CHAPTER 19

International Management

CHAPTER OBJECTIVES

After reading this chapter, you should be able to:

1. Understand the meaning of international management
2. Describe the skill requirements of international managers
3. Enumerate the elements of international management environment
4. Discuss the functions of an international manager
5. Evaluate the challenges facing international management

India’s Inspirational Managers

Anshu Jain is the co-chief executive officer (Co-CEO) of the Germany-based Deutsche Bank, the world’s fourth-largest investment bank. This India-born investment banker with Deutsche Bank has earned a great reputation by transforming the company’s investment banking into a profitable business. Anshu’s strategic actions contributed to the steady growth of the investment banking division’s earnings, which accounted for more than 70 per cent share in Deutsche Bank’s overall profits. After becoming the Co-CEO, he placed Deutsche Bank at the forefront of a deep cultural change. He has introduced mandatory business conduct and ethics training for all employees. Anshu insists that the bank employees behave with the highest standards of integrity in all aspects of its engagement with clients; they reinforce operational discipline in the use of the bank’s resources and they collaborate across functions to create a true “one-bank.” Anshu received Risk Magazine’s Lifetime Achievement Award in 2010 and the annual Business Leader Award from NASSCOM.

Introduction

When organizations get involved in international business, they feel the need for international managers. International business refers to any business whose activities involve the crossing of national boundaries.¹ International management is often seen as a subset of international business. Generally, international business focuses on international transactions whereas international management concentrates on the management of such transactions, which are usually within the boundaries set by organizational goals and strategies.²

Countries and their economies have become increasingly interdependent leading to the presence of a global market. Organizations and their managements are thus compelled to develop a global perspective to operate in a global market. Understandably, many companies today need managers who are internationally minded and can thrive in an international context. Typically, the foreign direct investment by companies is another compelling reason for them to have international managers. International managers require knowledge of crucial variables in the global economic environment. They should also be aware of the different compositions and characteristics of the countries and regions of the world. For instance, managers need to know the population, trade volume, growth rate, labour cost, natural resources, financial positions, and the size of the market of the countries where their firms have business interests. Such knowledge of the global environment can help managers in identifying the opportunities and threats that might arise in the global operations.

Definitions of Important Concepts

Let us first look at the definitions of the important terms used in this chapter.

“An international business is any firm that engages in international trade and investment.”—Charles W. L. Hill³

International business is defined as transactions devised and carried out across international borders to satisfy corporations and individuals.”—Czinkota⁴

“International company is any firm that conducts business across frontiers from the smallest of export orders to the multi-million pound investment.”—Michael Z. Brooke⁵

“International management is defined as the determination and completion of specific actions and transactions conducted in and/or with foreign countries in support of organizational policy.”—Took and Beeman⁶

“International management is a process of accomplishing the global objectives of a firm by (i) effectively coordinating across national boundaries the procurement, allocation and utilization of the human, financial, intellectual and physical resources of the firm and (ii) effectively charting a path toward the desired organizational goals by navigating the firm through a global environment that is not only dynamic but often very hostile to the firm’s very survival.”—Arvind Phatak⁷

“International management is the process of planning, organizing, directing and controlling the organization which individuals (Managers) use to achieve an organization’s goals when the organization is involved in cross border activities or functions outside its nation state.”—The Routledge Companion to International Management Education⁸

Skills Requirement of International Managers

Though the skills requirements of international managers may differ depending on the nature and place of operations, all managers should possess a few common skills. According to Jason Loke Chee Shong,⁹ effective global managers should have the skills and abilities:

• To deal with cultural diversity
• To manage changes and transitions
• To develop and operate in flexible organizational structure
• To communicate effectively in a cross cultural environment
• To develop and work in teams
• To acquire and transfer knowledge

To perform these activities effectively, international managers need to possess organizational skills, leadership skills, communicative and persuasive skills and, importantly, analytical and complex problem-solving skills. They should also have the ability to perform multi-dimensional roles by combining their technical skills and human resource skills. They should pool together right techniques, right resource and right technology to compete at the international levels.

