MANAGEMENT

Question 1. What is the IM? What are the differences between classical managerial functions and managerial functions of IM? What are the specific skills of managers running MNC? International business environment - how does it influence performing managers? Explain MNC, MNE, CFO, CEO, TCN.

Multinational management is the formulation of strategies and the design of management systems that successfully take advantage of international opportunities and respond to international threats. Mgt functions: Planning. deciding in advance the most appropriate course of actions for achievement of predetermined goals / It bridges the gap from where we are & where we want to be Organizing. process of bringing together physical, financial and human resources and developing productive relationship amongst them for achievement of organizational goals Staffing. Staffing the organization structure through proper and effective selection, appraisal & development of personnel to fill the roles designed for the structure Directing. sets it in motion the action of people because planning, organizing and staffing are the mere preparations for doing the work. o It deals directly with influencing, guiding, supervising, motivating sub-ordinate for the achievement of organizational goals.

o Direction has following elements: Supervision Motivation Leadership Communication

Control. process of checking whether or not proper progress is being made towards the objectives and goals and acting if necessary, to correct any deviation

Skills of multinational manager: Global mindset. Think globally act locally Ability to work with people from diverse background Emotional intelligence. Manage emotions Long-term vision Manage change Motivate-able Negotiator Willingness to travel Foreign cultures aware

IB environment

MNC, TNC, MNE multinational corporation is the publicly owned company that engages in business functions beyond its domestic borders. A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with one national home. Whilst traditional MNCs are national companies with foreign subsidiaries,[8] TNCs spread out their operations in many countries sustaining high levels of local responsiveness.[9] An example of a TNC is Nestl who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralised headquarters

CFO - corporate officer primarily responsible for managing the financial risks of the business or agency. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management. CEO - administrator in charge of total management. Third Country National (TCN) describes individuals of other nationalities hired by a government or government sanctioned contractor who represent neither the contracting government nor the host country or area of operations

Question 2. Globalization of economy. Factors supporting globalization. Anti- globalization factors. The competitiveness of nations and which is the role of MNC in increasing it. The tools for measuring the economic performance and competitiveness. M. Porter Diamond.

Positive: increases economic prosperity as well as opportunity, especially among developing

nations, enhances civil liberties and leads to a more efficient allocation of resources Promotion of free trade Reduced transportation costs Reduction or elimination of capital controls Emergence of worldwide production markets, financial markets, Increase in information flows between geographically remote locations Competition Growth of cross-cultural contacts Institutional

Negatives: Poorer countries suffering disadvantages Exploitation of foreign impoverished workers The shift to outsourcing. (bad for developed)

Question 3. Multinational management performed in the environment of global trading blocs- NAFTA, ASEAN, MERCOSUR, SADC. How to operate in protectionist environment.

FREE trade - trade that largely works in the mutual benefit of both parties. Free trade enables the free movement of goods and services without imposed tariffs on goods. This is especially advantageous to countries in the global south who tend to find themselves 'priced out' of goods and services from the developed, wealthy global north. Environmentalists note that free trade encourages large multinationals to move environmentally damaging production to poorer and often environmentally sensitive countries. Labor unions see migration of jobs from higher wage countries to lower wage ones.

Multinationals not only trade across borders with exports and imports but also build global networks that link R&D, supply, production and sales units across the globe. Thus, cross-border ownership or FDI has been increasing significantly from the 90s.
Regional trade agreements are agreements among group of countries to reduce tariffs and develop similar technical and economic standards. These usually lead to more trade. The three largest groups account for nearly half of the worlds trade (EU, NAFTA, APEC). EU an economic and political union or confederation[10][11] of 27 member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by six countries in 1958. In the intervening years the EU has grown in size by the accession of new member statesand in power by the addition of policy areas to its remit. The Maastricht Treaty established the European Union under its current name in 1993.[13] The latest amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009.

With a combined population of over 500 million inhabitants,[22] or 7.3% of the world population,[23] the EU generated a nominal GDP of 16,242 billion US dollars in 2010, which represents an estimated 20% of the global GDP when measured in terms of purchasing power parity Activities of EU: elimination of customs duties, quantative restrictions for export and import; establishment of common customs tariff and commercial policy; abolition of all obstacles for movement of persons, services and capital; application of programmes in order to coordinate the economic policies

1. 2.

NAFTA: 1988: beginning of negotiations between US and Canada. 1991: negotiations were formalized. August 1992: Mexico decided to join the bloc. January 1st, 1994: official date of the launch of the bloc. Total elimination of customs tariffs 15 years
In terms of combined purchasing power parity GDP of its members, as of 2007 the trade block is the largest in the world and second largest by nominal GDP comparison.

Benefits: - development of all economies, specially the Mexican one,- easier to compete with the Japanese economy and the EU Bloc.
Population - 2008 estimate 445,335,091 (3rd) GDP (PPP) 2008 (IMF) estimate - Total $17,153 trillion (n/a) - Per capita $35,491 (n/a) GDP (nominal) 2008 (IMF) estimate - Total $16,792 trillion (n/a) - Per capita $35,564 (18th)

Association of Southeast Asian Nations (ASEAN) : is a geo-political and economic organization of 10 countries located in Southeast Asia. Nominal GDP had grown to USD $1.4 trillion in 2008 1967: ASEAN established in Bangkok. - 8% of the world's population; - 4.5 million square kilometers; - 2003: combined GDP of about US$700 billionthis GDP was growing at an average rate of 4% p.a. Major products: electronic goods, oil and wood. Southern African Development Community (SADC) July 1992: Declaration and Treaty replacement of SADCC for the SADC.Main exports: energy, petroleum, natural gas, coal, electricity. Objectives of ASEAN: to encourage inflow of FDI in the region; to establish free trade area in the member countries; to reduce tariff of the products produced in ASEN countries Population - 2007 estimate 575.5 million
GDP (PPP) 2007 estimate - Total US$ 3,431.2 billion - Per capita US$ 5,962

GDP (nominal) 2008 estimate - Total US$ 1,486.5 billion - Per capita $2,583 3. SADC - The Southern African Development Community (SADC) is an inter-governmental
organization headquartered in Gaborone, Botswana. Its goal is to further socio-economic cooperation and integration as well as political and security cooperation among 15 southern African states. It complements the role of the African Union.

April 1980: Lusaka Declaration and creation of the Southern African Development Coordination Conference (SADCC). July 1992: Declaration and Treaty replacement of SADCC for the Southern African Development Community (SADC). Working languages: English, French and Portuguese. Population 2003: 219.5 millions inhabitants Main exports: energy, petroleum, natural gas, coal,electricity. 4. Southern Common Market (MERCOSUR) is a Regional Trade Agreement (RTA) among Argentina, Brazil, Paraguay and Uruguay founded in 1991. Some implications of the Agreement: Free movement of goods, services, and factors of production elimination of customs duties and non-tariff restrictions on the movement of goods;

Establishment of a Common External Tariff (CET); Commitment among member States to harmonize their legislation on the relevant matters in order to strengthen the integration process.

The founding of the Mercosur Parliament was agreed at the December 2004 presidential summit. It should have 18 representatives from each country by 2010

Mercosur does not have quantitative restrictions between its members, with the exception of the automotive sector. Population - 2006 estimate 266.616.849 (4th1) GDP (PPP) estimate - Total U$ 2.895 trillion (5th1) - Per capita U$ 10.858 (70th1) 6.APEC Members: Australia; Brunei; Canada; Chile; China; Hong Kong; Indonesia; Japan; South Korea; Malay New Zealand; Papua New Guinea; Peru; Philippines; Russia; Singapore; Taiwan; Thailand; United State The Asia-Pacific Economic Cooperation forum is a loose grouping of the countries bordering the Pacific O have pledged to facilitate free trade. Its 21 members range account for 45% of world trade. They have pledged to liberalises trade among themselves by 2010 for developed countries and 2015 for de countries. Recently China has begun signing bilateral free trade deals with a number of Apec members. Question 4. The biggest environmental challenges and possibilities for starting business for global competitors. Clean energy goals and its impact on the MNC

environmental issues are intertwined with social/ cultural and socioeconomic issues Major environmental issues climate change global warming (Greenhouse effect) thawing of icebergs, precipitation change, droughts and floods, sealevel increase ozone layer acid rain eutrophication biodiversity erosion demographic growth world health problems poverty and starvation drinking water agriculture global waste Globalization is often accused to have been largely responsible for the increasing of world pollution levels in the last decades. Actually, it appears that the net effect on world pollution measures, deriving from the opening of any individual country to world commerce, is determined by the configuration of three basic factors within the country itself, which are: Environmental policies implemented by its government; Comparative advantages; Income Government can alter allowed pollution levels according to a balance between advantages and side damage deriving from polluting production processes

These three giant companies are: Thames Water of England -Owned by the German conglomerate RWE, It is the worlds third largest water company providing service to 70 million people worldwide Vivendi - Vivendi Environment: operates in about 100 countries through 3,371 companies with a 110 million customer base.
Suez - Suez Lyonnaise: the worlds largest water and wastewater business operating in about 130 countries; serving 125 million individuals, 25 million of which are in Asia Pacific Globalisation of agriculture: Agriculture makes up large portions of the economies of most developing nations. Farming has a direct impact on the environment. The agricultural policies of every state have some impact on the global agricultural market.

The two huge tasks facing governments are: (1.) determining how to clean up legacy problems, restore natural resources, and achieve human health protection; (2.) designing strategies to allow for future growth, while protecting the environment, maintaining biodiversity, safeguarding human health, and preserving cultural/ social values. The challenges faced by governments become even more complex when transboundarymultinational issues come into play, which is the case for issues ranging from global warming and invasive species, to marine transportation-oil spill accidents. At the center of major global environmental challenges for industry are energy strategies, energy projects, other natural resource exploitation, and designing manufacturing life cycles to minimize future impacts. The mineral resource industries (mining and oil and gas) have generally embraced the concepts of sustainable development and preservation biodiversity, but putting sustainability and biodiversity concepts into play is a work-inprogress for most companies.
United States would contribute a non-negotiable amount of $129bn to the expansion of renewable energy programmes. This is a new approach after Bushs legacy of reluctance in the arena of energy saving projects. Similarly, in January this year, the EU set renewable energy goals for the next 12 years: to decrease carbon emissions by 20%.

