MODULE NO.

2: MGT 1

The previous module presented the external factors that are present in domestic
environment. The constraining factors on managing are likely to be more severe for international
firms. Executives operating in a foreign country need to learn a great deal about the country’s
educational, economic, legal, and political systems and especially its sociocultural environment.

The first section in this module deals with international management and the role of
multinational corporations. Then, the competitive advantage of nations and quality management
are discussed.

Global, Comparative, and Quality Management is the second module of the course
Principles and Theories of Management. It will introduce you to the international management
and multinational corporations, the nature and purpose of international business, country
alliances and economic blocs, international management: cultural and country differences, and
global competitive advantage through quality management.

The role of your instructor is to guide you in the different learning activities to ensure that
your expected outputs are delivered as suggested by the date of completion, hence achieving
the module outcomes. He will give timely feedback of your outputs in the learning platform.

By the end of this module, you will be able to:

1. Discuss the nature and purpose of international business and multinational corporations;

2. Understand country alliances that form trade blocs;

3. Appreciate cultural and country differences and their implications for managing;

4, Understand the factors that influence competitive advantages of nations, and;

5. Recognize the major contributions to quality management and awards.

As you navigate the module, you will encounter the following terms which will aid your
comprehension in the different learning activities:
• International Management focuses on the operation of international firms in host
countries.

• International Business engage in transactions across national boundaries.

• Multinational Corporations has them headquarter in one country but operate in many
countries.

• Global or Transnational Corporations view the whole world as one market.

• Ethnocentric Orientation the style of operation is based on that of the parent company.

• Geocentric Orientation the entire organization is viewed as an interdependent system

operating in many countries.

INTERNATIONAL MANAGEMENT AND MULTINATIONAL CORPORATIONS

❖ The study of international management focuses on the operation of international firms in

host countries. It is concerned with managerial issues related to the flow of people,
goods, and money, with the ultimate aim of managing better in situations that involve
crossing national boundaries.

❖ The environmental factors that affect domestic firms usually are more critical for
international corporations operating in foreign countries.

PRINCIPLES OF MANGEMENT AND ORGANIZATION 1

 MODULE NO. 2: MGT 1

❖ The managers involved if international business is faced with many factors that are
different from those of domestically oriented firm. They have to interact with employees
who have different educational and cultural backgrounds and value systems; they also
must cope with different legal, political, and economic factors. These environments
understandably influence the way managerial and enterprise functions are carried out.

MANAGERIAL FUNCTION DOMESTIC ENTERPRISE INTERNATIONAL ENTERPRISE

Planning
▪ Scanning thee ▪ National market ▪ Worldwide market
environment for threats
and opportunities

Organizing ▪ Structure for ▪ Global structure

▪ Organization structure domestic operations ▪ Different
▪ View of authority ▪ Similar

Staffing
▪ Sources of manager ▪ National labour poll ▪ Worldwide labour poll
talent ▪ Often ethnocentric ▪ Geocentric
▪ Managerial orientation

Leading
▪ Leadership and ▪ Influence by similar ▪ Influence by different
motivation culture culture
▪ Communication lines ▪ Relatively short ▪ Network with long
distances

Controlling
▪ Reporting System ▪ Similar ▪ Many different
requirements requirements

THE NATURE AND PURPOSE OF INTERNATIONAL BUSINESS

▪ Although business had been conducted on an international scale for a long time,
international business gained greater visibility and importance because of the growth of
large multinational corporations.

▪ The interaction of a firm with the host country can take many forms: exportation,
licensing agreement, management contracts, joint ventures and strategic alliances, and
subsidiaries (see figure 3.1). Thus, in developing a strategy, an international firm has
many options.

▪ The contact between the parent firm and the host country is affected by several factors;
some are unifying, while others can cause conflicts.

▪ Unifying influences occur when the parent company provides and shares technical and
managerial know-how, thus assisting the local company in the development of human
and natural resources.

▪ Many factors can cause conflicts between the parent firm and the host country.
Nationalistic self-interest may overshadow the benefits obtained through cooperation.
Similarly, sociocultural differences can lead to breakdown in communication and
subsequent misunderstandings.

PRINCIPLES OF MANGEMENT AND ORGANIZATION 2

 MODULE NO. 2: MGT 1

FIGURE 3.1 FORMS OF INTERNATIONAL BUSINESS

EXPORTATION LICENSING AGREEMENT

Parent Goods and Services Host Parent Primarily technical Host

Country Country Country know-how Country

SUBSIDIARIES
MANAGEMENT CONTRACT
Host
Capital and know-how Country

Parent Managerial and Host Parent

Country technical know how Country Country

Capital and know-how

Host
Country

JOINT VENTURES AND STRATEGIC ALLIANCES

Parent Materials, services Host Materials, services

Country and personnel Country and personnel

Multinational corporations (MNCs) have their headquarters in one country but operate in
many countries. Example: Exxon and General Motors

Multinational can take advantage of business opportunities in many different countries. Like,
large MNCs can recruit and managers and other personnel from worldwide labour pool.