Need for International Business

Companies may have a variety of objectives or reasons for having global presence. These objectives can be brought under three broad categories.¹⁰ They are:

1. Widening the markets—Organizations typically seek to enter foreign markets when the domestic market becomes saturated. Usually, companies look for foreign markets for products that are standardized and have reached maturity stage in the product life cycle.¹¹
2. Reducing the cost—Due to intense competition and decreased profits, organizations may enter the overseas market as a part of a cost-reduction measure. For example, cheap labour may act as a powerful inducement for companies to establish foreign operations. Companies may also prefer international operations to reduce transportation cost and to utilize the incentives and inducements offered by the governments of the host countries (i.e., foreign countries where business operations are carried out).
3. Achieving strategic aims—Companies may enter the overseas market for accomplishing strategic aims like: (i) diversification of strategic risks (ii) utilization of host country’s specialized knowledge, capabilities and assets (iii) providing better care and service for customers in foreign countries (iv) meeting the international market demands quickly and (v) establishing good relationship with the general public.

Elements of International Management Environment

Typically, an international environment is a total global environment. This total global environment is made up of environments of those countries where a firm has business operations or foreign affiliates. Generally, the international environment is far more complex than the domestic environment. As shown in Figure 19.1, the international environment usually consists of economic environment, political environment, legal environment, technological environment and cultural environment. We shall now briefly discuss each of these environments.

International Economic Environment

The economic environment is often shaped by factors like economic system, taxation system, gross national product, per capita income, social infrastructure, the stage in economic development, natural resources, climatic conditions, wage levels, the nature and intensity of the competitions, currency convertibility, inflationary trends and membership in trade blocks. Demographic factors such as population and its literacy levels also influence the economic environment. In recent decades, globalization has emerged as an important phenomenon in the increasing interdependence of national economies in trade, finance and macroeconomic policies.¹²

International Political Environment

The major players in the global political environment are different international organizations such as the United Nations, World Trade Organization, International Monetary Fund, Word Bank and Asian Development Bank. The various countries of the world and different trade blocks like European Union also play important roles in shaping the political environment. Within a country, the political environment is shaped by factors such as form and ideology of the government, stability of the government, foreign policies of the government, social and economic unrest within the society and the strength of the opposition parties and pressure groups.

International Legal Environment

The legal environment of countries is affected by the laws governing the business firms. Specifically, legal environment is influenced by a country’s legal system, patent and trademark laws, competition regulations, corporate governance and international agreements with other nations. The international legal environment is also influenced by the international law that prescribes the pattern of behaviour for its member-nations. International law is created by international treaties and conventions, international customs, international trade regulations, judicial decisions and teachings of various nations and general principles of law accepted by civilized countries.

International Technological Environment

Technology per se refers to the systematic application of scientific and other organized knowledge to practical tasks.¹³ The technological environment of a nation is shaped by its technology policy, the type of technology used, the degree of technological developments and the speed with which new technologies are adopted and diffused. The rate of product inventions, process innovation, internet capabilities and penetration also indicates the technological environment of nations. International companies often view technological competence as essential for sustaining their international competitiveness.

International Cultural Environment

The cultural environment of a nation is shaped by the customs, values, beliefs, attitudes and norms practiced by its people. Companies engaged in international operations often face multiple and culturally-diverse environments.¹⁴ This is because the cultural environment in international business is often characterized by different values, distinctive motivations and unfamiliar languages. In international business, the cultural environment of a host country may look unusual for an international manager belonging to the home country but the same culture may appear normal and natural to his/ her employees and consumers belonging to the host country. Cultural environment can affect international managers when they undertake business negotiations, product development, preparation of publicity materials, interactions with foreign customers, choose the foreign partners and decide the structure of international business venture.¹⁵

International managers must be aware of the environmental factors that motivate people from different countries and also their influence on international assignments. Managers must be aware of the company’s needs abroad as well as the available opportunities. They should also have a good understanding of the cultural, political and operational challenges of the foreign markets. The prerequisite for successful international management is the clear and careful understanding of the cultural, legal, political, ethical and economic differences prevailing among nations and their people. International managers should be knowledgeable in finance, foreign currency, overall global market, etc.

