Text 10: the nature of international management

If you took an inventory of the items that are in your living quar­ters, you would probably find many that reflect the increasing volume of business conducted on an international basis. For example, you might have shoes from Italy or Brazil, a television and VCR from Ja­pan, and a shirt made in Korea. Even items that bear, the brand names of a U.S. - based company may have been produced in a far-off land in the course of international business. International business is the process of planning, organizing, leading, and controlling in organiza­tion engaged in international business.

Changing character of international business

There is strong evidence that the United States is losing its com­petitive edge in international trade and is facing increasing competing in word markets. According to some accounts, the United State en­joyed an abnormal advantage for several decides after World War II because the productive facilities of other large industrial powers had been severely damages by wartime activities. Now countries such as Japan and Germany have become formidable competitors, and devel­oping national such as Brazil, India and South Korea also are emerg­ing as potential major players. Despite the increased competition, though, international markets are growing rapidly, providing ex­panded opportunities for many U.S. - based businesses.

Organizations engaging in international management

Organizations that engage in international management vary con­siderably in size and in the extent to which their business activities cross national boundaries. One special type of organization involved in international management is the multinational corporation. Al­though definitions differ somewhat, the term multinational corporation (MNC) is typically reserved for an organization that engages in production or service activities though its own affiliates in several countries, maintains control over the policies of those affiliates, and manages from a global perspective.

Multinational corporations are not always easy to identify, since it may be difficult to determine from the outside how much control management maintains over the policies of affiliates or whether man­agement actually uses a global perspective. As a result? For purposes of gathering statistics, an arbitrary percentage (such as 25 percent of sales from foreign sources) is sometimes used to distinguish multina­tional corporations from other types of international businesses. How­ever, there is no single universally accepted percentage of foreign sales that clearly separates multination corporations from others.

Regardless of their size, companies may decide to expand inter­nationally for a number of different reasons. Some organizations may decide to expand internationally for a number of different reasons. Some organizations may become involved through unsolicited orders from foreign customers. Other may initiate international efforts in or­der to open new markets or to preclude foreign companies from enter­ing specific foreign markets and eventually becoming domestic com­petitors. Still others may be motivated by the need to develop sources of supplies, possibilities of acquiring needed technology, or prospects for reducing costs by operating in their basic orientation toward inter­national management.

Orientations toward International Management

Top-level managers in companies that are expanding internation­ally (particularly those in multinational corporations) tend to subscribe to one of three basic orientations, or philosophies, regarding a degree to which methods of operating are influenced by headquarters or by company members in other parts of the world. The three orientations are ethnocentric (home-country oriented), polycentric (host-country oriented), and geocentric (world oriented). A home country is the country in which an organization" headquarters is located, whereas a host country is a foreign is a country in which an organization is con­ducting business.

An ethnocentric (or home-country) orientation is an approach to international management whereby executives assume that prac­tices which work in the headquarters or home country must necessar­ily work elsewhere. For example, during the period 1973 to 1986, Procter & Gamble lost an estimated quarter of a billion dollars of business in Japan partially because of an ethnocentric orientation. As one former Japanese employee stated, "They did not listen to any­body". One of the most serious blinders was a commercial for Camay soap that was used in the late 1970s. The commercial showed a Japa­nese man meeting a Japanese woman for the first time and immedi­ately comparing her skin to that of a fine procelain doll. Although this commercial had worker well in the Philippines, South America, and Europe, it was a disaster in Japan. A Japanese advertising specialist who worked on the commercial had warned Procter & Gamble that only an unsophisticated or rude man would say something like that to a Japanese woman, but company representatives would not listen. As the vise-chairman of Procter & Gamble later noted, "We learned a lesson here [in Japan] about tailoring your products and marketing to the market. Although an ethnocentric orientation often is a phase that organizations go through when they enter the international area, it can prove extremely difficult to eradicate.

A polycentric (or host-country orientation ) is an approach to international management whereby executives view host-country cultures and foreigners as difficult to fathom and, therefore, believe that the parts of the organization located in a given host country should be staffed by local individuals to the fullest extent possible. Locals - or nationals, as they are sometimes called - are thought to know their own culture, mores, work ethics, and markets best.

As a result, subsidiaries in various countries operate almost inde­pendently under the direction of local individual and are tied to the parent company mainly through financial control. The parent com­pany may maintain a very low public profile relative to the subsidiary, as was the case until recently with Unilever and U.S. subsidiary, Level Brothers. It is very possible that you only discovered that a Level Brother was owned by a foreign company when you read the indi­viduals run operations in the host countries, they have little prospect of holding senior executive positions as headquarters, largely because they are perceived as having only a local perspective and expertise. Still, a polycentric approach may be successful when decision making is largely decentralized to host-country personnel.

The geocentric (or world) orientation is an approach to interna­tional management whereby executives believe that a global view is needed in both the headquarters of the parent company and its various subsidiaries and that the best individuals, regardless of home - or host -country origin, should be utilized to solve company problems anywhere in the world. Major issues are viewed from a global perspective at both headquarters and subsidiaries, which consider questions such as "Where in the world shall we raise money, build our plant, conduct R&D, develop and launch new ideas to serve our present and future customers? The geocentric approach is the most difficult to achieve because it requires that managers acquire both local and global knowledge.