The advantages of multinational operations must be weighed against the challenges and
risks associated with operating in foreign environments. One problem is the increasing
nationalism in many countries.

Just operating in different countries is not enough for large corporations sufficient to be
competitive in the world market. The shift is toward the global or transnational corporation,
which views the whole world as one market.

COUNTRY ALLIANCES AND ECONOMIC BLOCS

• At one time, countries in a region were competing against each other. But now, countries
are forming regional alliances that have regions compete with each other. Examples are the
European Union, NAFTA, and ASEAN.

• The European Union is consisting of European countries and formed to create a single
market through the removal of trade barriers and through free movement of goods, people,
service, and capital.

• NAFTA (North American Free Trade Agreement) included agreements among the United
States, Canada, and Mexico, went into effect. The objectives of NAFTA are to eliminate
trade barriers and facilitate cross border movements of goods and services, promote fair
trade, increased investment opportunities, provide for resolution of disputes, improve the
benefits of this agreement.

PRINCIPLES OF MANGEMENT AND ORGANIZATION 3

 MODULE NO. 2: MGT 1

• ASEAN included the ten countries of Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Thailand, Vietnam, Singapore and Philippines to formed a trading bloc that will
increasingly counter NAFTA and the European Union, not economically but also politically.

INTERNATIONAL MANAGEMENT: CULTURAL AND COUNTRY DIFFERENCES

• It is interesting to know some of the differences in managerial practices. A

comprehensive study by Geert Hofstede, a Dutch researcher, provides a good
framework for studying cultural differences between countries. We have to bear in mind
that there are great differences between managers in any country.

• The study by Geert Hofstede, found that a country’s culture impacts on the behaviour of
employees. He identified five dimensions of behaviour: individualism vs. collectivism,
small vs. large power distance, uncertainty tolerance vs. avoidance. Masculinity vs.
feminity, and short term vs. long-term orientation (see Table 3.2).

• These findings suggest that managers need to understand the cultural environments and
their implications in order to be successful in the country in which they do business.

TABLE 3.2 FIVE DIMENSIONS BEHAVIOR

Individualism Collectivism
• People focus on their own interests • Emphasis on the group, with group
and the people close to them. Task support expected.
more important than relationships. Relationships more important than
task orientation.

Large power distance Small power distance

• Society accepts unequal distribution • Society less accepting power.
of power. Respect for authority. Employees more often to the idea of
Emphasis on titles and ranks. dialogue with their superior. Less
Subordinates expect to be told what emphasis on authority, titles and
to do. Centralization emphasized. ranks. Inequality minimized.
Decentralization emphasised.

Uncertainty tolerance Uncertainty avoidance

• People accept uncertainty and are • Afraid of ambiguity and uncertainty.
open to risk taking. Willing to take Structure and formal rules preferred.
risk.

Masculinity Feminity
• Aggressively and assertive behaviour. • Relationship-oriented. Quality of life
Emphasis on material things, favoured. Concern for the welfare of
success, and money. others; caring. Emphasis on modesty.

Long-term orientation Short-term orientation

• Characterized by hard work and • Less emphasis on hard work and
perseverance. Savings-driven. perseverance. Consumption-driven.

GAINING A GLOBAL COMPETITIVE ADVANTAGE THROUGH QUALITY MANAGEMENT

• Quality is a strategic weapon in the global marketplace. The need for a new philosophy of
quality is paramount.

PRINCIPLES OF MANGEMENT AND ORGANIZATION 4

 MODULE NO. 2: MGT 1

• Now, the aim of companies must be nothing short of excellence. To attain excellence,
managers must be willing to put the needs of their customer first. They must never forget
customers are indispensable: they are the reason the company exists.

• The traditional contributors of quality are Deming, Juran, and Crosby.

• The Malcolm Baldridge National Quality Award recognizes U.S. organizations for their
excellent performance. The European quest for quality is exemplified by ISO 9000 and
European Quality Award.

• The criteria for Malcolm Baldridge National Quality Award are grouped into seven
categories: leadership, information and analysis, strategic planning, human resource
development and management, process management, results, and customer focus and
satisfaction (see Figure 1).

FIGURE 1. THE BRIDGE AWARD CRITERIA FRAMEWORK: DYNAMIC RELATIONSHIPS

PRINCIPLES OF MANGEMENT AND ORGANIZATION 5