Functions of International Managers

International manager is the title for managers who oversee the global operations of a company. International managers carry out the same basic functions as domestic managers but on a larger scale. According to Daft and Marcic, “the basic management functions of planning, organizing, leading and controlling are the same whether a company operates domestically or internationally.”¹⁶ The primary task of any international manager is to coordinate the activities and resources of the organization across international boundaries. Generally, international managers perform the purchase, production, sales, logistics and human resource functions in foreign countries for their organizations. In certain cases, international managers are entrusted with the responsibility of managing a company’s entire foreign operations. In case of large organizations, multiple international managers will perform different functions like international sales and overseas manufacturing. We shall now briefly discuss the basic managerial functions performed by international managers (Figure 19.2).

Planning in International Business

International planning normally involves deciding how to do business globally. Planning in international business normally depends on a firm’s nature of business operation, philosophy governing its method of operation and the country in which it chooses to operate. Generally, firms apply their own experience in domestic planning to operations outside their country. However, the blanket application of domestic planning techniques in international business environment may not be suitable or feasible. Often, it becomes essential for firms to suitably change their domestic planning approach to suit the international requirements. International managers must carefully monitor the environment while developing forecasts, goals and plans for international activities. In this regard, managers should provide due importance to the international political, economic, legal, technological and cultural environments. Specifically, international managers should analyse the government’s strength and stability, its policies and attitude towards foreign investment, patent and trademark protection, nature and intensity of the competitions, ideologies of the principal political parties, etc.

According to Michael Z. Brooke,¹⁷ the primary objective of international corporate planning is deciding a course of action for accomplishing corporate goals through appropriate systems and techniques. The other objectives served by corporate planning are:

1. To ensure that the overseas operations are adequately integrated into the organization’s global strategies.
2. To expand the horizons of the head office.
3. To achieve the required level of delegation so that managers operating from different parts of the world participate in the decision-making system.
4. To make ensure that foreign operations have sufficient autonomy even while ensuring that they conform to corporate policies.
5. To foresee the plans and actions of the competitors by constantly watching their moves and scanning the environment.

The growing complexity of international operations, its complicated logistic requirements and the variety of factors that affect its environment have vastly increased the importance of corporate planning in recent decades.

Organizing in International Business

When organizations expand their operations internationally, they need to adapt their structure suitably. The new organizational structure should enable firms to adapt to the cultural and environmental differences associated with any international operations. Restructuring international organizations is always a complex task. This is because the culture, needs and expectations of the international customers and employees often differ from one nation to another.

In case of international business, a firm’s choice of organizational structure depends on: (i) the location and type of its foreign facilities and (ii) the impact of its international operations on total corporate performance. The major issues involved in the determination of the organizational structure of international businesses are: (i) the degree of decentralization and (ii) the design of the formal structure. We shall now briefly discuss them.

Centralization vs. decentralization (vertical differentiation)—International firms should first decide where they want to keep the decision-making authority in their hierarchy. In organizations with high degree of centralization, high-level managers (normally above the country level) in the home country make all the vital decisions and the lower-level managers in foreign countries just implement those decisions. In contrast, lower-level managers (normally operating at or below a country level) make and implement the important decisions in firms with a decentralized set up. While deciding the degree of decentralization, organizations should try to balance between centralization (necessary for global integration) and decentralization (necessary for recognizing local differentiation).

The design of the formal structure (horizontal differentiation)—The designing of formal organizational structure is necessary for effective deployment of organizational resources to achieve the strategic goals. It actually involves steps like: (i) designing jobs, (ii) grouping jobs into units in the form of departments, subsidiaries, and divisions and (iii) establishing patterns of authority and reporting relationship between jobs and units. Structuring, which involves the grouping of jobs and job holders in a firm, can be done on different bases. From an international business perspective, the important kinds of organizational structures are: (i) international division structure (ii) international geographic structure (iii) international product structure and (iv) international matrix structure (Figure 19.3). We shall now briefly discuss each of these structures.