Reinventing the fire. Amory Lovins. Rocky Mountain Institute http://www.ted.com/talks/lang/en/amory_lovins_a_50_year_plan_for_energy.html : Four main sectors that use energy: Transportation, Buildings, Industry and Elictricity. Integrate technology, policy, design and business strategy. These four using together can yield synergy and create disruptive business opportunities. For example, oil costs to US economy 1/6 of the GDP. Two thirds of energy that goes to move a typical car is caused by its weight. One saved weight unit accounts for seven saved fuel units. Today ultra-light, ultra-strong materials like carbon fiber composites can make dramatic weight savings.

Lighter cars need less energy to move them so their engines become smaller. This makes electric propulsion affordable and driving electric cars prices down. So price of the lighter cars will be the same while driving costs will be much lower. Three technologies: ultra-light materials, making them into structures and electric propulsion. Carbon-fiber materials can save 4/5 of the capital needed to produce a car and save lives as these materials can absorb 12 times more crash energy than steel. Efficient electricity use (3/5 of electricity is used to run motors and pumps which can be upgraded significantly and require much less electricity) Renewables use (Solar and wind energy ). This can bring a solution to: climate change, nuclear proliferation, energy security, energy poverty. ---Companies hampered by old thinking wont be a problem because they simply wont be around longterm. Now there is a most profound transition in human history inventing a new fire not dug from below but flowing from above. Not scarce, not local, not costly and permanent.

Question 5. The cultural context of international management. Cross-cultural communication environment. Hofstede`s and Trompenaar`s characteristics. Management philosophy of MNC in coordinating international operations.
Culture represents pervasive and shared beliefs, norms, values, and symbols that guide everyday life. Cultural norms: both prescribe and proscribe behaviors What we should do and what we cannot do. Cultural values: what is good/beautiful/holy beautiful, and what are legitimate goals for life.

Three levels of culture: o o o National culture: the dominant culture within the political boundaries of the nation-state. Business culture: norms, values, and beliefs that pertain to business in a culture (Tells people the correct, acceptable ways to conduct business in a society). Occupational and organizational culture Occupational culture: the norms, values, beliefs, and expected ways of behaving for people in the same occupational group. Organizational culture: the set of important understandings that members of an organization share

International negotiation requires successful cross-cultural communication. Major issues in crosscultural communication include: o o relationships between language and culture, o Whorf hypothesis: theory that language determines the nature of culture differences between high and low context cultures, o Low-context language: people state things directly and explicitly Most northern European languages including German, English, and the Scandinavian languages o High-context language: people state things indirectly and implicitly Asian and Arabic languages cultural differences in communication styles, o Direct communication: communication that comes to the point and lacks ambiguity o Formal communication: communication that acknowledges rank, titles, and ceremony in prescribed social interaction non-verbal communication, o Kinesics, proxemics, haptics, oculesics, and olfactics when and how to use interpreters, how to speak to non-native speakers of your language, how to avoid mistakes based on faulty attributions (self-reference error).

o o o o

Three diagnostic models to aid the multinational manager: Hofstede model of national culture Global Leadership an Organizational Behavior Effectiveness (GLOBE) project 7d culture model Hofstede's dimensions: Power distance, that is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. Low power distance (e.g. Austria, Israel, Denmark, New Zealand) expect and accept power relations that are more consultative or democratic. In High power distance countries (e.g. Malaysia, Slovakia) less powerful accept power relations that are more autocratic and paternalistic. Individualism. societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. Latin American cultures rank among the most collectivist in this category, while Western countries such as the U.S.A., Great Britain and Australia are the most individualistic cultures. Masculinity versus its opposite, femininity, refers to the distribution of roles between the genders. 'masculine' cultures value competitiveness, assertiveness, ambition, and the accumulation of wealth and material possessions, whereas feminine cultures place more value on relationships and quality of life. Japan is considered by Hofstede to be the most "masculine" culture (replaced by Slovakia in a later study), Sweden the most "feminine."

Uncertainty Avoidance Index (UAI) deals with a society's tolerance for uncertainty and ambiguity. Uncertainty avoiding cultures try to minimize the possibility of unstructured situations by strict laws and rules, safety and security measures. Long-Term Orientation. describes a society's "time horizon," or the importance attached to the future versus the past and present Trompenaars. 1. Universalism vs. particularism (What is more important, rules or relationships?) 2. Individualism vs. collectivism (communitarianism) (Do we function in a group or as individuals?) 3. Neutral vs. emotional (Do we display our emotions?) 4. Specific vs. diffuse (Is responsibility specifically assigned or diffusely accepted?) 5. Achievement vs. ascription (Do we have to prove ourselves to receive status or is it given to us?) GLOBE (Global Leadership and Organizational Behavior Studies) Seven dimensions of GLOBE are similar to Hofstede. Unique dimensions Performance orientation. Refers to the degree to which the society encourages societal members to innovate, to improve their performance, and to strive for excellence (high in Russia and Greece) Humane orientation. An indication of the extent to which individuals are expected to be fair, altruistic, caring, and generous (high in Malaysia and Egypt).

International Management philosophy. Pulmutters EPRG theory of intl mgt styles. Ethnocentric-Polycentric-Regiocentric-Geocentric. Ethnocentric. Foreign markets are considered as a means of disposing surplus domestic production Foreign markets are usually culturally close and the strategy is not remarkably changed HQ has the dominant decision-making power Key positions are filled with managers from home country Centralisation of activities Lack of local responsiveness Polycentric. Subsidiaries operate as independent business units with their own business strategies, decisionmaking and financial mgt. Thus profit is usually fully reinvested in the foreign country Full adaptation of strategy to local conditions Lack of synergy of the whole company network, difficulties in central coordination Regiocentric. Same as polycentric whilst regions are viewed as countries Regional strategy (food and FMCG companies) Geocentric. World viewed as a single market. Global strategy. Globalization of customer preferences and economies of scale Profits are directed to the potentially most profitable parts of the MNC

Question 6. MNC- its characteristics. The definition of MNC by different criteria. The biggest MNC according market capitalization. Tax optimization- off shoring, tax havens.
Multinational Corporation - MNC'. A corporation that has its facilities and other assets in at least one country other than its home country.

Trans-National Corporations (TNCs) sometimes referred to as multinational companies, are enterprises that control economic assets in other countries generally this means controlling at least a 10% share of such an asset. These companies command enormous financial resources, possess vast technical resources and have extensive global reach.

Different criteria used for characteristic of MNC: 1. Ownership criterion: MNC is when parent company is effectively owned by nationals of two or more countries. For example, Shell and Unilever, controlled by British and Dutch interests, are good examples. However, by ownership test, very few multinationals are multinational. 2. Nationality mix of headquarter managers: if the managers of the parent company are nationals of several countries. Usually, managers of the headquarters are nationals of the home country. Thus vVery few companies pass this test currently. 3. Business Strategy Usually assumed to be global profit maximization Franklin Root, an MNC is a parent company that 1. engages in foreign production through its affiliates located in several countries, 2. exercises direct control over the policies of its affiliates, 3. implements business strategies in production, marketing, finance and staffing that transcend national boundaries (geocentric). Spatial Fragmentation (and its trade consequences) Horizontal MNCs Firms replicate production process at home and abroad. Most common between equally developed countries Vertical MNCs Firms divide production into stages and undertake each stage where it is relatively cheaper Most common between countries at different levels of development Intra-firm trade. Trade between affiliates of the same MNC (Accounts for one-third of total world trade)

Market capitalization/capitalisation (aka market cap or capitalized/capitalised value) is a measurement of corporate or economic size equal to the share price times the number of shares outstanding of a public company

Optimization of taxation involves organizational measures within the current legislation dealing with the choice of time, location and activities, with creation and support of the most effective schemes and contractual relationships to increase the company's cash flows due to minimization of tax payments

Offshore investment is the keeping of money in a jurisdiction other than one's country of residence. Offshore jurisdictions are a commonly accepted solution to reducing excessive tax burdens levied in most countries to both large and small scale investors alike
Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Luxembourg, Panama

Reasons for offshore investment: Avoidance of forced heirship Asset protection Less regulated (for example, hedge funds, which thrive in low regulatory environments due to their highly aggressive investments strategies thrive in offshore jurisdictions, principally the Cayman Islands Privacy Tax advantages (legal) Money Laundering & Tax evasion (illegal)
A tax haven is a place where certain taxes are levied at a low rate or not at all. Individuals and/or firms can find it attractive to move themselves to areas with lower tax rates:

No or only nominal taxes. Protection of personal financial information Lack of transparency British Virgin Islands (40% of all offshare companies), Andorra, Monaco, Cyprus.

Question 7 Corporate culture. Different layers of corporate culture. The basic factors of corporate culture. Managers and its role in creating it. The US and EU initiative and measures to cope with corporate governance.

Corporate culture is the total sum of the values, customs, traditions and meanings that make a company unique. The values of a corporate culture influence the ethical standards within a corporation, as well as managerial behavior
Senior management may try to determine a corporate culture. They may wish to impose corporate

values and standards of behavior that specifically reflect the objectives of the organization. At the foundation of any company culture are the standards that govern the operation of the business. These standards are usually expressed in terms of the policies and procedures that define how the company will operate. This will include how different departments or functions relate to one another in the production process, the line of communication established between management and departmental employees, and rules governing acceptable conduct of everyone who is part of the company. This basic organizational culture makes it possible to develop other layers of corporate culture based on these foundational factors. As with many types of cultures, corporate culture usually involves the inclusions of some rites or rituals. This can be something as simple as the annual holiday bonus, a week in the summer when the entire company shuts down, or even the naming of an employee of the month A number of elements that can be used to describe or influence Organizational Culture: The Paradigm: What the organization is about; what it does; its mission; its values. Control Systems: The processes in place to monitor what is going on. Role cultures would have vast rulebooks. There would be more reliance on individualism in a power culture. Organizational Structures: Reporting lines, hierarchies, and the way that work flows through the business. Power Structures: Who makes the decisions, how widely spread is power, and on what is power based? Symbols: These include organizational logos and designs, but also extend to symbols of power such as parking spaces and executive washrooms. Rituals and Routines: Management meetings, board reports and so on may become more habitual than necessary. Stories and Myths: build up about people and events, and convey a message about what is valued within the organization. Organizational culture is shaped by multiple factors, including the following:

External environment Industry Size and nature of the organizations workforce Technologies the organization uses The organizations history and ownership

While many managers acknowledge the significance of culture, few realize the roles and responsibilities that they have in its development. Regardless of the type of culture (i.e. power, role, task and person), the four components Trust o In establishing trust, as a manager, If you say youre going to do something, do it. If you cant do
it, dont want to do it, dont say you will. Make up any excuse, but dont even say, you will try. Employees need to be able to have faith in what they are being told

empowerment/delegation o Empowerment is the process of enabling others to do something. _Principle-centered

Leadership_implies that personal contribution is a great motivator

consistency o Within an organization, this means that its structure, mission statement, shared values,
management philosophies and all other aspects must be aligned with one another.

mentorship o Socialization is often begun through orientation programmes, and ideally is reinforced throughout
employment. It is during this time of orientation that the organizations values and principles can be communicated and instilled into the behaviours of new employees

These factors contribute to the overall good of the organization. These factors cannot standalone. Not only do they coexist, but also empowerment and mentorship are based upon the foundation of trustworthiness and trust, and likewise, a strong mentor programme contributes to that level of trust as well.
.

