Imports/exports planning components emphasize reaching organizational objectives by importing (buying goods or services from another country) or by exporting (selling goods or services to another country).

Organizations of all sizes import and export. On the one hand, Winebow, Inc., a relatively small company based in Montvale, New Jersey, imports and distributes wine, Champagne, and other spirits in New York, New Jersey, Pennsylvania, and Washington, D.C.³⁵ On the other hand, extremely large and complex organizations, such as Ford Motor Company, the second-largest U.S. automaker, recently announced that it would begin exporting more automobiles manufactured at its plant in India to China and other countries as demand for its products in India begins to subside.³⁶

A license agreement is a right granted by one company to another to use its brand name, technology, product specifications, and so on, in the manufacture or sale of goods and services. The company to which the license is extended pays a fee for the privilege. International planning components in this area involve reaching organizational objectives through either the purchase or the sale of licenses at the international level.

For example, in the past the Tosoh Corporation purchased a license agreement from Mobil Research and Development Corporation to commercialize Mobil’s process for extracting mercury from natural gas. Tosoh, a Japanese firm, uses its subsidiaries in the United States, Japan, the Netherlands, Greece, Canada, and the United Kingdom as bases of operations from which to profit from Mobil’s process.³⁷

Upon entering into a license agreement, both companies should be absolutely certain that they understand the terms of the agreement. Sometimes companies end up in litigation as a means of settling disagreements regarding specifics of the contents of a license agreement. Naturally, the cost of such litigation can be high and can end up significantly diminishing the advantages that both companies thought they would gain as a result of entering into the agreement.³⁸

Interestingly, Tosoh Corporation has more recently submitted process patent applications itself, perhaps a calculated step in a plan to bolster company revenue through the licensing of unique processes that it owns.³⁹

Direct investing uses the assets of one company to purchase the operating assets (e.g., factories) of another company. International planning in this area emphasizes reaching organizational objectives through the purchase of the operating assets of another company in a foreign country.

For example, Japanese firms have a rich and continuing tradition in making direct investments in the United States. In fact, many people believe that a new wave of direct Japanese investment in the United States is coming. Several large Japanese companies have announced plans to expand their U.S. production facilities. These planned direct investments are focused on building competitive clout for Japanese companies in such core industries as automobiles, semiconductors, electronics, and office products. Lower manufacturing wages and lower land costs in the United States than in Japan are key attractions for Japanese firms. For example, because the cost of building a factory was 30 percent cheaper in the United States than in Japan, Ricoh Company decided to spend $30 million to start making thermal paper products near Atlanta, Georgia. One of the largest Japanese direct investments in the United States was Toyota Motor Company’s $900 million expansion of its Georgetown, Kentucky, plant. The lower costs associated with expanding and operating the Georgetown plant was the key reason Toyota decided to make this investment.⁴⁰

An international joint venture is a partnership formed between a company in one country and a company in another country for the purpose of pursuing some mutually desirable business undertaking.⁴¹ International planning components that include joint ventures emphasize the attainment of organizational objectives through partnerships with foreign companies. For example, joint ventures between car manufacturers are becoming more and more common as companies strive for greater economies of scale and higher standards in product quality and delivery.

In order to plan properly, managers of a multinational corporation—or of any other organization participating in the international arena—must understand numerous complex and interrelated factors present within the organization’s international environment. Managers should have a practical grasp of such international environmental factors as the economic and cultural conditions and the laws and political circumstances in the foreign countries within which their companies operate.

One international environmental factor that affects strategic planning has lately received significant attention: An international market agreement is an arrangement among a cluster of countries that facilitates a high level of trade among these countries. In planning, managers must consider existing international market agreements as they relate to the countries in which their organizations operate. If an organization is located in a country that is party to an international market agreement, the organization’s plan should include steps for taking maximum advantage of that agreement. On the other hand, if an organization is located in a country that is not party to an international market agreement, the organization’s plan must include steps for competing with organizations located in nations that are parties to such an agreement. The most notable international market agreements are discussed here.

The European Union (EU) is an international market agreement, established in 1994, that is dedicated to facilitating trade among member nations. To that end, the nations in the EU have agreed to eliminate tariffs among themselves and work toward meaningful deregulation in such areas as banking, insurance, telecommunications, and airlines. More recently, the nations have tried to develop a set of standardized accounting principles to help facilitate business transactions among members.⁴² Long-term members of the EU include Denmark, the United Kingdom, Portugal, the Netherlands, Belgium, Spain, Ireland, Luxembourg, France, Germany, Italy, and Greece. Member businesses are particularly enthusiastic about the EU because they are sure membership will ultimately boost exports and encourage investment from other member nations.

Figure 4.6 identifies countries that are presently members of the EU. The significance of the EU as an international environmental factor can only increase because the number of member countries is expected to continue growing.⁴³

The North American Free Trade Agreement (NAFTA) is an international market agreement aimed at facilitating trade among member nations. Current NAFTA members include the United States, Canada, and Mexico.⁴⁴ To facilitate trade, these countries have agreed to such actions as phasing out tariffs on U.S. farm exports to Mexico, opening up Mexico to American trucking, and safeguarding North American pharmaceutical patents in Mexico.