Kinds of International Organizational Structure

International division structure—International division is a separate division in a firm formed exclusively for managing its international operations. The purpose of the international division structure is to group all international activities into a single division within an organization. International divisions are normally located within each nation where the firm’s business is active. These international divisions may be managed by higher-level managers who may control the operational and marketing aspects of the firm’s products or services. Each international division performs its own activities through its own functional departments such as finance and marketing. The international division enables a firm to demarcate its domestic and international activities. However, the relationship between domestic and international division is usually complicated. The leaders of the international division need to be specialists in almost all functional areas. They should also possess adequate knowledge of foreign exchange and export documentation. The advantage of international division is that it centralizes management and coordination of international operations.¹⁸

International geographic or area structure—In this kind of structure, the international activities of a firm are grouped on the basis of geographic regions. A firm may classify its international operations based on geographic regions, such as Asian division, European division, American division, etc. In this type of structure, decision making and control is normally decentralized to the level of individual geographic regions. The regional headquarters is usually entrusted with the responsibility of managing the international operations in their respective geographic area. International geographic structure is most suitable when each region or market of a firm is different and unique. Similarly, this structure can be effective when a firm has extensive international operations that are not dominated by any one nation or region.

International product structure—This structure is preferred by firms when they deal with a variety of diverse products. In this structure, activities of a firm are first divided on the basis of its product line (called product division) and then these product divisions are further classified as domestic unit and international unit. The weakness of this structure is that there may be duplication of some activities like research and development and marketing in domestic and international divisions. This structure also provides limited scope for knowledge sharing or transfers among different divisions.

International matrix structure—An international or global matrix structure is an arrangement that blends the products, functional and geographic structures to optimize the benefits of a global strategy.¹⁹ This is basically a two-tier structure. In this structure, each leader will report to two bosses belonging to two different divisions, say, product division and geographic division. The purpose of establishing matrix structure is to provide a common focus for the leaders of the product and geographic groups. This structure facilitates joint decision making by these leaders by unifying their activities. This structure also makes the groups more interdependent, which leads to effective resource and information sharing. However, the coordination of the activities of the product and geographic groups can be difficult. Similarly, fixing responsibility for the result of operation may also be challenging as managers may try to avoid it in case of failures. Dual reporting by leaders of this division may also create conflicts in the relationships.

Due to the complex nature of international operations, organizations often tend to adopt a mixed form organizational structure to get the benefits of different structures and to fulfil their corporate goals effectively. Obviously, the matrix structure is the best-suited structure for implementing the global strategies of the firms. This is because this structure can ensure that all the organizational resources and best practices are shared by all the country units.

Staffing in International Business

Every nation has a distinct culture that influences the management style and corporate culture of the organizations functioning in that country. Further, every country has a unique set of intricate laws that govern employment and industrial relations.²⁰ When HR practices are brought from abroad (home country HR policies), they may meet with employee resistance and eventual failure if they are not adapted to the local conditions. Hence, organizations are required to develop need-based, nation-specific HR practices after considering the specific laws, culture and language of the country. We shall now briefly discuss the important HR practices of international companies.

International recruitment—While recruiting people for international operations, international managers must identify the global competitiveness of the potential applicants at the time of the recruiting process. It is essential that the workforce of an international firm is aware of the nuances of international business. Understandably, the company must keep international knowledge and experience as criteria in the recruitment and selection process.²¹ Besides, international firms must have a fairly good idea of the skills and availability of human resources in different labour markets in the world. A truly international firm would insist on hiring people from all over the world and place them in the international business operations of the firm.

