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Organizational Behavior: Solutions for Management
Paul D. Sweeney, University of Central Florida
Dean B. McFarlin, University of Dayton
Behavioral Challenges in International Management

Chapter Outline

  1. I. Behavioral Challenges in International Management
    2. The general assumptions and beliefs of an organization may not generalize to different countries.
    1. International commerce is rising so it is important to be aware of cultural issues.
    2. Even small and mid-size firms are conducting business across borders today.
    3. An understanding of international trends and the common process/stages of doing international business can prove useful.
    4. Costs associated with better understanding of cultural issues are less than those associated with typical political and legal problems, but the payoff may be greater.
    5. The use of expatriates to help run foreign operations is common, yet the failure rate of these employees is very high.
  2. Trends in International Business
    3. There are a number of important growth trends to follow that will continue to shape international management.
    1. Much of the growth in international business is among developing markets, ones that are outside the traditional economic powerhouses such as the U.S., the European Union (EU), and Japan. These three are called the Triad countries.
    2. Developing markets buy more than $1 trillion worth of goods and services from the Triad countries
    3. The GDP growth rates in developing countries are three times that of the Triad and this trend is expected to continue in the upcoming decades.
    1. Typical Patterns of International Expansion:
      • According to one set of researchers, there are four basic phases that companies go through as they evolve internationally:
        • Phase 1 - firms are largely domestic players.
          • May export some of their products or services across borders.
          • Usually employees are not sent overseas for long periods of time.
        • Phase 2 - International firms are those that have responded to domestic competition by expanding their sales abroad.
          • Set up production facilities or assembly lines in one or more countries.
          • More likely to send managers abroad.
          • Often set up global divisions in the corporate office.
        • Phase 3 - the multinational stage.
          • Operate extensively in other countries.
          • Seem to provide more extensive training to managers who have been given foreign assignments.
          • Rely more heavily on foreign nationals to staff a variety of management levels.
          • Common to try to inculcate a common set of corporate values among all employees.
        • Phase 4 - firms are considered global.
          • To compete successfully, these firms must produce high quality products that can be sold anywhere across the globe.
          • Usually reserve the international assignments for the best and most promising employees.
          • Some researchers believe this is the ultimate stage for most companies.
  3. III. Managing in a Different Culture
    4. Companies must have an understanding or awareness of the legal, political, and cultural environments in which they do business.
    1. Legal Issues:
      • The number and types of legal systems across countries run a complete gamut of possibilities:
        1. Civil law: may be the most common legal system in the world.
          • Estimates indicate that over 70 countries follow this approach
          • Often referred to as code law
        2. Common law: uses precedent or the balance of previous rulings to resolve disputes.
          • Practiced in about 30 countries
          • Great emphasis placed on procedural issues
          • Involvement of attorneys
        3. Islamic law: sources can be traced to religious stipulations put forth in the Koran.
          • Basically a moral code
          • 30 or more countries use Islamic law
        4. Summary:
          • What is commonplace and taken for granted can present a major challenge for operations in another country.
          • A working knowledge of legal issues can be a valuable addition to a manager's set of skills.
    2. Political Issues and Risks:
      • In addition to legal codes, a multinational firm can greatly benefit from an understanding and monitoring of politics in the countries and cultures in which they operate.
      1. What is Political Risk?
        • Political risk: refers to the many different actions of people, subgroups, and whole governments that have the potential to affect the financial status of the firm.
        • Risk can be divided into three main categories such as risk due to:
          • The political/economic environment
          • The prevailing domestic economic conditions
          • External business relations
      2. Political/Economic Risk:
        • Domestic risk factors include:
          • Rising threat of kidnapping or violence to the employees of a multinational firm.
      3. Domestic Economic Risk:
        • Factors contributing to domestic economic risk include:
          • Purchasing power indicators
          • Presence or absence of infrastructure
          • Regulations regarding the environmental impact of one's business
      4. External Economic Risk:
        • Risk factors in this category are among the most common and include:
          • Embargoes
          • Trade sanctions
          • Tariffs
          • Absence of protections for a product or trademark
      5. Summary: Managing Risk:
        • Several for-profit firms regularly sell updated risk information
        • Direct/indirect methods
        • Reactive/proactive methods
    3. Cultural Issues in International Business:
      • Cultural differences can present major roadblocks for international ventures particularly those of the American variety.
      • A particular deal or an entire venture can be undercut from failure to understand the cultural differences in how another country conducts business.
      1. Understanding Other Cultures: There's a World of Difference:
        • Perception of time
        • Nonverbal behavior:
          • Personal space
        • Context:
          • High context
          • Low context
        • Language/knowledge of other cultures:
          • One of the most conspicuous stamps of a culture
          • English is the most popular second language in the world
          • There are distinct disadvantages to relying on the English language alone for multinational organizations.
        • Religion:
          • Religion can affect business hours, holidays, days of rest/Sabbath, diet, etc.
          • McDonald's success and challenges in this area
      2. A Model of Value Differences Across Cultures:
        • A Dutch businessman, Geert Hofstede, produced one of the best efforts at classifying cultures along common lines.
        • From the information gathered through surveying over 110,000 workers from 60 countries over a five-year period, Hofstede surmised what he felt were the four basic dimensions underlying most cultures:
          • Individualism-Collectivism: the extent to which society in general and work in particular focuses on and values the self versus the group.
          • Masculinity-femininity: the extent to which the primary focus is on the assertive acquisition of money and power versus the quality of life and one's interpersonal relationships.
          • Power distance: the extent to which people accept or challenge power and status differences at work.
          • Uncertainty avoidance: refers to how people are likely to react to uncertain or ambiguous events.
        • Summary of dimensions:
          • Cultural dimensions seem to affect a number of important work outcomes such as communication style, motivation, and preferred leader style.
          • Subsequent research suggests the need for a fifth dimension: the extent to which people are oriented to the present or recent past.
        • A guide for U.S. Managers:
          • One of the biggest lessons to learn from this effort to classify countries is that many American theories and time-honored techniques may not apply in other countries.
  4. Managing Across Borders-The Expatriate
    1. Increasing Importance of Foreign Assignments:
      • Good reasons for using parent-country nationals for staffing a foreign operation include:
        • Lack of technical or managerial expertise in the foreign location.
        • Closer and more controlled oversight of those facilities.
        • Rounding out your experience and fast ticket to the top.
        • International experience
    2. Costs of Expatriates:
      • The first year abroad costs the average multinational company about three times the expatriate's base salary.
      • The total bill for an average overseas stay of three years can top $1 million per expatriate.
    3. Consequences of Expatriate Failure:
      • Many firms are starting to pay more attention to the necessity of training and preparation for expatriates, however many still do not resulting in a very high failure rate.
    4. Explanations for the High Failure Rate:
      • Organization places an overemphasis on technical skills and qualifications
      • Personal adjustment problems
      • Time perceptions
      • Interpersonal space differences
      • Gift giving
    5. What U.S. Firms Should Look for in Selecting Expatriates:
      • Some of the key traits that predict success in international assignments include:
        • Willingness to communicate, relate with others, and try new things.
        • Good cross-cultural communication and language skills.
        • Flexibility and open-mindedness about other cultures.
        • Ability to cope with the stress of new situations.
        • Spouse's career goals as well as personal flexibility and openness.
        • Enthusiasm for foreign assignment and a good track record in previous moves.
    6. Training Expatriates:
      • Two main goals:
        • Help the employees hit the performance ground running
        • Minimize any adjustment problems.
      • Three common components that should be present in training programs for expatriates include:
        • Get the expatriate to pay attention to the cultural differences.
        • Help the employee retain the knowledge they gain about cultural differences.
        • Help the expatriates to go beyond book knowledge and understanding by requiring them to practice culturally appropriate behavior.
    7. Supporting Expatriates During and After the Assignment:
      • Support expatriates during the assignment
      • Repatriate the employee upon the return home.




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