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders/members, management, and the
board of directors

Although the US model of corporate governance is the most notorious, there is a considerable variation in corporate governance models around the world. The intricated shareholding structures of keiretsus in Japan, the heavy presence of banks in the equity of German firms, the chaebols in South Korea and many others are examples of arrangements which try to respond to the same corporate governance challenges as in the US.
The liberal model that is common in Anglo-American countries tends to give priority to the interests of shareholders The coordinated model in Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community

The European Union (EU) has achieved a great deal in terms of addressing disclosure, shareholder protection, and board structures and responsibilities since the adoption of its Action Plan for Modernizing European Company Law and Enhancing Corporate Governance in the EU (2003). In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and Worldcom, as well as lesser corporate scandals, such as Adelphia Communications, AOL,

Arthur Andersen, Global Crossing, Tyco, led to increased political interest in corporate governance. This is reflected in the passage of the Sarbanes-Oxley Act of 2002. Question 8 IHRM - international human resource management. A process of recruiting, selecting and training of international managers. Motivational factors for accepting international assignment.

All HRM functions, adapted to the international setting. Two added complexities compared to domestic HRM: Must choose a mixture of international employees Must decide the extent of adaptation to local conditions Human resource management (HRM): deals with the entire relationship of the employee with the organization. Recruitment: process of identifying and attracting qualified people to apply for vacant positions Selection: process of filling vacant positions in the organization Training and development: giving employees the knowledge, skills, and abilities to perform successfully Performance appraisal: system to measure and assess employees work performance Compensation: organizations entire reward package, including financial rewards, benefits, and job security Labor relations: ongoing relationship between an employer and those employees represented by labor unions A failed expatriate assignment can cost a company 2-5 times the assignees annual salary (more than $1 mln). Key factors of assigning an expatriate to an international position: Technical and managerial skills Personality traits (open to new and changes, flexible, interested in other cultures) Relational abilities (communication, cultural tolerance, ability to adapt) Family situation (spouses willingness, childrens education requirements) International motivation (willingness to accept expatriate position, interest in culture) Stress tolerance Language ability Emotional intelligence Importance of these factors depend on assignment length, cultural similarity, required interaction and communication, job complexity and responsibility

Question 9 The compensation scheme for expatriates. The basic factors for creating compensation package. Basic compensation procedures and its application for HCN and TCN.

Common elements in an international compensation package Base salary: the amount of cash compensation that an individual receives in the home country Benefits Allowances

MNCs need to provide an appropriate compensation package not only to entice expatriates to relocate but also to retain and motivate expatriate employees. 90% of expatriate failures are family related Factors: Local market cost of living. Adjust the compensation levels so that the expatriate suffers no loss from relocation Housing. Taxes. Avoiding double taxation Benefits. Pension and healthcare

85% of MNCs use Balance-Sheet Approach for determining compensation packages. Provides a compensation package that equates purchasing power. Includes allowances for cost of living, housing, food, recreation, personal care, clothing, education, home furnishing, transportation, and medical care. Besides these, MNC provide extra allowances and benefits:

Foreign service premiums. 10-20% of base salary increase for the individual and family challenge of expatriate assignment Hardship allowance. Extra for poor and high risk living conditions Relocation allowances. Home-leave allowances. Once or twice a year allowance for travelling home

Other Headquarters-based compensation: paying home country wages regardless of location Host-based compensation system: adjusting wages to local lifestyles and costs of living Global pay systems: worldwide job evaluations, performance appraisal methods, and salary scales are used

Compensation trends. Paying HCNs the same salaries as their domestic counteparts which permits worldwide consistency, add allowances&bonuses. Equal-pay-for-equal-work with extra payments to expats

Question 10. The strategy formulation for international markets. Mission and objectives, environmental assessment. Timely development. Risk assessment. Strategic implementation. Type of strategy for penetrating foreign markets.

Strategy: the central, comprehensive, integrated and externally oriented set of choices of how a company will achieve its objectives

Strategy formulation: process by which managers select the strategies to be used by their company. Strategy needs to address the following areas: Arenas: which business to be in Vehicles: used to create presence in markets Differentiators: Sequencing: in what sequence and what pace decisions will be made (what country to enter and when)

Popular analysis techniques Environment analysis (PESTEL) Competitive dynamics of the industry (Porters five forces model, Key Success Factors) Companys competitive position in the industry (SWOT) o Opportunities and threats faced by their company o Companys strengths and weaknesses

On corporate level major issue is which businesses to invest in and which businesses to divest. Most popular is the market growth-share BCG matrix.

Generic strategies: Differentiation strategy: providing superior value to customers Low-cost strategy: producing at a lower cost than competitors Focus (applying differentiation of low-cost strategy to a narrow market)

Strategies can be further subdivided on the basis of competitive scope. Competitive scope: how broadly a firm targets its products or services products or services Narrow competitive scope for certain buyers or geographic areas Broad competitive scope when a large range of buyers are targeted

Competitive Strategies in International Markets: Offensive competitive strategies: direct attacks to capture market share o Direct attacks: price cutting, adding new features, or going after poorly served markets o End-run offensives: seeking unoccupied markets o Preemptive competitive strategies: being first to obtain particular advantageous position o Acquisitions: buying out a competitor Defensive competitive strategies: attempts to discourage offensive strategies o Attempts to reduce risks of being attacked o Convince an attacking firm to seek other targets o Blunt the impacts of any attack o Exclusive contracts with best suppliers o New models to match competitors lower prices Counter-parry: fending off a competitors attack in one country by attacking in another country

Corporate-level strategies: Related diversification (companies acquire businesses that are similar in some way to their original or core business) Unrelated diversification (firms acquire businesses in any industry)

Global-local dilemma: Local-responsiveness solution: customize to country or regional differences Global integration solution: conduct business similarly throughout the world

Four broad multinational strategies Multidomestic (type of differentiation strategy: The company attempts to offer products or services that attract customers by closely satisfying their cultural needs and expectations) Regional (managing raw-material sourcing, production, marketing, and support activities within a particular region) Attempts to gain economic advantages from regional network Attempts to gain local adaptation advantages from regional adaptation International (selling global products and using similar marketing techniques worldwide) Limited adjustment in product offerings and marketing strategies Upstream and support activities remain concentrated at home country Transnational location advantages (dispersing value-chain activities anywhere in the world where they can be done best or cheapest) Gaining economic efficiencies from operating worldwide

Participation strategies: the choice of how to enter each international market:

Exporting Licensing Strategic alliances Equity International Joint Ventures International Cooperative Alliance

Foreign direct investment House-to-house Export Reexport/switch/barter; Buy-back Turnkey operation Offset Management Contract

Question 11 Cross border alliances. Equity and non-equity alliances. Joint ventures. Mergers and acquisitions. The type of mergers and acquisitions. Synergy effect. The problems with evaluations of synergy.

Increasingly popular strategy to develop new product and to expand into new markets However, strategic alliances are very risky and unstable Failure rate of 30% to 60%

Alliance combining same value-chain activities are to gain efficiencies, merge talents, or share risks Upstream/downstream alliances serve the objective of low-cost supply/manufacturing Operations/marketing alliances provide access to markets

Three main types of strategic alliances Informal international cooperative alliances o Non-legally binding agreements between companies from two or more countries o Agreements of any kind o Provide links anywhere on their value chains o Limited involvement between companies Formal international cooperative alliances o Higher degree of involvement than informal alliances o Formal contract o Popular in high tech industries because of high costs and risks

International joint venture o Separate legal entity owned by two or more parent companies from different countries o No need for equal ownership o Equity based on cash or other contributions

The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Synergy Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:

Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package. Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers. Acquiring new technology - To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge. Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.

That said, achieving synergy is easier said than done - it is not automatically realized once two companies merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a merger does just the opposite. In many cases, one and one add up to less than two.

Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers - who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price.

 Horizontal merger - Two companies that are in direct competition and share the same product lines and markets. Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker. Market-extension merger - Two companies that sell the same products in different markets. Product-extension merger - Two companies selling different but related products in the same market. Conglomeration - Two companies that have no common business areas.

It's hard for investors to know when a deal is worthwhile. The burden of proof should fall on the acquiring company. To find mergers that have a chance of success, investors should start by looking for some of these simple criteria:

A reasonable purchase price - A premium of, say, 10% above the market price seems within the bounds of level-headedness. A premium of 50%, on the other hand, requires synergy of stellar proportions for the deal to make sense. Stay away from companies that participate in such contests. Cash transactions - Companies that pay in cash tend to be more careful when calculating bids and valuations come closer to target. When stock is used as the currency for acquisition, discipline can go by the wayside. Sensible appetite An acquiring company should be targeting a company that is smaller and in businesses that the acquiring company knows intimately. Synergy is hard to create from companies in disparate business areas. Sadly, companies have a bad habit of biting off more than they can chew in mergers.