International selection—Even though cultural differences influence the selection procedure to some extent, firms tend to follow similar criteria and methods worldwide. This is due to the fact that the end objective of any selection process is to choose the most capable persons for the job. The selection criteria for international jobs usually revolve around the five core areas, namely, behaviour, attitude, skills, motivation and personality. Specifically, the focus of selection for international operations normally includes cultural adaptability, strong communication skills, technical competence, professional or technical expertise, global experience, country-specific experience, interpersonal skills, language skills, and family flexibility.²² Employers around the world usually rank personal interviews, technical competency and work experience in similar jobs as important criteria for selection.²³

International firms, while choosing employees for overseas operations, usually prefer people with (i) highly developed technical skills, (ii) good language and communication skills, (iii) tolerance towards other culture, race, creed, colour, habits and values, (iv) high level of motivation, (v) stress resistance and (vi) goal-oriented behaviour. Finally, at the time of selection for international assignments, an organization should consider any previous overseas experience, family circumstances and the cultural-adaptability level of the candidates aspiring for global jobs.

International training and development—The main purpose of employee training remains the same for all companies, regardless of the region or country where they are located. In fact, managements everywhere rank, “enhancing technical abilities,” as the main objective of providing employees with training. Thus, the goals of training programmes are usually similar across countries.²⁴ Global training is absolutely essential since jobs, people and organizational structures vary from one nation to another. International companies usually aim at standardizing business and HR practices across the world through necessary employee training and management development programmes. Box 19.1 shows the international development programme of an internationally reputed company.

International compensation—International compensation normally includes base salary, benefits and perquisites, long- and short-term incentives. Compensation policy is a tricky issue for international management. This is because the wage level for the same job may differ between nations due to exchange rate fluctuation, cost of living, local laws governing wages, among other factors. Thus, matters relating to compensation naturally call for the involvement of the top-level management. The nature and number of persons required, the compensation policy of the organization, its ability to pay and the economic environment of the host country are some of the factors which greatly influence the compensation decision of international companies.

International performance evaluation—The development of an appropriate system of performance management is one of the critical tasks in international management. Performance evaluation, in general, refers to evaluating the employee’s current and/or past performance against his standard performance with the aim of identifying and eliminating performance deficiencies and improving the employee’s current performance. International performance evaluation primarily aims at evaluating the expatriates and foreign employees. In addition to evaluating the general performance, international performance management should assess the ability of expatriates to: (i) manage a workforce with sharp cultural differences, (ii) understand the complexities of international business and (iii) understand the reciprocal relationship between the interdependent local and foreign operations of the company.

International employee safety and health—Employee safety and health care facilities in plants often differ from one country to another in their state of condition and modernization, depending upon the local laws and regulations. International companies may either follow the local laws in providing health and safety facilities or adopt uniform health and safety policies across all locations without violating the prevailing laws.

Directing in International Business

Directing function in international business involves motivating employees, directing the activities of others, choosing the most effective form of communication channel and resolving conflicts. We shall now briefly discuss the important elements of directing, namely, leadership, communication and motivation.

Leadership—Leadership in an international business is more complex than in domestic business. International leaders need to provide strategic guidance essential for successful management of global organizations. Leaders of global organizations must ensure that their firms have the required level of efficiency, flexibility and learning orientation. The important qualities required of global leaders are as follows:

1. Global mindset that encourages openness to and awareness of diversity across cultures.
2. Willingness to commit financial, human and other resources necessary for the accomplishment of the firm’s international goals and plans.
3. A global strategic vision that envisages what the firm wants to be in the future and how it will realize it.
4. Willingness to invest in human resources that are capable of managing the complexity, uncertainty and learning requirements associated with any global firm.

Communication—When companies enter international business, they change not only their structure but also their communication strategies. They tend to develop new communication strategies for internal as well as external communications.²⁵ While internationalizing the business operation, communication becomes critical to the success of the business initiatives. This is because international expansion requires a firm to deal with different cultures in all aspects of the organization.