NAFTA has had significant impact since its implementation in January 1994. Figures show that since the agreement went into effect, U.S. exports to Mexico have increased 30 percent, and Mexican exports to the United States have increased 15 percent. Trade between the United States and Canada has also exploded since NAFTA took effect. As with the EU, the significance of NAFTA as an international environmental factor can only grow in the future as countries in the Caribbean and South America apply for membership.⁴⁵

APEC was established in 1989 to further the economic growth and prosperity of the Asia-Pacific community. Since its beginning, APEC has worked to reduce tariffs and other trade barriers across the Asia-Pacific region. APEC is based on the concept that free and open trade creates greater opportunities for international trade and related prosperity among member nations. Thus, the organization works diligently to create an environment in which goods can be transported safely and efficiently among countries. APEC has 21 members, including Canada, the People’s Republic of China, Indonesia, and the United States. APEC’s entire country membership is depicted in Figure 4.7. Comparison of APEC and EU member countries shows that EU member countries are concentrated in Europe, whereas APEC member countries are spread throughout the globe.

To sum up, numerous countries throughout the world are already signatories to international market agreements. Moreover, the number of countries that are parties to such agreements should grow significantly in the future.

Basically, organization structure is the sum of all established relationships among resources within an organization, and the organization chart is the graphic illustration of organization structure.

Figure 4.8 illustrates several ways in which organization charts can be designed for multinational corporations. Briefly, multinational organization charts can be set up according to the major business functions the organization performs, such as production or marketing; the major products the organization sells, such as brakes or electrical parts; or the geographic areas within which the organization does business, such as North America or Europe. The topic of organization structure is discussed in much more detail in Chapter 8.

As with domestic organizations, there is no one best way to organize a multinational corporation. Instead, managers must analyze the multinational circumstances that confront the corporation and develop an organization structure that best suits those circumstances.

For multinational organizations to thrive, they must have competent managers. One characteristic believed to be a primary determinant of how competently managers can guide multinational organizations is their attitudes toward how such organizations should operate.

Over the years, management theorists have identified three basic managerial attitudes toward the operation of multinational corporations: ethnocentric, polycentric, and geocentric. The ethnocentric attitude reflects the belief that multinational corporations should regard home-country management practices as superior to foreign-country management practices. Managers with an ethnocentric attitude are prone to stereotype home-country management practices as sound and reasonable and foreign management practices as faulty and unreasonable. The polycentric attitude reflects the belief that because foreign managers are closer to foreign organizational units, they probably understand those units better, and therefore foreign management practices should generally be viewed as more insightful than home-country management practices. Managers with a geocentric attitude believe that the overall quality of management recommendations, rather than the location of managers, should determine the acceptability of the management practices used to guide multinational corporations.⁴⁷

Modern managers should continually monitor ethnocentric, polycentric, and geocentric attitudes that exist in organizations to make sure that those attitudes are consistent with the global aspirations of the organization. One example of this monitoring involves the Coca-Cola Company, in which management constantly monitors its Chinese website. The purpose of this monitoring is to examine how Coca-Cola, the number-one brand in the world, is using its website to communicate with management as well as with the public in the world’s largest market, China. Management wants to make sure that the site appropriately integrates ethnocentric and polycentric views to support the Chinese segment of the company’s global strategy.⁴⁸

It is extremely important to understand the potential advantages and disadvantages of these three attitudes within multinational corporations. The ethnocentric attitude has the advantage of keeping an organization uncomplicated, but it generally causes organizational problems because it impedes the organization from receiving feedback from its foreign operations. In some cases, the ethnocentric attitude even results in resentment toward the home country within the foreign society.

The polycentric attitude permits the tailoring of foreign organizational segments to their cultures, which can be an advantage. Unfortunately, this attitude can result in the substantial disadvantage of creating numerous foreign organizational segments that are individually run and distinctive, which makes them difficult to control.

The geocentric attitude is generally thought to be the most appropriate for managers in multinational corporations to have. This attitude promotes collaboration between foreign and home-country management and encourages the development of managerial skills regardless of the organizational segment or country in which managers operate. However, an organization characterized by the geocentric attitude generally incurs high travel and training expenses, and many decisions are made by consensus. Although the risks from such a wide distribution of power are significant, the potential payoffs—better-quality products, worldwide utilization of the best human resources, increased managerial commitment to worldwide organizational objectives, and increased profit—generally outweigh the potential harm. Overall, managers with a geocentric attitude contribute more to the long-term success of a multinational corporation than do managers with an ethnocentric or a polycentric attitude.

The factor that probably contributes most to this increased complexity and challenge is culture. Culture is the set of characteristics of a given group of people and their environment. The components of a culture that are generally designated as important are norms, values, customs, beliefs, attitudes, habits, skills, state of technology, level of education, and religion. As a manager moves from a domestic corporation involving basically only one culture to a multinational corporation involving several cultures, the task of influencing usually becomes more difficult.