Mergers are awfully hard to get right, so investors should look for acquiring companies with a healthy grasp of reality

McKinsey http://mkqpreview1.qdweb.net/Where_mergers_go_wrong_1402: Our exploration of postmerger integration efforts points to the main source of the winner's curse: the fact that the average acquirer materially overestimates the synergies a merger will yield.2 These synergies can come from economies of scale and scope, best practice, the sharing of capabilities and opportunities, and, often, the stimulating effect of the combination on the individual companies. However, it takes only a very small degree of error in estimating these values to cause an acquisition effort to stumble. Acquirers must undoubtedly cope with an acute lack of information. To help them assess synergies and set targets, they usually have little data about the target company; limited access to its managers, suppliers, channel partners, and customers; and insufficient experience. Even highly seasoned buyers rarely capture data systematically enough to improve their estimates for the next deal. And external transaction advisersusually investment banksare seldom involved in the kind of detailed, bottom-up

estimation of synergies that would be needed to develop meaningful benchmarks before a deal. Fewer still get involved in the post-merger work, when premerger estimates come face-to-face with reality. Solutions: Reduce top-line synergy estimates Acknowledge revenue dis-synergies (our experience indicates that the average merging company loses 2 to 5 percent of its combined customers). Increase estimates of onetime costs Apply outside-in benchmarks to cost synergies (While managers in about 60 percent of mergers deliver the planned cost synergies almost totally, in about a quarter of all cases they are overestimated by at least 25 percent, a miscalculation that can easily translate into a 5 to 10 percent valuation error) Involve key line managers Codify experiences

Question 12 Foreign direct investments. The inflow and outflow of FDIs. The role of FDIs in emerging economies. The measurement of effects of FDIs. The attractiveness of FDIs for MNCs.

Global foreign direct investment (FDI) inflows rose modestly in 2010, following the large declines of 2008 and 2009. At $1.24 trillion in 2010, they were 5 per cent higher than a year before (figure I.1). This moderate growth was mainly the result of higher flows to developing countries, which together with transition economies for the first time absorbed more than half of FDI flows.

UNCTAD predicts FDI flows will continue their recovery to reach $1.4 1.6 trillion, or the pre-crisis level, in 2011. In the first quarter of 2011, FDI inflows rose compared to the same period of 2010, although this level was lower than the last quarter of 2010 (figure I.2). They are expected to rise further to $1.7 trillion in 2012 and reach $1.9 trillion in 2013, the peak achieved in 2007.

Most of FDI scientists believe that FDI has a positive impact on the economic growth in the receiving countries. They showed that many countries like China, India and Uk use FDI as a advanced business for making economic growth. In general, a multinational company s decision to develop production to another is driven by lower cost and higher deficiency consideration. In the host countries, the benefit of FDI are not limited to promote use of its sources, but also branch from the introduction of new processes to domestic market, learning-by-observing, networks, training of the labour force, and other spillovers and externalities. Due to the growth-development benefits FDI assumes to conduct, different countries and places have followed active policies to attract FDI. In many empirical evidences reveals that FDI plays a key role in contributing to economic growth. However, the level of development of local financial markets is crucial for these positive impacts to be absolved.

The factors that consider as the full benefits of FDI in some developing countries include the level of education and health, the technological range of host country enterprise, insufficient openness to trade, weak competition and inadequate regulatory

frameworks. On the other hand, in developing countries; the level of technological, educational and infrastructure achievement are things being equal, equip it better to benefit from a foreign presence in its markets. Impacting foreign direct investment on export depends on the type of FDI. For instance, vertical FDI is assumed to motivate trade whereas horizontal FDI is expected to substitute for trade.

Attrativeness. Why is FDI so common in international business? Production or distribution facilities in a country can reduce costs of trade (transportation, tariff and nontariff barriers, transaction costs, and time) Toyota in US

 Production within a country takes advantage of domestic sourcing of parts, components, services Investment and employment in host country gain political support for the international business: quid pro quo investment Cemex and Southdown Closer to customers for manufacturers Take advantage of low-cost labor, highly-skilled labor, and proximity to resources Reduce costs of trade from import/export

Question 13,14
Evolution and change in MNC organizational structures. Choice of organizational form. Coordination and reporting for global operations. Virtual structures The main organizational strategies- export department,, subsidiaries, divisions, global product, area structure, functional and multinational matrix. Mixed structures. .

Organizational design represents how organizations structure subunits and coordination and control mechanisms to achieve strategic goals Export department. Created when exports become a significant percentage of company sales Export managers control pricing and promotion of products for international markets, deal with export management companies, foreign distributors, foreign customers and may coordinate foreign sales force. As companies evolve beyond initial participation strategies of exporting and licensing, they switch to more complex structures such as international division, worldwide geographic and products structures, worldwide matrix structure and the transnational-network structure.

Foreign subsidiary. Types of foreign subsidiaries: Minireplica subsidiary: smaller version of the parent - company Uses the same technology and producing the same products as the parent company Transnational subsidiary: has no companywide form or function Each subsidiary contributes what it does best

International Division Larger and has greater responsibilities compared to the export department Responsible for managing exports, international sales, and foreign subsidiaries Usual step after export department Deals with all products Manages overseas sales force and manufacturing sites

Reasons to abandon the international division - Diverse products overwhelm capacities of multinational - Not close enough to local markets - Cannot take advantage of global economies of scale or global sources of knowledge

Organizations usually divide work into departments or divisions based on functions, geography, products or combination of these choices. Functional structure: Departments perform separate business functions such as marketing or manufacturing Is the simplest form of organizational structures. Most smaller organizations have functional structures.

Product structure: departments or subunits based on different product groups Geographic structure: departments or subunits based on geographic regions Both are usually less efficient than the functional organization and allow to serve customer needs that vary by region or product. Managers choose product structures when product or an area sufficiently unique to require focused functional efforts on one type of product or service Hybrid structure: mixes functional, geographic, and product units

Worldwide geographic structure. The prime reason for this structure is to implement a multidomestic or regional strategy (e.g. Toyota).

Country-level divisions exist only when a countrys market size is sufficiently large or important to support a separate organization.

In worldwide product structures each product division assumes responsibility for producing and selling its products throughout the world. This structure supports strategies that emphasize production and sales of worldwide products and is considered ideal for international strategy implementation. In international strategy company attempts to gain economies of scale by selling worldwide with most upstream activities based at home. (e.g. Ford Motor)

Most large multinationals have hybrid structures (Sony Corp, Unilever). The front-back hybrid structure divides the organization into two line sub-organizations. The front side has units based on geography to provide multi-domestic/regional focus. The backside has units based on product groups to capture global economies of scale in R&D and production. upstream activities are global and downstream activities are local (e.g. Tetra Pack, Citibank)

To balance benefits of hybrid structure, a worldwide matrix structure is used. It represents a symmetrical organization: equal authority for product and geographic groups. It works well only when there are nearly equal demands from the environment for local adaptation and for product standardization with its economies of scale. Matrix structure to be successful requires extensive resources for communication among managers who have two bosses. Requires middle and upper level managers with good human relations skills

The Transnational-Network Structure Newest solution to the complex demand of being locally responsive and taking advantage of global economies of scale Combines functional, product, and geographic subunits. Has no symmetry or form. Its network links different types of transnational subsidiaries. Nodes, units at the center of the network, coordinate product, functional and geographic information (e.g. Philips which has 8 product divisions with more than 60 subgroups). Other characteristics: Dispersed subunits (location anywhere in the world where subsidiaries can benefit the company the most) Specialized operations Interdependent relationships

Next org structure to evolve might be a metanational one. Large entrepreneurial multinational that can tap into pockets of innovation, technology, and markets located around the world Develops extensive systems to encourage organizational learning and entrepreneurial activities Nonstandard business formulas for any local activity Looking to emerging markets as sources of knowledge and ideas Creating a culture supporting global learning Extensive use of strategic alliances to gain knowledge for varied sources A centerless organization that moves focus from HQ to large markets

With development of Internet a new for evolved Micro-multinational Operate everywhere around the globe Use state-of-the-art technology for communication purposes Hire workers around the world

Control Systems Control system: helps link the organization vertically, up and down the organizational hierarchy Basic functions of control system: Help focus activities of the companys subunits to support company-wide strategic goals and objectives Measure or monitor the performances of subunits regarding their roles in the strategy Provide feedback to subunit managers regarding the effectiveness of their units

Coordination systems help link organizations horizontally - Provide information flows among subsidiaries so that they can coordinate their respective activities

Design Options for Control Systems Four types of control systems Output control system o Assesses the performance of a unit based on results, not on the processes used to achieve these results o Profit center (commonly a mini-replica subsidiary): unit controlled by its profit or loss performance Bureaucratic control system o Focuses on managing behaviors within the organization. Bureaucratic tools include: Budgets set financial targets for expenditures during specific time periods Statistical reports: information to top management about nonfinancial outcomes Standard operating procedures (SOPs): rules and regulations of appropriate behavior Decision-making control (centralized vs. decentralized) o Represents the level in the organizational hierarchy where managers have the authority to make decisions Cultural control system: o uses corporate culture to control behaviors and attitudes of employees o strong organizational structure may be the only way to link a dispersed multinational company

Design Options for Coordination Systems: Textual communication (e.g. reports, e-mails, memos) Direct contact (face-to-face communication, teleconferences) Liaison roles (part of managers responsibility to communicate with other departments) Task forces (temporary teams created to solve a particular organizational problem such as entering a new market and they usually link several departments) Full-time integrators (same as liaison role except for it is a sole job responsibility e.g. product managers coordinate development of product with design teams, production, sales and marketing) Teams (strongest coordination mechanisms; unlike taskforces are permanent, also come from several company subunits e.g. a new product development team)

*Question 15 The creation of global business network in specific industries. Financial institutions. Service industries. Production branches. Outsourcing and its role in increasing of MNC effectiveness. Breaking down a company into its individual value activities makes it possible to identify the current and potential contribution of each activity to the companys competitive position. The value activities of a company, whether they are primary or secondary, can be distributed among different countries.

One reason for the speeding-up of the whole globalisation process is the rapid emergence of global value chains. The whole process of producing goods, from raw materials to finished product, has increasingly been sliced and each process can now be carried out wherever the necessary skills and materials are available at competitive cost.

But globalisation is no longer only about goods and products; it increasingly involves foreign direct investment (FDI) and trade in services. Information and communication technologies (ICT) have made it possible to base services such as customer call centres anywhere in the world, regardless of where the customers are.