However, the changes required in the communication strategy of a firm depend on the stage of globalization of its business operation. For instance, an organization involved in import and export from its own country (home country) may not require much international adaptation and involvement with other cultures. At this stage, the need for communication is minimal as the firm is not directly involved in any business operation in foreign countries. In contrast, a firm with international divisions in other countries may require an efficient and divergent communication system. People working in the international division should specialize in intercultural communication as such divisions normally have a mixture of the host country (where the division is located) and home country nationals.

Successful communication in a global firm means the presence of a solid and well-thought-out structure for the communication process. The major problem in international communication conducted across culture is that people from one culture may not be able to understand the culturally-determined differences in communication practices. Since international business communication is often affected by these cross-cultural differences in people’s perception and understanding, it is essential for international managers to be familiar with cross-culture management.

Motivation—Motivating foreign employees is a complex problem for many international firms. The needs and priorities of the employees differ from one country or region to another. In western countries mobility, compensation, challenges in the work and interdependence are viewed as important motivating factors for employees. In contrast, job security, social benefits, working hours and holidays are seen as important for motivating employees of developing nations.²⁶ Managers of international business firms should have good knowledge of the various theories of motivation and also a practical exposure necessary for maintaining a highly-motivated workforce. Managers must understand exactly what motivates employees in the country of their operation. They must also be aware that the cross-cultural differences can affect employees in several ways.

According to Abel Adekola,²⁷ employees’ motivation will improve irrespective of organizational culture, if practices such as goal-setting, performance feedback and valued rewards are introduced in international business. In contrast, promotion, rewards and discipline should be introduced as motivational measures only after examining the existing organizational culture. Many international business organizations often use employee motivation as a way of hiring people who are the right fit for the organization. It is therefore essential for international managers to assess the local climate and expectations and respond with a suitable mix of incentives to motivate their employees.²⁶

Controlling in International Business

The primary purpose of controlling in global organizations is to ensure the presence of proper strategic, operational and tactical plans across the countries of operations. International controlling process involves the: (i) establishment of standard performance, (ii) measurement of actual performance, (iii) comparison of actual performance against the standards and (iv) initiation of corrective actions, if necessary. However, controlling is an important but challenging function for managers in international business.

Geographic distances, cultural differences, political risk, language barriers, security issues, currency exchange rate fluctuations, intra-firm business transaction (transfer pricing) and legal restrictions involved in international business make controlling a difficult managerial function. Further, country-specific practices relating to bonuses, pensions, holidays and vacation days besides the trade unions’ strengths also restrict managers’ freedom to operate and control in an international environment.

Approaches to Control in the International Business Environment

Libs and Weigenstein²⁸ suggested three approaches to control from an international perspective. As shown in Figure 19.4, they are: market approach, rules approach and cultural approach. The relevance and dominance of approaches may differ from one organization to another. We shall briefly discuss each of these approaches to control.

Market Approach

Output control is an important method in market approach. The output control system involves objective measuring of results. For instance, the sales people may be allowed to achieve the sales targets using individual strategies and held accountable for results only. This approach is better-suited for organizations where performance requirements can be clearly specified. In this market approach to control, competition, supply and demand, contractual agreement and external market forces are the important forces that govern the relationship among organizational units. Market approach to control is also viewed as a realistic method of implementing control in multinational organizations.

Rules Approach

Rules approach uses rules, regulations and procedures for achieving the necessary control in organizations. Budgeting, planning, performance evaluation, formal reports and hierarchical structure are a few important techniques available for controlling purpose. Personal supervision is the essence of the rules-based approach. Generally, the rules approach to control is an efficient method for organizations with a high level of performance ambiguity. This approach is suitable for organizations that operate in a relatively stable environment. This is because this approach mostly works effectively in environments that allow adequate time to respond to feedback information and to make correction and adjustment in a controlling process. Since international environment is often characterised by instability and high level of uncertainty, rules approach may not be effective for international organizations.

