Paper # 1 Whats International Management

Presented to: Teacher Alejandro Sarmiento Galeano

By: Laura Rodrguez Navarro

Fundacin Universidad Del Norte Business School International Business Program International Management Barranquilla, August 10th Of 2011

Laura Rodrguez Navarro 2 What is International Management?

WHAT IS INTERNATIONAL MANAGEMENT? Mainly because of the globalization process that started few decades ago, the international sphere of management has become a major challenge for governments, institutions and organizations of any kind. This explains why the area of International Management is becoming more important within the academic and business setting. Since the beginning of the 90s, some of the most influential authors in the subject have discussed that globalization challenges our patterns because it takes companies, citizens and policy makers to see reality as a growing interdependent network (Bartlett and Ghoshal, 1989). These arguments are focused on the free market and free trade ideologies, which are the base for a global economic integration (Levine and Renelt, 1992). And in this context of economy liberation, most of the international expansion of companies of different sectors, sizes and countries has taken place. Defining in few words what International Management is, could limit the scope of what it covers. For that reason, in the following lines will be presented the most relevant aspects and concepts that academics and business men have used through the last years in the international dimension of management. Nowadays, there is a vast number of companies with international projection which, due to the actual world context and market demands, have been forced to follow an internationalization process. The decision of entering the international arena has taken them to trace and define an international strategy, which traditionally has two main dimensions: Pressures for cost reduction and local responsiveness (Hill, 2000). However, International Management is not only about making decisions around these two dimensions mentioned above. There are several areas of special interest that must be taken into account, for example, it is very important to know the infrastructures, business practices, and trade dynamics in each country. Additionally, international exchange rates and the legal, political and sociocultural dimensions cannot be ignored. Firms that are able to deal with those issues, previously mentioned, have a great potential to spread their marketing reach, to increase their market share, to improve efficiency and profitability, to reduce costs, and to enjoy of competitive advantages in each market (Porter, 1998). Prospective international directors must realize that there is not a single way to go into a foreign market. According to Tanure and Gonzlez (2006), executives must choose the proper model of entrance according to the level of resources, market potential, and experience operating internationally they have, trough export/import activities, independent agents, licensing and franchising contracts, joint ventures, or direct investments through acquisitions or Greenfields. Contemporary international managers must be trained in aspects of international business that generally do not concern domestic leaders. They must demonstrate a higher level of

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skills: being multilingual, sensitive to cultural differences and knowledgeable about current global management theory, psychology, and their practical applications. It is of great relevance that managers involved in international business recognize the opportunities available in different countries. They must be great observers to recognize potential, as well as immediate opportunities in each market where the company has presence. In addition to this, in the studies of International Management, there are three approaches: ethnocentric, polycentric, and geocentric, which are parts of the EPG model developed by Perlmutter (1969). Each has its pros and cons and none of them can be successfully developed, unless managers understand completely what is involved in their applications. According to the author, in the ethnocentric approach management uses the same style and practices that work in their own headquarters or home country. This situation can cause devastating mistakes for the firm, because what works in Brazil, may not necessarily work in India. There are many cases in which companies made serious mistakes when they attempted to transfer their management styles to foreign countries. Doing a contrast to the ethnocentric management approach, Perlmutter proposes the polycentric management theory, where the management staff and the workforce abroad are formed with a great number of local individuals as possible. The theory states that local people know best the host country's culture, language, and work ethic. For that reason, they are the ideal candidates for management. This can work well in some countries, but in others workers may not always have the necessary background to lead the business. The third style of international management is the geocentric approach that states that the best individuals, regardless the country origin, should be placed in management positions. They must solve problems with logic and common sense, for that reason specific cultural knowledge is not necessary. This is the most difficult of the three approaches to be applied, since executives must be capable to understand the local and global implications of business. On the other hand, we have Daniels, Radebaugh and Sullivan (2004), authors and experts in the field that affirm companies operating internationally must determine the organizational structure that best fits with their strategies, products and resources. These firms may operate functionally (by task), geographically (by country or region), or by product. Or, they just could combine organizational strategies. Again, international managers will make those determinations based on a company analysis basis. In addition to this, Tanure and Gonzlez (2006) present some models or stages of internationalization that reflect the way in which management thinking has been developed over time: the International, the Multinational, the Global and the Transnational stage. This last stage is the ideal model, where resources are dispersed in the network; subsidiaries are specialized and each unit contributes to the global operation results. The development is created as a whole for the world.

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Regardless of the organizational strategy, international managers must pay particular attention to human resources issues, since there are vast cultural differences among citizens of different countries. Those differences help to build the organizational culture and influence business practices, explaining why the cultural dimension plays a very important role in this subject. For that reason, Hofstede (1980) talks about the five culture dimensions: Power Distance, Individualism, Masculinity, Uncertainty Avoidance and Long-term Orientation; which have been determinant for the decision making process in companies with international presence. There is an important point about all this related with International Management. If in the last decades hundreds of companies have started their internationalization processes, wheres the competitive advantage for them, taking into account that their competitors are internationalized too? Where are the gains for internationalization? In the non-explored potential of dispersed knowledge is the answer, because it is bigger than ever and it is growing. Theres a dispersion of new knowledge that is unexplored, because most of todays MNCs dont have the structures and processes to explore it, they just know how to screen to the world what theyve learned in their markets. A multidomestic firm tends to have a large stock of knowledge within its subsidiaries that can be leveraged to build global gain, but few take advantage of that dispersed knowledge to create global innovations. For that reason, we have the Metanational Challenge, concept developed by Doz, Santos and Williamson (2001). Metanational companies dont base their competitive advantage in their home countries, but in the exploration of potential specialized knowledge points around the world. The authors say: Today, the challenge for global corporation is to innovate by learning from the world. Tomorrows winners will be companies that create value by searching out and mobilizing untapped pockets of technology and market intelligence that are scattered across the globe. And finish emphasizing in: Today the main challenge is not to penetrate world markets but to learn from the world.

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References

Barlett, G. and Ghoshal, S. 1989. Managing Across Borders. London: Century. Daniels, J. Radebaugh, L. and Sullivan, D., 2004. Negocios Internacionales. Translated from English by Enrique Quintanar. Mxico: Prentice Hall PTR. Doz, Y. Santos, J. and Williamson, P. 2001. From Global to Metanational: How Companies Win in the Knowledge Economy. Boston: Harvard Business Press. Hill, C. 2007. International Business. 6th ed. New York: McGraw Hill. Hofstede, G. 1980. Cultures consequences. London: Sage. . Levine, R. and Renelt, D. 1992. A sensitivity analysis of cross-country growth regressions. American Economic Review, 82 (4), p. 942-963. Perlmutter, H.1969. The Tortuous Evolution of the Multinational Corporation. Columbia World Journal of Business. P. 9-18. Porter, M. 1998. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press. Tanure, B. and Gonzalez, R. 2006. Gesto internacional. So Paulo: Editora Saraiva.