Economic globalisation has resulted in a growing openness of the manufacturing sector, but not all manufacturing industries are affected to the same extent. High technology industries are generally more internationalised than less technology-intensive industries, mainly because hightechnology firms no longer have all the required knowledge in-house and increasingly have to look outside. While manufactured goods still account for the largest share of international trade, globalisation increasingly extends to FDI and trade in services. Improvements in technology, standardisation, infrastructure growth and decreasing data transmission costs have all facilitated the sourcing of services from abroad. In particular, knowledge work such as data entry or research and consultancy services can easily be carried out via the Internet and e-mail, and through tele- and video-conferencing. Multinational firms (MNEs) play a prominent role in globalised value chains. The importance of MNEs in todays global economy is linked to their strengths in a range of knowledge-based assets, such as management and intellectual property, which allow them to take advantage of profitable opportunities in foreign markets by setting up subsidiaries and affiliates abroad. Affiliates under foreign control not only serve local markets, but have also become essential links in global value chains as they serve other (neighbouring) markets and provide inputs for other affiliates in the multinationals network. Cross-border trade between multinational firms and their affiliates, often referred to as intra-firm trade, accounts for a large share of international trade in goods. The development of global value chains also offers new opportunities to small and medium enterprises (SMEs), although they also face important challenges in reaching international markets: management, finance and the ability to upgrade and protect in-house technology can all be hurdles. As suppliers, SMEs are often given more responsibilities in the value chain and more complex tasks than in the past. This places them under increasing pressure to merge with other firms in order to achieve the critical mass required to support R&D, training of personnel, control over firms in lower levels of the chain, and to fulfil requirements in terms of standards and quality.
Value chain for financial institutions: http://www.soc.duke.edu/NC_GlobalEconomy/banks/value.shtml :

Automotive industry: Selected external factors that affect the configuration of international value chains

Engineering and construction industry:

EU initiative to promote the smart use of information technologies and the integration of SMEs in global industrial value chains:

Five first major demonstration actions have started already namely in support of the automotive industry, the fashion industry, the transport and logistics sectors, the tourism industry, and the agro-food supply-chain. First results are remarkable, with significant efficiency gains, speedier and affordable integration of SMEs in global value networks, broad participation of SMEs, involvement of reference names in the sectors and prospects for mass market adoption through the European standardisation organisations and consortia. Altogether some 20 000 small enterprises have been involved in all of these projects. The added value is not limited to the number of direct beneficiaries, but lies also in the creation of new models that can be adopted to have a major impact in the real market. The demonstration action for the fashion industry (http://www.ebiz-tcf.eu) figured significant business benefits and SMEs involvement:

The costs related to order management dropped by 65% in one year. The average response time for an order dropped by 50%. The rate of errors in order processing dropped from a 10% average to null; Over 150 small companies from the textile and footwear sector, from 20 European countries participated in digital supply chains, i.e. integrated IT solutions in their daily business transactions, during the action, while over 4.000 enterprises were touched by dissemination actions; Among those, some reference brands, namely BATA, shoes and accessories world wide, ZEGNA, high segment menswear world wide, Marco Polo, clothing retail. An MoU was signed among key industry stakeholders and leading sectoral associations, to further promote the results and stimulate real market roll-out; After the end of the pilot project, a CEN workshop agreement was established to further maintain, extend, validate and promote the interoperability framework, through the official standardisation bodies.

The demonstration action for the automotive industry (Auto-gration, http://www.autogration.eu/) triggered remarkable industry leadership:

Industry-led initiative to maintain, promote and extend the auto-gration framework by a joint auto-gration forum consisting of CLEPA, FIGIEFA and Odette; VDA (the German Automotive association, representing 50% of the automotive industry in Europe) issued an official recommendation to adopt auto-gration for their SME eInvoicing solution; Odette and its national organisations plan to issue auto-gration as best-practice recommendation. Significant number of B2B marketplaces and ICT vendors specialising in the automotive industry, engaged to adapt their commercial solutions to become "Auto-Gration compliant", thus ensuring interoperability between them. An MoU was signed among key industry stakeholders, leading sectoral associations and ICT vendors, to further promote the results and stimulate real market roll-out; So far, major automotive manufacturers (VW, BMW, Renault, Skoda Auto) engaged to implement auto-gration in their daily business processes.

The demonstration action for the transport and logistics industry (DiSCwise, http://www.discwise.eu/) demonstrated impressive potential for concrete business benefits and led to promising industry follow-up actions:

The Common Framework helped to lower the technical boundaries. Faster roll-out of new services, activation of new users and reduction of implementation costs by 70%. Speeded up SMEs integration to large logistics networks from 35 days to 3 days, through offering web-based switch-on-off services, user-friendly and affordable for SMEs. Facilitated and accelerated co-modal transport organisation notably for smaller businesses, and reduced transport costs. Increased effectiveness and speed of billing to customers and eased working capital requirements. Active liaison has been established with the standardisation bodies and consortia, with a view to ensure its further maintenance, extension and industry uptake through the standardisation processes.

Outsourcing is the process of contracting an existing business function or process of an organization to an independent organization, and ceasing to perform that function or process internally, instead purchasing it as a service.

Advantages

Companies are able to provide services and products to consumers at a cheaper price while still having a large margin for profit. This profit margin benefits both the company as well as the consumer. The cheaper prices lead to an increase a companys economy. Although losing jobs hurts the economy because more citizens become unemployed, the cheaper prices allows customers to purchase more products and services which helps to rebuild an economy Various authors outline as a key drivers of international outsourcing the cost savings incentive and globalization. Large companies (like Procter & Gamble and General Motors) decided to outsource substantial elements of their IT services (Beulen et.al., 2005). A variety of key reasons for an organization to outsource can be financial savings, strategic focus, access to advanced technology, improved service levels, access to specialized expertise, and organizational politics There is no doubt that the main reason for the outsourcing decision is costs reduction. Organizations find that costs can be cut down by outsourcing of one or more business processes. An additional motive is to provide for a more flexible cost control. Foreign companies e.g. clients of an outsourced service have an option to react more adequate in case that the vendor makes attempts to overcharges them. A typical example for SEE countries is IT outsourcing targeted in cost reduction. It usually concerns software development operations performed by highly specialized personnel located in this low-cost environment. This efficiency effect implies a lower price of outsourcers product which provides a better market positioning of the company. Strategic dimension is however not less important in outsourcing decision making, since outsourcers acknowledge that they are not able to pursue supremacy in all internal business processes. On this basis, they strategically orient to focusing on the improvement of their core competences (e.g. customer service refinement and technological innovations) and transfer some of their secondary functions, such as back office, help desk, telemarketing, etc., to vendors who develop these functions as their core competences. By outsourcing non-core processes the managers expect to provide conditions to focus on higher value-added functions. Finally, the essential sources of competitive advantages are

not the products themselves but the managerial capabilities to strengthen and to combine skills and technology into competences for adaptation to changing business environment. For example, the core competence of companies like Nike and Benetton is the product design and they practice outsourcing in respect of most of the other business processes.

Question 16 International financial markets. Management of foreign currencies portfolio. International stock exchange network. Drivers of consolidation. The role of IMF and World Bank.

The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (like the NYSE, BSE, NSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange. Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges. Financial markets can be domestic or they can be international. Types of financial markets The financial markets can be divided into different subtypes:

Capital markets which consist of: o Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. o Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof. Commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment. Derivatives markets, which provide instruments for the management of financial risk. Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market. Insurance markets, which facilitate the redistribution of various risks. Foreign exchange markets, which facilitate the trading of foreign exchange.

The capital markets may also be divided into primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers and investors, while in secondary market transactions exist among investors. Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value. Securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Investors

benefit from liquid securities because they can sell their assets whenever they want; an illiquid security may force the seller to get rid of their asset at a large discount.

Management of foreign currencies portfolio:

for company level use hedging techniques (see finance)

The Bank manages the countrys foreign exchange reserves according to well-established guidelines relating to:

The preservation of the capital value of reserve assets; The maintenance of adequate liquid foreign assets to make debt service and other payments on behalf of the central government and for the Central Banks own account; Achieving an optimum rate of return on investments within well-defined risk parameters.

Sound risk management is an integral part of efficient foreign exchange reserves management. The strategy for reserves management places emphasis on managing and controlling the exposure to financial and operational risks associated with deployment of reserves. The broad strategy for reserve management including currency composition and investment policy is decided in consultation with the Government. The risk management functions are aimed at ensuring development of sound governance structure in line with the best international practices, improved accountability, a culture of risk awareness across all operations and efficient allocation of resources for development of in-house skills and expertise. The risks attendant on deployment of reserves, viz., credit risk, market risk, liquidity risk and operational risk and the systems employed to manage these risks are detailed in the following paragraphs. The Reserve Bank has been extremely sensitive to the credit risk it faces on the investment of foreign exchange reserves in the international markets. Investments in bonds/treasury bills, which represent debt obligations of highly rated sovereigns and supranational entities, do not give rise to any substantial credit risk. Market risk arises on account of exchange rate and interest rate movements. These are addressed as under: Currency Risk: Currency risk arises due to uncertainty in exchange rates. Foreign exchange reserves are invested in multi-currency, multi-market portfolios. Decisions are taken regarding the long-term exposure on different currencies depending on the likely movements in its exchange rate and other considerations in the medium- and long-term (eg., maintenance of major portion of reserves in the intervention currency, the approximate currency profile of the reserves in line with the changing external trade profile of the country, benefit of diversification, etc.).

Interest Rate Risk: The crucial aspect of the management of interest rate risk is to protect the value of the investments as much as possible from the adverse impact of the interest rate movements. The focus of the investment strategy revolves around the overwhelming need to keep the interest rate risk of the portfolio reasonably low with a view to minimising losses arising out of adverse interest rate movements, if any. Liquidity risk involves the risk of not being able to sell an instrument or close a position when required without facing significant costs. The reserves need to maintain a high level of liquidity at all times in order to be able to meet any unforeseen and emergency needs.

In a flexible exchange rate system, official international reserve assets allow a central bank to purchase the domestic currency, which is considered a liability for the central bank (since it prints the money or fiat currency as IOUs). This action can stabilize the value of the domestic currency Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates. This coordinated strategy was used to replace pound sterling with US dollar as the world reference currency during the 20th century. The lack of such international cooperation is also a big concern for the replacement of US Dollar in this role of reference currency in foreign exchange reserves
The quantity of foreign exchange reserves can change as a central bank implements monetary policy.[3] A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a flexible exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes ('dirty floats', target bands or similar variations) may require the use of foreign exchange operations (sterilized or unsterilized[clarification needed] ) to maintain the targeted exchange rate within the prescribed limits .

64 central banks across the globe have adopted the Special Data Dissemination Standards (SDDS) template of the IMF for publication of the detailed data on foreign exchange reserves. Such data are made available on monthly basis on the Bank's website.

A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.

