Module MG040

International Management


Module authors

Mauro F. Guillén

Wharton School
University of Pennsylvania




Estaban Garcia-Canal

Universidad de Oviedo

Learning objectives After you completed this module, you will be able to discuss the basic questions to ask when developing an internationalization plan and some issues related to the management of a multinational firm and its relationship with their environment.

Chapter 1: The basic questions
1.1 Why: motives for international expansion
1.2 Where: choosing the foreign location
1.3 How: entry modes
1.4 When: speed of internationalization

Chapter 2: Managing the multinational firm
2.1 The strategy and structure of the multinational firm
2.2 International sourcing and offshoring
2.3 Managing the institutional environment
2.3.1 The cross-cultural approach.
2.3.2 Comparative authority and business systems.
2.3.3 Political economy of Foreign Direct Investment.
2.3.4 Comparative corporate legal traditions
2.3.5 Political hazards.

Workload units 2
Read Module Excerpt International Management




Why Open School of Management believes that competences in international management are important

The term international management encompasses a variety of activities undertaken by an organization desiring to operate outside of its domestic market. The concept includes, but is not limited to, knowledge of regulations in foreign markets, relevant laws in different countries, customs and work expectations in the host country, and how to operate in a different currency. Organizations also have to take into consideration issues like local infrastructure, marketing techniques and access to other regional markets in the scope of an international strategy.


Why study International Management?

In many ways, globalization is old news. However, with the interconnectivity provided by technology, the world's business markets continue to grow closer and more interwoven at an increasing rate. Due to this fact, new economies of scale become apparent. At the same time, new demographic groups are beginning to earn more than before, creating new markets for companies in a variety of sectors. As companies grow, they would be remiss if they were to ignore opportunities abroad that dovetail with their existing domestic operations.


Module Overview

1. The basic questions

1.1 Why: Motives for international expansion

Companies look overseas for a number of reasons. Some may find a better reception for their products in another culture or country. They might even find resources they need in order to manufacture their products more cheaply and easily than they could elsewhere. Of course, less expensive labor costs have driven many companies to move their manufacturing activities to developing markets. At times, companies find the grass greener due to strict regulations or tax regimes in their home countries. Overall, though, expanding abroad also offers the chance to build more brand recognition and tap into markets that may have more room for growth. These decisions depend on an organization's circumstances.

1.2 Where: Choosing the foreign location

Choosing a host country to expand to brings up several sticky issues. First, a company has to assess its stability, strengths, and weaknesses in its domestic market. Initially, companies will need skilled and adaptable employees to spearhead the project while hiring local help. Human resources will build the bridge into the new culture and must be carefully assessed. Additionally, companies have to look closely at the market itself to determine if it is amenable to the product on offer. Conversely, does the given country have the infrastructure and regulatory frameworks required to roll out all the processes the organization needs? All these questions and many more must be answered before choosing a host country.

1.3 How: Entry modes

Companies can choose from several proven ways to get started in a foreign market, depending on what they want to do and how involved they want to get. Simply exporting and importing can help companies make use of other markets without diving in completely. Franchising and licensing are options that offer ways for brands to expand abroad and make a profit while leaving most of the risks to the local contractors. Joint ventures with existing companies in the host country can often make the transition smoother and may actually be required in some locations. The entry mode appropriate for a given company will vary according to its goals and capacities.

1.4 When: The speed of internationalization

Some forms of international expansion, like turnkey operations, can dramatically speed up the process. However, these come with some disadvantages and rely heavily on the expertise of the turnkey provider. Also, firms have to correctly evaluate their ability to adapt to the new market and its cultural, governmental and regulatory realities. While companies have to act in a timely manner, they also have to proceed with caution to avoid excessive losses and mistakes during the transition period. How companies gauge the speed of their expansion relies on a range of factors related to company size, current capabilities, market opportunities, the company's goals, and the current conditions in the host country.

2. Managing the multinational firm

2.1 The strategy and structure of the multinational firm

Companies making their first leap into foreign markets have to consider how they will structure the different sections of their operations in relation to each other. During all stages of international expansion, companies have to ensure that their expansion corresponds to their overall strategy as a company. They also have to foster learning and transfer of information between these sections of the company to form a feedback loop that can constantly fine-tune the company's operations for efficiency and flexibility.

2.2 International sourcing and offshoring

Some countries can provide specialized, highly-trained individuals who can carry out business operations remotely at a lower price. Most notably, technology companies have employed English speakers in countries like the Philippines and India for call center or office support, among other functions. Critics point out flaws in some of these services when employed for certain industries. Companies in other industries, though, may find reputable outsourcing providers who meet their expectations.

2.3 Managing the institutional environment

The institutional environment in a new market often differs greatly from that of a company's domestic market. The greater the cultural divide, the truer this becomes. Some fundamental institutions in a company's domestic market may have no counterpart in another country. Also, some tacit expectations about a company's behavior might not fall under an institutional framework at all. Knowing how to correctly navigate these institutions will greatly improve a company's success.

2.3.1 The aross-cultural approach

Throughout history, companies have chosen many approaches when dealing with companies, customers and employees with different cultural backgrounds. While somewhat out of fashion, some companies still emphasize their company culture as something in another completely separate sphere to any local culture. Others attempt to strike a balance between cultures to develop a more multicultural environment. Another strategy is to completely recreate a localized version of the company. These approaches all have their merits, depending on the type of operations a company will engage in upon expansion.

2.3.2 Comparative authority and business systems

A slightly less visible aspect of operating in another culture stems from how people deal with the power structures in their countries. This relates to how employees relate to their peers, their subordinates and their bosses. Fostering a communicative environment that encourages the most productivity in a workplace may require different approaches in a new market. Similarly, a company's position in the society may carry very different meanings and expectations. Companies have to evaluate what people and institutions expect of each other in the host country and how the company's operations fit into this new way of relating to others.

2.3.3 Political economy of foreign direct investment

A country's business environment can change drastically according to current events and how the country envisions its path. Companies must constantly keep abreast of changes in the mood of the populace and the government and how the host country's policies may or may not change over time. Trade agreements and the like often instill confidence among foreign investors, but countries can change in ways that no longer make them attractive for companies in certain industries.

2.3.4 Comparative corporate legal traditions

The activities a company can perform may be confined by laws unique to some countries. In addition, the ease of incorporating or even operating at all in a country may require much more, or less, than in a company's domestic market. Corporations, in particular, may find that different countries define their corporations' activities, duties, and obligations much differently. Depending on a company's capabilities, finding a country with a compatible legal tradition might facilitate expansion.

2.3.5 Political hazards

At times, companies find themselves in the middle of political battles. In some cases, these come directly from the company's activities in the country. However, in many cases, companies may become targets of a more generalized anger against a larger idea or just caught up in a dangerous political moment. Companies take several precautions to hedge against such events, such as monitoring the political environment, maintaining insurance commensurate to the risks, diversifying risk in the market and always having an exit plan.


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