Cultural Approach

Culture, which means the shared beliefs, values, norms and assumptions, influences the behaviour of the people of a firm. In cultural approach, organizational members are encouraged to exercise self-control and abide by the cultural norms and expectations. This approach insists on group norms, peer pressure, less bureaucratic procedure and a “loose-knit” organization for achieving effective control. Since goals, values and norms are internalized, firms may require little or no personal supervision and formal control to achieve results. A cultural approach can work effectively even if there is a situation uncertainty or performance ambiguity. Internalization of norms and rules facilitates quicker response to feedback information. Since the cultural approach can manage performance ambiguity and situation uncertainty more effectively, it is best-suited for international businesses. Wider applicability of this approach makes it superior to market approach and rules approach.

Cross-cultural Management

Since culture is a complex phenomenon, the cross-cultural environment of a global company is capable of producing both positive and negative results. For instance, organizations that keep a culturally-diverse workforce may achieve better creativity, productivity and wider business opportunities. However, the same cultural differences may also act as a hurdle to the success of international management due to communication bottlenecks. In all these, the effectiveness of communication in the cross-cultural environment makes the critical difference between success and failure. To reduce cross-culture-related troubles and barriers, global managers must be well-trained to understand, acknowledge and adapt to cultural differences.

Since companies operating at the global level continuously need people who can operate in a cross-cultural environment, firms should focus on aspects like cultural awareness, multiple communication techniques and styles, language familiarization and the application of relevant technology in their training programmes. Such training is necessary for the successful management of diverse group of employees in the cross-cultural environment of the firm. The international HR department can organize cross-cultural training to expose the employees to other cultures in a planned and deliberate manner to enable them to acquire functional and communication skills essential for the cross-cultural environment. In this regard, many international companies also apply global code of conduct to regulate the behaviour of their employees in a cross-cultural environment. Box 19.2 shows the global code of conduct of a giant multinational company.

Challenges Facing International Management

Though the challenges facing managers in international business environment may differ from one region to another, a few common problems are discussed here.

Cultural Diversity

Countries differ widely in their cultures. These cultural differences necessitate the introduction of country-specific management practices. International managers may find it difficult to motivate and lead people from a variety of cultures. They may also find it equally difficult to be able to build effective teams in firms with sharp cultural diversity.

Complexity of the Workforce

When companies employ people from both the host and home countries, they may create difficulties in HR practices like compensation fixation. For instance, international managers may find it difficult to balance the compensation-related demands of the employees from the developing countries and developed countries. Managers may be required to take on international perspectives on hiring, training and development, compensation and labour relations aspects of the employees.

Difficulty in Communication

Top managers may face problems in conducting face-to-face communication with and personal supervision of employees working in foreign countries. The requirement of face-to-face communication cannot be replaced even by a sophisticated communication system in international operations. Personal supervision of employees is also a problem in international operations.

Divergent Economic Systems

Different economic systems like free enterprise and regulated economy necessitate different organizational practices. The economic systems also influence labour costs, working hours, the nature and number of holidays, employer and employee rights, and so on. Managers in global firms should take into consideration the country-specific economic environment and system while determining the organizational policies and practices.

Complex Legal and Industrial Relations Issues

Each country has unique legal and industrial relations practices. For instance, legal systems in some countries permit hiring, firing and employee lay-off at will. But, in some other countries, separation of employees may be a time-consuming, expensive and cumbersome process. Similarly, factors determining industrial relations may differ from one country to another. In some countries, policies on issues like wages and benefits are determined by employers alone or in consultation with the workers’ union. In other countries, labour laws largely determine the wages and benefits and other HR policies.

Ethical Dilemma

International management often creates difficult ethical dilemmas for managers. An ethical dilemma is actually a problem where a person has to choose between a moral and an immoral act. Due to the differences in cultural and legal setting of nations, international managers may often face with ethical and cultural dilemma in their dealings with employees, customers, government and others in the country of their operations. For instance, international managers may be faced with a tricky situation of being involved in corruption without even knowing it sometimes.²⁹ In certain cultures, offering bribes to get the business transaction done is viewed as acceptable practices. In contrast, it is viewed as a serious offence in certain other cultures. Therefore, it is in a firm’s best interest to provide ethical training to its employees, to help them identify ethical and unethical behaviour

These challenges may compel international firms to undertake country-specific management practices based on the cultural beliefs and legal practices of the place of operation. Certainly, a better internal coordination can help a firm to gradually reduce the adverse effects of cultural and other differences in its operating environment.