Role of stock exchanges

Raising capital for businesses Mobilizing savings for investment Corporate governance Creating investment opportunities for small investors Barometer of the economy

IMF Member countries of the IMF have access to information on the economic policies of all member countries, the opportunity to influence other members economic policies, technical assistance in banking, fiscal affairs, and exchange matters, financial support in times of payment difficulties, and increased opportunities for trade and investment

In addition to monitoring country policies through surveillance, the Fund was set up to work as a sort of credit union, lending to countries that suffered balance of payments problems. The IMF could help countries correct balance of payments difficulties by providing temporary financing to smooth the required adjustment and limit the impact on economic activity at home and abroad.

Functions The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. Private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance of payments financing, provide the justification for official financing, without which many countries could only correct large external payment imbalances through measures with adverse effects on both national and international economic prosperity. Upon initial IMF formation, its two primary functions were: to oversee the fixed exchange rate arrangements between countries, thus helping national governments manage their exchange rates, and to provide short-term capital to aid balance-of-payments. This assistance was meant to prevent the spread of international economic crises. The Fund was also intended to help mend the pieces of the international economy post the Great Depression and World War II. The IMFs role was fundamentally altered after the floating exchange rates post 1971. It shifted to examining the economic policies of countries with IMF loan agreements to determine if a shortage of capital was due to economic fluctuations or economic policy. Rather than maintaining a position of oversight of only exchange rates, their function became one of surveillance of the overall macroeconomic performance of its member countries.

The World Bank's official goal is the reduction of poverty. All of its decisions must be guided by a commitment to promote foreign investment, international trade and facilitate capital investment The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), whereas the former incorporates these two in addition to three more:[5] International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID).

The IMF and World Bank were both created at the end of world war II in a political climate the is very different from that of today. Nevertheless, their roles and modalities have been suitably updated to serve the interests of those that benefit from neoliberalism. The institutional structures of the IMF and World Bank were framed at an international conference in Bretton Woods, New Hampshire. Initially, the primary focus of the IMF was to regulate currency exchange rates to facilitate orderly international trade and to be a lender of last resort when a member country experiences balance of payments difficulties and is unable to borrow money from other sources. The original purpose of the World Bank was to lend money to Western European governments to help them rebuild their countries after the war. In later years, the World Bank shifted its attention towards development loans to third world countries. The power of the IMF becomes clear when a country gets into financial trouble and needs funds to make payments on private loans. Before the IMF grants a loan, it imposes conditions on that country, requiring it to make structural changes in its economy. These conditions are called Structural Adjustment Programs (SAPs) and are designed to increase money flow into the country by promoting exports so that the country can pay off its debts. The World Bank plays a qualitatively different role than the IMF, but works tightly within the stringent SAP framework imposed by the IMF. It focuses on development loans for specific projects, such as the building of dams, roads, harbors etc that are considered necessary for economic growth in a developing country. Examples of SAP prescriptions include: - an increase in labor flexibility which means caps on minimum wages, and policies to weaken trade unions and workers bargaining power. - tax increases combined with cuts in social spending such as education and health care, to free up funds for debt repayment. - privatization of public sector enterprises, such as utility companies and public transport - financial liberalization designed to remove restrictions on the flow of international capital in and out of the country coupled with the removal of restrictions on what foreign corporations and banks can buy. Despite almost two decades of Structural Adjustment Programs, many third world countries have not been able to pull themselves out of massive debt. The SAPs have, however, served corporations superbly, offering them new opportunities to exploit workers and natural resources. It is important to realize that the IMF and World Bank are tools for powerful entities in society such as trans-national corporations and wealthy investors. The Thistle believes that massive world poverty and environmental destruction is the result of the appalling concentration of power in the hands of a small minority

Question 17 The corporate social responsibility. The main stakeholders and their role. The rebuilding of a contract between business and society. The steps leading to turn business into branded ethical behavior.
CSR is closely related to business ethics. It refers to the idea that businesses have a responsibility to society beyond making profits. Company thus has to take into account the welfare of other constituents (customers, suppliers) in addition to stakeholders. Examples are monitoring working conditions, paying for the education of workers children, donating money to local communities. Customers product safety, fair price, proper disclosures and information Stockholders fair return on investment, fair wages, safety of working conditions Employees child labor, discrimination by sex, race, color; Host country following local laws, impact on local social institutions, environmental protection Society in general depletion of raw materials

Primary stakeholders are directly linked to a companys survival and include customers, suppliers, employees and shareholders. Secondary stakeholders are media, trade associations and special interest groups.

Thinking broadly about stakeholders often results in a list that is much too long to be of any practical use. To avoid engagement burnout (trying to talk to too many stakeholders) consider setting priorities, using the following criteria as a start:

the significance of the effect of the firm in the view of the stakeholder (for example, layoffs at the only plant in town will be very significant to workers, their families and other residents) the importance of the stakeholder group to operations (for example, customers and key suppliers) the risk of getting incomplete information by excluding a group (for example, when a foreign subsidiary's only contacts are with government officials, it will be difficult to learn the concerns of local workers or residents) the opportunity to access new ideas (for example, engaging a group that is likely to challenge current practices may provide fresh insight into a difficult problem -- but the firm had better be prepared to actually change its approach) the requirements of regulators or permit-issuing bodies (for example, to get an operating licence in certain areas in Canada, a firm may be required to engage Aboriginal peoples)

It is important to be clear about where each engagement fits into the big picture. Will the role of stakeholders be advisory or participatory? Is the firm prepared to change its plans significantly based on what it learns? The demands on some stakeholder groups to participate in consultation processes have become so great that sophisticated stakeholders are not willing to contribute much energy to processes in which they have little influence. Without committing any resources, becoming aware of stakeholders and their significance will benefit future business planning.
Engagement for performance measurement and accountability

An important development in stakeholder engagement since the early 1990s has been the rapid growth in reporting to stakeholders on environmental performance, then social performance and now sustainability performance.

Increasingly, corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i.e. more loyalty, improved recruitment, increased retention, higher productivity, and so on). Key external stakeholders include customers, consumers, investors (particularly institutional investors), communities in the areas where the corporation operates its facilities, regulators, academics, and the media. Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the inclusion of all groups or constituents (rather than just shareholders) in managerial decision making related to the organizations portfolio of socially responsible activities. This normative model implies that the CSR collaborations are positively accepted when they are in the interests of stakeholders and may have no effect or be detrimental to the organization if they are not directly related to stakeholder interests.
Code of conduct: Respect basic human rights and freedoms (life, liberty, security and privacy; non-discrimination) Maintain high standards of local political environment (not paying bribes) Transfer technology (to developing countries) Protect the environment Consumer protection

Best practices steps to build CSR: Leading by example (managers need to adhere first to the code of ethics) Making ethics part of the corporate culture. Involving employees at all levels Setting and monitoring goals Effective integration in business processes Open discussion of ethics

Question 18 Cross cultural leadership. Leadership styles and its application in different cultural environment. Pragmatic managerial styles. Examples of excellent companies (BAXTER, Price Waterhouse, etc.)
Leadership: process of influencing group members to achieve organizational goals Excellent leaders motivate their employees to achieve more than minimal requirements

Global Leadership: The New Breed: One who has the skills and abilities to interact with and manage people from diverse cultural backgrounds

Characteristics of a global leader

Cosmopolitan Skilled at intercultural communication Culturally sensitive Capable of rapid acculturation

Global Leadership: Knowledgeable about cultural and institutional influences on management Facilitator of subordinates intercultural performance A user of cultural synergy A promoter and user of the growing world culture A commitment to continuous improvement in self-awareness and renewal

Global Leadership: Emotional intelligence: refers to the ability of the global leader to accurately perceive his or her emotions and to use those emotions to solve problems and to relate to others

Three basic models of leadership Leadership traits o Great-person theory: idea that leaders are born with unique characteristics that make them quite different from ordinary people o Contemporary views of leadership traits do not assume that leaders are born Leadership behavior Leadership behavior Contingency leadership

Traits of Successful U.S. Leaders: Higher intelligence and self-confidence More initiative More assertiveness and persistence Greater desire for responsibility and the opportunity to influence others A greater awareness of the needs of others

Leadership Behaviors: U.S. Perspectives on Leadership Behaviors: Two major types of leadership behaviors Task-centered leader: focus on completing tasks by initiating structure o Gives subordinates specific standards, schedules, and tasks Person-centered leader: focus on meeting the social and emotional needs of employees

Leader Decision Making Styles Autocratic leadership: leaders make all major decisions themselves Democratic leadership: leader includes subordinates in decision making Consultative or participative leadership: leaders style falls midway between autocratic and democratic styles

Contingency Theory

Assumption that different styles and different leaders are more appropriate for different situations Two North American contingency theories of leadership: Fiedlers theory of leadership o Effective leadership occurs when the leadership styles match the situation o Theory suggests that task-centered leadership works best when situation is favorable or not favorable for leader Path-goal theory o Four leadership styles that a manager might choose depending on the situation: Directive Supportive Participative Achievement-oriented

GLOBE (Global Leadership and Organizational Behavior Effectiveness) The very latest research on cross-national differences in leadership Study contains insights regarding crucial leadership styles to navigate successfully through a maze of cultural settings

Leadership styles vary by countries. Team-oriented leaders are preferred in Latin European and Southern Asian countries. Anglo and Germanic cultures prefer participative leaders. South Asian cultures prefer humane leader. All countries agree that autonomous leaders and self-protective leaders universally impeded leadership

Influence tactics: tactical behaviors leaders use to influence subordinates - U.S managers favor seven influence tactics: Assertiveness Friendliness Reasoning Bargaining Sanctioning Appeals to a higher authority Coalitions

Contemporary Leadership Perspectives: Two basic forms of leadership Transactional leadership: managers use rewards or punishments to influence their subordinates Transformational Leadership: Managers go beyond transactional leadership by: o Articulating a vision o Breaking from the status quo o Providing goals and a plan o Giving meaning or a purpose to goals o Taking risks

o Being motivated to lead o Building a power base o Demonstrating high ethical and moral standards Succeed because subordinates respond to them with high levels of performance, devotion and willingness to sacrifice Same leadership traits may not lead to transformational leadership in all countries

Question 19 (p 401) The managerial skills for managing workforce diversity. Building international team. Stages in team building. Motivating multicultural work teams. Maximizing effectiveness of performance. Three points to keep in mind when building a global team anywhere in the world. Step 1: Self-awareness The first step is to understand yourself. What is your style? How do you communicate, and how do you lead? "You need to know yourself before you interact with other people

Step 2: Develop cultural competence You can develop cultural competence by learning about another culture, developing the ability to observe and understand that people do things differently. You have to be able to do this without saying this is right and this is wrong. This is just the way things are is probably a good attitude to adopt.

