that comprise the nation and the federal government. The federal government’s actions did not preempt the governor’s powers to take action under state or local law (DePalma, 2000, 2001a, 2001b).
The company found itself in an untenable situation. It had invested millions in renovations, and it had planned for future business contracts totaling upwards of $70 million. Damages for the expropriation were sought under NAFTA dispute resolution procedures. An amount for damages was paid after several years of protracted proceedings, but the monies totaled much less than the loss to the company (DePalma, 2000, 2001a, 2001b).
The moral of the story here is twofold. First, due diligence in advance of making a direct foreign investment for your company involves more than looking at the published investment code. It requires a holistic understanding of the way that all elements of each country’s unique government structure and legal system operate and interact. Second, a successful direct foreign investment needs to be managed just as effectively bottom-to-top as top-down. The investor needs to get buy-in from the local and provincial communities and officials just as much as from the national-level regulators who issue the permits. Otherwise, a business risks paying the same high tuition to learn the lesson already taught to others.
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