To successfully influence employees of many cultures, managers in multinational corporations should do the following:

1. Acquire a working knowledge of the languages used in the countries that house foreign operations—Multinational managers attempting to function without such knowledge are prone to making costly mistakes.

2. Understand the attitudes of people in the countries that house foreign operations—An understanding of these attitudes can help managers design business practices that are suitable for each distinct foreign situation. For example, Americans generally accept competition as a tool to encourage people to work harder. As a result, U.S. business practices that include some competitive aspects seldom create significant disruption within organizations. Such practices could cause disruption, however, if introduced into either Japan or a European country.

3. Understand the needs that motivate people in the countries housing foreign operations—For managers in multinational corporations to be successful at motivating employees in different countries, they must present these individuals with opportunities to satisfy their personal needs while being productive within the organization. In designing motivation strategies, multinational managers must understand that employees in different countries often have quite different personal needs. For example, the Swiss, Austrians, the Japanese, and Argentineans tend to have high security needs, whereas Danes, Swedes, and Norwegians tend to have high social needs. Further, people in Great Britain, the United States, Canada, New Zealand, and Australia tend to have high self-actualization needs.⁴⁹ Thus, to be successful at influencing diverse employees, multinational managers must understand their employees’ needs and shape such organizational components as incentive systems, job designs, and leadership styles to correspond to these needs.

One of the most widely accepted methods for describing values in foreign cultures was developed by Geert Hofstede.⁵⁰ According to Hofstede’s research, national cultural values vary on five basic dimensions:

1. Power Distance. Power distance is the degree to which a society promotes an unequal distribution of power. Countries that heavily promote power distance have citizens who tend to emphasize, expect, and accept leadership that is more autocratic than democratic. According to Hofstede’s research, Mexico and France are examples of countries that tend to value more autocratic leadership, whereas the United States is an example of a country that tends to value more democratic leadership.

2. Uncertainty Avoidance. Uncertainty avoidance is the extent to which a society feels threatened by uncertain or unpredictable situations. People in countries that are high in uncertainty avoidance prefer being in more defined and predictable situations. Based on Hofstede’s research, Greece and Japan feel more threatened by uncertainty than do the United States and Canada. Correspondingly, the citizens of Greece and Japan would be less able to tolerate risk and uncertainty in their lives than would the citizens of the United States.

3. Individualism and Collectivism. Individualism–collectivism is the degree to which people in a society operate primarily as individuals or operate primarily within groups. People operating as individuals tend to focus on meeting their own needs, tend to be self-reliant, and tend to succeed by competing with others. On the other hand, people who operate collectively tend to build relationships with others and downplay individualism; business success is pursued through relationships and cooperation among group members. According to Hofstede’s research, China and South Korea are examples of countries that emphasize collectivism, whereas Australia, Canada, and the United States are examples of countries that emphasize individualism.

4. Masculinity and Femininity. Masculinity–femininity is the extent to which a culture emphasizes traditional masculine or feminine values. Traditional masculine values have great admiration of competitiveness, assertiveness, success, and wealth. Traditional feminine values have great admiration of caring for and nurturing others and increasing the quality of life. According to Hofstede’s research, the Scandinavian countries tend to admire more traditional feminine values, whereas Japan and the United States tend to approve of more traditional masculine values.

5. Short-Term and Long-Term Orientation. Short-term–long-term orientation is the degree to which a culture deemphasizes short-run success in favor of long-run success. Cultures that focus more on long-run success emphasize activities like planning, educating, rewarding long-run results, and keeping a future-oriented perspective. Conversely, cultures that focus more on short-run success emphasize training to enable one to do a job now, rewarding short-run results, and maintaining a day-to-day perspective. Given Hofstede’s research, Asian societies generally are among the countries most focused on long-term success. Pakistan is an example of a country that values a short-term orientation.

The broad appeal and acceptance of Hofstede’s work over recent decades is undeniable.⁵² As a general guideline, managers faced with doing business within different countries should understand the cultural values within those countries. To increase the probability of organizational success based on this understanding, management should strive to design and implement actions consistent with those values. Hofstede’s research provides worthwhile insights for how managers can define values in foreign cultures and react appropriately to them. Fortunately, management scientists continue to examine Hofstede’s work to further refine its worth to modern managers.⁵³

Control of a multinational corporation involves certain complexities. First, to deal with the problem of different currencies, management must decide how to compare profits generated by organizational units located in different countries and therefore expressed in terms of different currencies. Another complication is that organizational units in multinational corporations are generally more geographically separated. This increased distance usually makes it difficult for multinational managers to keep a close watch on operations in foreign countries.

One action successful managers take to help overcome the difficulty of monitoring geographically separated foreign units is carefully designing the communication network or information system that links the units. A significant part of this design requires all company units to acquire and install similar computer equipment in all offices, both foreign and domestic, to ensure the availability of network hookups when communication becomes necessary. Such standardization of computer equipment also facilitates communication among all foreign locations and makes equipment repair and maintenance easier and therefore less expensive.⁵⁵