Step 3: Cultural adaptability Now you must take the information you've learned about the other culture, include selfawareness, and adapt your communications style.

Working with team members remotely, perhaps from different functions, different cultures and in different time zones often presents major challenges. In addition to best practices of successful team management in general, for the virtual team it is particularly important that the team addresses the challenges of virtuality, technology, cultural and time differences at he initial stage of working together. After having established the norms, culture and expectations for the team, regular monitoring is required. The program focuses on establishing credibility, building trust and relationships, motivation and feedback, decisionmaking and conflict handling
As more multinational companies are facing the pressures to meet both local and global customer needs through the integration of design and development expertise spread around the world, they are making increased use of teams. Teams give global companies the ability to better coordinate the work and expertise of individuals located around the world, to develop and launch new products, and to become more flexible. Global teams face difficulties with having team members with diverse cultural backgrounds located in different countries. Problems are: Difference in languages Differences in culture Team collaboration lack of face-to-face meetings less trust and cohesion Difficult to keep team members focused and disciplined as they are located in different parts of the world.

Steps to improve team collaboration: Build relationships and trust Devote significant attention to project planning and hold project progress meetings regularly Cultural, language and active-listening training Be aware of team-development stage. Teams go through various stages as the progress to higher productivity.

At the forming stage team leader should provide ample opportunity for the team members to get to know each other. At the storming stage theres a higher likelihood of conflict and the global team leader should find ways to address such conflict which can be magnified because of the use of impersonal technologies to communicate.

The five stages:

Stage 1: Forming Stage 2: Storming Stage 3: Norming

Stage 4: Performing Stage 5: Adjourning

Stage 1: Forming
The "forming" stage takes place when the team first meets each other. In this first meeting, team members are introduced to each. They share information about their backgrounds, interests and experience and form first impressions of each other. They learn about the project they will be working on, discuss the project's objectives/goals and start to think about what role they will play on the project team. They are not yet working on the project. They are, effectively, "feeling each other out" and finding their way around how they might work together. During this initial stage of team growth, it is important for the team leader to be very clear about team goals and provide clear direction regarding the project. The team leader should ensure that all of the members are involved in determining team roles and responsibilities and should work with the team to help them establish how they will work together ("team norms".) The team is dependent on the team leader to guide them.

Stage 2: Storming
As the team begins to work together, they move into the "storming" stage. This stage is not avoidable; every team - most especially a new team who has never worked together before - goes through this part of developing as a team. In this stage, the team members compete with each other for status and for acceptance of their ideas. They have different opinions on what should be done and how it should be done - which causes conflict within the team. As they go progress through this stage, with the guidance of the team leader, they learn how to solve problems together, function both independently and together as a team, and settle into roles and responsibilities on the team. For team members who do not like conflict, this is a difficult stage to go through. The team leader needs to be adept at facilitating the team through this stage - ensuring the team members learn to listen to each other and respect their differences and ideas. This includes not allowing any one team member to control all conversations and to facilitate contributions from all members of the team. The team leader will need to coach some team members to be more assertive and other team members on how to be more effective listeners. This stage will come to a closure when the team becomes more accepting of each other and learns how to work together for the good of the project. At this point, the team leader should start transitioning some decision making to the team to allow them more independence, but still stay involved to resolve any conflicts as quickly as possible. Some teams, however, do not move beyond this stage and the entire project is spent in conflict and low morale and motivation, making it difficult to get the project completed. Usually teams comprised of members who are professionally immature will have a difficult time getting past this stage.

Stage 3: Norming
When the team moves into the "norming" stage, they are beginning to work more effectively as a team. They are no longer focused on their individual goals, but rather are focused on developing a way of working together (processes and procedures). They respect each other's opinions and value their differences. They begin to see the value in those differences on the team. Working

together as a team seems more natural. In this stage, the team has agreed on their team rules for working together, how they will share information and resolve team conflict, and what tools and processes they will use to get the job done. The team members begin to trust each other and actively seek each other out for assistance and input. Rather than compete against each other, they are now helping each other to work toward a common goal. The team members also start to make significant progress on the project as they begin working together more effectively. In this stage, the team leader may not be as involved in decision making and problem solving since the team members are working better together and can take on more responsibility in these areas. The team has greater self-direction and is able to resolve issues and conflict as a group. On occasion, however, the team leader may step in to move things along if the team gets stuck. The team leader should always ensure that the team members are working collaboratively and may begin to function as a coach to the members of the team.

Stage 4: Performing
In the "performing" stage, teams are functioning at a very high level. The focus is on reaching the goal as a group. The team members have gotten to know each other, trust each other and rely on each other. Not every team makes it to this level of team growth; some teams stop at Stage 3: Norming. The highly performing team functions without oversight and the members have become interdependent. The team is highly motivated to get the job done. They can make decisions and problem solve quickly and effectively. When they disagree, the team members can work through it and come to consensus without interrupting the project's progress. If there needs to be a change in team processes - the team will come to agreement on changing processes on their own without reliance on the team leader. In this stage, the team leader is not involved in decision making, problem solving or other such activities involving the day-to-day work of the team. The team members work effectively as a group and do not need the oversight that is required at the other stages. The team leader will continue to monitor the progress of the team and celebrate milestone achievements with the team to continue to build team camaraderie. The team leader will also serve as the gateway when decisions need to be reached at a higher level within the organisation. Even in this stage, there is a possibility that the team may revert back to another stage. For example, it is possible for the team to revert back to the "storming" stage if one of the members starts working independently. Or, the team could revert back to the "forming" stage if a new member joins the team. If there are significant changes that throw a wrench into the works, it is possible for the team to revert back to an earlier stage until they are able to manage through the change.

Stage 5: Adjourning
In the "adjourning" stage the project is coming to an end and the team members are moving off into different directions. This stage looks at the team from the perspective of the well-being of the team rather than from the perspective of managing a team through the original four stages of team growth. The team leader should ensure that there is time for the team to celebrate the success of the project and capture best practices for future use. (Or, if it was not a successful project - to evaluate what happened and capture lessons learned for future projects.) This also provides the

team the opportunity to say good-bye to each other and wish each other luck as they pursue their next endeavour. It is likely that any group that reached Stage 4: Performing will keep in touch with each other as they have become a very close knit group and there will be sadness at separating and moving on to other projects independently.

Is the Team Effective or Not?

There are various indicators of whether a team is working effectively together as a group. The characteristics of effective, successful teams include:

Clear communication among all members. Regular brainstorming session with all members participating. Consensus among team members. Problem solving done by the group. Commitment to the project and the other team members. Regular team meetings are effective and inclusive. Timely hand off from team members to others to ensure the project keeps moving in the right direction. Positive, supportive working relationships among all team members.

Teams that are not working effectively together will display the characteristics listed below. The team leader will need to be actively involved with such teams. The sooner the team leader addresses issues and helps the team move to a more effective way of working together, the more likely the project is to end successfully.

Lack of communication among team members. No clear roles and responsibilities for team members. Team members "throw work over the wall" to other team members, with lack of concern for timelines or work quality. Team members work alone, rarely sharing information and offering assistance. Team members blame others for what goes wrong, no one accepts responsibility. Team members do not support others on the team. Team members are frequently absent thereby causing slippage in the timeline and additional work for their team members.

From research conducted over many years Dr Meredith Belbin has discovered that teams work most effectively when they contain members with a range of preferred roles. These have come to be known: Shaper Coordinator Teamworker Completer Finisher Implementer Monitor Evaluator Plant Resource Investigator Specialist

Question 20 The MNC and entering strategy for China. The stages of screening. Specifics of Chinese economy. Difference to India and EU market. The risks and its evaluation.

Many MNCs consider shifting manufacturing to China because of cost savings. Chinas recent economic growth and its easing of rules and regulation mean that more companies are considering outsourcing to China. But before doing so it is important to understand: The local business environment (it is a huge country with large variations in business conditions and customs) Availability and cost of resources (labor and energy supply varies greatly from location to location in China e.g. Sichuan and Anhui provide cheaper labor while coastal Shanghai and Guandong are having skilled labor shortages. Local contacts (with officials) Local laws

There are three fundamental strategies that can be used to enter the China market: 1) export via a Hong Kong distributor; 2) export via direct channels in China; and 3) set up a joint venture. Each strategy has advantages and disadvantages. Market entry via a Hong Kong Distributor is probably the easiest and quickest way to enter China but may be the least desirable in terms of overall market penetration. Market entry via direct channels in China is probably more difficult and time consuming than entry via a Hong Kong distributor, but in time may be better off for a firm's overall penetration. This option may be a good mid-term strategy. Market entry via a joint venture of some kind may be more difficult and time-consuming than the other two export strategies just mentioned, but probably yields the best overall penetration of China's market. Utilizing this strategy, both sides (the foreign firms and the Chinese party) could gain the most benefit.

Another type of enterprise structure is the Wholly Foreign-Owned Enterprise. Such an enterprise is a limited liability entity solely owned and operated by a foreign investor. Advantages Foreign investor has tighter control of proprietary interests. WFOEs have exclusive management control for investors; there is no need to compromise with partners. WFOEs are exempt from the 10% tax on dividends.

Disadvantages

Implementing regulations have not been promulgated. There are few precedents to rely on during negotiations and operations. There is no Chinese partner to tap for a trained workforce and for established sourcing and distribution networks. There is no Chinese partner with a stake in the success of the investment to assist with problems. There are stricter foreign exchange requirements for WFOEs. The corporate tax rates for WFOEs are higher than for equity joint ventures.

Market Entry: Joint Ventures Versus Market Entry Via Exports

If a company can determine that there is a large growing market for its products and is willing to work to set up a joint venture, then a joint venture is probably the best long-term strategy to penetrate the Chinese marketplace. Joint ventures in China that can benefit both the foreign entity and the Chinese party help motivate both parties to have a long term strategy. As previously discussed, joint ventures will allow the foreign firm to avoid tariff and quota issues, to gain more focus and control of product distribution and service in China and hence probably ensure penetration of a larger share of the Chinese marketplace. By physically being in China, foreign firms can easily see the real needs of end-users, and prices should be more competitive as a result of local manufacturing. Such advantages may override the complexities of setting up joint ventures, the time it takes to establish a joint venture and the associated risks involved.