Summary

1. International management is defined as the determination and completion of specific actions and transactions conducted with foreign countries in support of organizational policy.
2. Objectives of international business are widening the markets, reducing the cost and achieving strategic aims.
3. The international environment consists of economic environment, political environment, legal environment, technological environment and cultural environment.
4. Functions of international managers are: international planning, international organizing, international staffing, international directing and international controlling.
5. The important kinds of organizational structure are: (i) international division structure, (ii) international geographic structure, (iii) international product structure and (iv) international matrix structure.
6. The major HR practices of international companies are: international recruitment, international selection, international compensation, international performance evaluation and international employee health and safety.
7. Directing function in international business involves international leadership, international communication and international motivation.
8. Three approaches to control from an international perspective are: market approach, rules approach and cultural approach.
9. Challenges facing international management are cultural diversity, complexity of the workforce, difficulty in communication, divergent economic systems, complex legal and industrial relations issues and ethical dilemma.

Review Questions

Short-answer questions

1. Define the term international management.
2. What do you mean by international business?
3. What are the skill requirements of international managers?
4. What do you mean by horizontal differentiation?
5. Distinguish between centralization and decentralization?
6. Explain briefly the objectives of multinational companies.
7. Write a short note on cross-cultural management.

Essay-type questions

1. Critically evaluate the different elements of international management environment with relevant examples.
2. Describe the functions of international managers with suitable examples.
3. Enumerate the different kinds of organizational structure of international business organizations.
4. Examine the important HR practices of international companies.
5. Discuss the directing functions of international managers with appropriate examples.
6. Illustrate with example the various approaches to control in international business environment.
7. Explain the challenges facing international management.
8. International management is the process of accomplishing global objectives of a firm. Discuss.

Case Study

Ethical Dilemma of an MNC

Fine-X is a multinational company with its head office in New York and subsidiaries in 15 countries. One of its subsidiaries is located in Gurgaon, India. This company is engaged in the production of breakfast cereals, coffee, confectionery, dairy products, ice cream, pet foods, snacks and baby food. Fine-X has 10 factories and a large number of co-packers across India. The business principle of this company is based on the ideas of fairness, honesty and long strategic initiatives. It has also adopted all the 10 principles of the United Nations Global Compact and mainstreamed these principles in its business activities carried out around the world. Principle 10 of Compact insists that businesses should work against corruption in all its forms, including extortion and bribery. The adoption of the tenth principle committed this company not only to avoid bribery, extortion and other forms of corruption but also to develop policies and concrete programmes to address corruption. Being an American company, it should also strictly adhere to the The Foreign Corrupt Practices Act of 1977 (FCPA)—a law that prohibits bribery of foreign officials.

However, Fine-X often found itself on the wrong side of the norms in certain foreign countries including India. It found doing business in India without indulging in bribing and other corrupt practices almost impossible.

While interacting with certain levels of bureaucracy, the management of this company had come across corrupt officials making unlawful pecuniary demands that they could not meet legally. For instance, this company has been waiting approval from governmental agencies and officials for commencing operations at one of its new manufacturing plants in the country for the past 10 months. Such inordinate delay in getting the necessary approval has adversely affected its market expansion plans and also the profit margin. The delay has also given sufficient time to its competitors—both domestic and multinational—to prepare themselves for the new situation and to counteract. Any more delay in the approval process may even cost the country-level managers their jobs. At the same time, indulgence in any form of corrupt practice may invite punitive actions by their top management leading to their possible ouster from the job. The top management is now facing a tricky situation.

Questions

1. How do you understand and assess the situation faced by Fine-X in India?
2. What should they do to overcome their problems in obtaining approval for commencing operations in their new manufacturing plant?
3. What policy measures are needed to avoid the recurrence of such incidents in Fine-X in the future?

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