CHINESE ECONOMY
Rank 2nd (nominal) / 2nd (PPP) Currency Renminbi (RMB); Unit: Yuan (CNY) Fixed exchange rates USD = 6.458843 RMB Trade organisations WTO, APEC, G-20 and others GDP $7.74 trillion (nominal: 2nd; 2012 est.) $12.46 trillion (PPP: 2nd; 2012)[2] GDP growth 9.5% (major economies: 2nd; 2011)[3] GDP per capita $5,184 (nominal: 90st; 2011) GDP by sector Industry (46.8%), services (43.6%), agriculture (9.6%) Inflation (CPI) 5.4% 2011 In 2010, China's GDP was valued at $5.87 trillion, surpassed Japan's $5.47 trillion, and became the world's second largest economy after the U.S.[46] China could become the world's largest economy (by nominal GDP) sometime as early as 2020 China is the largest creditor nation in the world and owns approximately 20.8% of all foreign-owned US Treasury securities

China is the worlds largest trading nation, has overtaken Germany. Approx size of its X & M: $3 trillion China is the EUs, the USAs and many other countries largest trade partner Biggest beneficiary from globalization during the past 3 decades

Since the late 1970s China has moved from a closed, centrally planned system to a more marketoriented one that plays a major global role - in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment. China has implemented reforms in a gradualist fashion. In recent years, China has renewed its support for state-owned enterprises in sectors it considers important to "economic security," explicitly looking to foster globally competitive national champions. After keeping its currency tightly linked to the US dollar for years, in July 2005 China revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of the renminbi against the US dollar was more than 20%, but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010, when Beijing allowed resumption of a gradual appreciation. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2010 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001. The dollar values of China's agricultural and industrial output each exceed those of the US; China is second to the US in the value of services it produces. Still, per capita income is below the world average. The Chinese government faces numerous economic challenges, including: (a) reducing its high domestic savings rate and correspondingly low domestic demand; (b) sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation. In 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years, but China rebounded quickly, outperforming all other major economies in 2010 with GDP growth around 10%. The government vows, in the 12th Five-Year Plan adopted in March 2011, to continue reforming the economy and emphasizes the need to increase domestic consumption in order to make the economy less dependent on exports for GDP growth in the future.

CHINA vs INDIA

Going by the basic facts, the economy of China is more developed than that of India. While India is the 11th largest economy in terms of the exchange rates, China occupies the second position surpassing Japan. Compared to the estimated $1.3123 trillion GDP of India, China has an average GDP of around $4909.28 billion. In case of per capital GDP, India lags far behind China with just $1124 compared to $7,518 of the latter. To make a basic comparison of India and China Economy, we need to have an idea of the economic facts of the countries. Facts GDP GDP growth Per capital GDP Inflation Labor Force Unemployment Fiscal Deficit Foreign Direct Investment Gold Reserves Foreign Exchange Reserves World Prosperity Index Mobile Users Internet Users India around $1.3123 trillion 8.90% $1124 7.48 % 467 million 9.4 % 5.5% $12.40 15% $2.41 billion 88Th Position 842 million 123.16 million China around 4909.28 billion 9.60% $7,518 5.1% 813.5 million 4.20 % 21.5% $9.7 billion 11% $2.65 trillion 58th Position 687.71 million 81 million.

If we make the analysis of the India vs. China economy, we can see that there are a number of factors that has made China a better economy than India. First things first, India was under the colonial rule of the British for around 190 years. This drained the country's resources to a great extent and led to huge economic loss. On the other hand, there was no such instance of colonization in China. As such, from the very beginning, the country enjoyed a planned economic model which made it stronger. Agriculture

Agriculture is another factor of economic comparison of India and China. It forms a major economic sector in both the countries. However, the agricultural sector of China is more developed than that of

India. Unlike India, where farmers still use the traditional and old methods of cultivation, the agricultural techniques used in China are very much developed. This leads to better quality and high yield of crops which can be exported. IT/BPO

One of the sectors where Indi enjoys an upper hand over China is the IT/BPO industry. India's earnings from the BPO sector alone in 2010 is $49.7 billion while China earned $35.76 billion. Seven Indian cites are ranked as the world's top ten BPO's while only one city from China features on the list Liberalization of the market

In spite of being a Socialist country, China started towards the liberalization of its market economy much before India. This strengthened the economy to a great extent. On the other hand, India was a little slow in embracing globalization and open market economies. While India's liberalization policies started in the 1990s, China welcomed foreign direct investment and private investment in the mid 1980s. This made a significant change in its economy and the GDP increased considerably. Difference in infrastructure and other aspects of economic growth

Compared to India, China has a much well developed infrastructure. Some of the important factors that have created a stark difference between the economies of the two countries are manpower and labor development, water management, health care facilities and services, communication, civic amenities and so on. All these aspects are well developed in China which has put a positive impact in its economy to make it one of the best in the world. Although India has become much developed than before, it is still plagued by problems such as poverty, unemployment, lack of civic amenities and so on. In fact unlike India, China is still investing in huge amounts towards manpower development and strengthening of infrastructure. Company Development

Tax incentives are one area where China is lagging behind India. The Chinese capital market lags behind the Indian capital market in terms of predictability and transparency. The Indian capital or stock market is both transparent and predictable. India has Asia's oldest stock exchange which is the BSE or the Bombay Stock Exchange. Whereas China is home to two stock exchanges, namely the Shenzhen and Shanghai stock exchange. As far as capitalization is concerned the Shanghai Stock Exchange is larger than the BSE since the SSE has US$1.7 trillion with 849 listed companies and the BSE has US$1 trillion with 4,833 listed companies. But more than the size what makes both these stock exchanges different is that the BSE is run on the principles of international guidelines and is more stable due to the quality of the listed companies. In addition to this the Chinese government is the major stake holder of most of its State-owned organizations hence the listed firms have to run according to the rules and regulations laid down by the government. Hence India is ahead of China in matters of financial transparency.

Company Management Capabilities

It is said that Indians have great managerial skills. India also leaves China behind as far as management abilities are concerned. As compared to China India has better managed companies. One of the major reasons for this is that management reform training in China began 30 years ago and sadly the subject has still not picked up as a matter of interest by the citizens of the country. Another important factor behind China not doing well in the business forefront is that most of the countries came to China and manufactured their goods. It was not Chinas exports that drove the economy instead it was the export products of outsiders. Even in the case of mergers and acquisitions China still has not managed to do too well. On the other hand Indian companies are rapidly expanding mergers and acquisitions. Some of the recent examples include; Tata Steel's $13.6 Billion Acquisition of Corus, Tata Tea's purchase of a controlling stake in Britain's Tetley for US$407 million, Indian Pharmaceutical giant Ranbaxy's acquisition of Romania's Terapia etc.

China's Import & Export (2010/11)

As far as exports of both the countries are concerned both the countries managed to do pretty well in 2010.China's total imports and exports stood at US $2677.28 billion at the end of November 2010. India's exports grew by 26.8% and imports increased by 11.2%. Below is presented details about China's import and exports for the year 2010.

EU economy Statistics
GDP ranking 1st (2011) GDP (Nominal) US $17.578 trillion (2011) GDP (PPP) US $15.821 trillion(2011) GDP growth rate 1.6% (2011) GDP per capita US$35,116 (nominal) GDP by sector (2006) 70.5% services 27.3% industry 2.1% agriculture Inflation 3.1% (2011)

If the European Union was in fact one country, it would be the largest economy in the world. Currently, of European countries, Germany is the largest and ranked third in a global study of the economies. It is the 5th largest in terms of purchasing power parity or PPP. The United Kingdom is the second largest economy in the continent, which is fifth largest in the world in nominal GDP and falls to sixth rank in PPP. If you look at the China economic growth vs. Europe, you will see significant differences in these economies. For example, the European's leading economic power, Germany, saw the fastest growth it has seen in the last 12 years in the first quarter of 2008, with a growth of 4.5 percent increase. The growth there is spurred by construction. Overall, the European economic growth is considered stable, with growth that may be lower than other countries.

In fact, the European economic growth levels cannot match that of China. China has one of the fastest growing economies in the world. This emerging market is significant because it is been seeing this type of tremendous growth for several years. The average gross domestic product growth rate currently is well above 10 percent in China. The country also has a per capita income that is growing at an average rate of 8 percent. Since 1978, important economic reforms have helped to drive China's growth and this has made it a very strong investment opportunity. China economic growth vs. Europe can be summed up quite simply. In the current situation, China investments will likely see a significantly higher rate of return, but with higher levels of risk, when compared to that of Europe. While Europe is seeing economic growth, it is at a much smaller pace and with less risk for many investors.

Chinas RISKs Dependency on export manufacturing in the face of rising global transportation costs, and the prospect of a prolonged economic slowdown of Chinas primary export markets As a producer nation and net importer of oil, China is acutely vulnerable to commodity price inflation, and its economic and political stability is dependent upon hard currency earnings derived from export manufacturing. Rising transportation costs have already prompted the relocation of some foreign-owned factories out of China factories that have moved closer to US and European consumer markets and this trend is expected to intensify as long as oil prices (and, thus, shipping costs) remain high. A recent report by the Organization for Economic Cooperation and Development (OECD) predicts the end of Chinas competitive advantage in manufacturing, citing wage and price inflation. The rate of increase of Chinas petroleum consumption and the dependency of Chinas export manufacturing sector on petroleum imports. China is now the worlds second largest consumer of oil, after the US, and is dependent on imported petroleum for nearly half of its domestic oil consumption. Health risks from Chinas pervasive and severe environmental degradation. A recent study conducted by the World Bank identified the human health risks associated with Chinas environmental contamination One-third of the Chinese mainland suffers from exposure to acid rain, half the water of Chinas seven largest rivers is completely useless; one-fourth of Chinese citizens lack access to clean drinking water; and one-third of the urban population is breathing polluted air. In Beijing alone, between 70% and 80% of all deadly cancer cases are related to the environment.

Global commodities price inflation and Chinas domestic consumer price inflation, particularly with regard to food and energy. According to the United Nations food and agriculture organization (FAO), global food prices have risen 65% since 2002. Consumer food prices in China have risen dramatically over the past year, adding to the potential for domestic unrest and resultant political instability

Social instability stemming from income inequality and wealth disparity. Chinas wage and income inequality is responsible for the emergence of two Chinas, comprised of a small and relatively prosperous urban class and a vastly more populous rural poor class Population demographics and shrinking labor surplus. Chinese factory managers have recently complained of labor shortages, and wages have been rising more rapidly than in the past.