Ikea printed electronics open innovation challenges

International Management Managing Across Borders and Cultures T e x T a n d C a s e s N i N t h E d i t i o N

helen deresky Professor Emerita, State University of New York-Plattsburgh

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Library of Congress Cataloging-in-Publication Data

Names: Deresky, Helen, author. Title: International management : managing across borders and cultures : text and cases / Helen Deresky. Description: Ninth edition. | Hoboken : Pearson Higher Education, [2017] Identifiers: LCCN 2015036084 | ISBN 9780134376042 | ISBN 0134376048 Subjects: LCSH: International business enterprises—Management. | International business enterprises— Management—Case studies. | Industrial management. Classification: LCC HD62.4 .D47 2017 | DDC 658/.049—dc23 LC record available at http://lccn.loc.gov/2015036084

ISBN 10: 0-13-437604-8 ISBN 13: 978-0-13-437604-2

10 9 8 7 6 5 4 3 2 1

http://lccn.loc.gov/2015036084
To my husband, John, for his love and support, and to my family members, who always inspire me: John J. and his wife Alyssa: John Rock, Helena, Max

Mark and his wife Sherry: Jacob, Sarah, Rachel Lara and her husband Thomas: Thomas (TJ), Luke.

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Brief Contents

Preface xiii

Part 1 The Global Manager’s environment 1 Chapter 1 Assessing the Environment: Political, Economic, Legal,

Technological 2 Chapter 2 Managing Interdependence: Social Responsibility, Ethics,

Sustainability 42

Comprehensive Cases PC1-1 NEw: Case 1 Facebook’s Internet.org Initiative: Serving the Bottom

of the Pyramid? (several countries) PC1-1 Case 2 an Ethics role-Playing Case: Stockholders versus Stakeholders

(Global/Sri Lanka) PC1-11

Part 2 The Cultural Context of Global Management 73 Chapter 3 Understanding the Role of Culture 74 Chapter 4 Communicating Across Cultures 116 Chapter 5 Cross-Cultural Negotiation and Decision Making 150

Comprehensive Cases PC2-1 NEw: Case 3 Vodafone in Egypt: National Crises and their Implications

for Multinational Corporations (Egypt) PC2-1 NEw: Case 4 Hailing a New Era: Haier in Japan (China/Japan) PC2-11

Part 3 Formulating and Implementing strategy for International and Global Operations 181

Chapter 6 Formulating Strategy 182 Chapter 7 Implementing Strategy: Strategic Alliances, Small Businesses,

Emerging Economy Firms 227 Chapter 8 Organization Structure and Control Systems 254

Comprehensive Cases PC3-1 NEw: Case 5 alibaba versus tencent: the Battle for China’s M-Commerce Space

(China/Global) PC3-1 NEw: Case 6 Business Model and Competitive Strategy of IKEa

in India (India) PC3-9 NEw: Case 7 Wal-Mart in africa (africa) PC3-21 NEw: Case 8 Fiat Chrysler automobiles N.V. (2015): From an alliance

to a Cross-Border Merger (Global) PC3-31

v

vi BrIEF CoNtENtS

Part 4 Global Human Resources Management 283 Chapter 9 Staffing, Training, and Compensation for Global Operations 284 Chapter 10 Developing a Global Management Cadre 316 Chapter 11 Motivating and Leading 348

Comprehensive Cases PC4-1 NEw: Case 9 Leading across Cultures at Michelin (France/US) PC4-1 NEw: Case 10 Ethical Leadership: ratan tata and India’s tata

Group (Global) PC4-5

Integrative section iC-1 Integrative Term Project iC-1 NEw: integrative Case: Case 11 IKEa in russia: Emerging Market Strategies

and Ethical Dilemmas (russia) PC5-1

Glossary 377

Index 383

Contents

Preface xiii

Part 1 The Global Manager’s environment 1

Chapter 1 assessing the environment: Political, economic, Legal, Technological 2 opening Profile: western Businesses Scramble to Assess their Risks in Russia as Geopolitical tensions Escalate 3 the Global Business Environment 5

Globalization 5 Global trends 6 Globality and Emerging Markets 6 Backlash against Globalization 9 Effects of Institutions on Global trade 10 Effects of Globalization on Corporations 10 Small and Medium-Sized Enterprises (SMEs) 11 the Globalization of Human Capital 12 the Globalization of Information technology 13

Management in action: Global Cybertheft of Corporate Secrets an Increasing Risk 13

regional trading Blocs 14 the European Union 14 asia 16

Comparative Management in Focus: China Loses its Allure 17

the americas 19 other regions in the World 20

the russian Federation 21 the Middle East 21 Developing Economies 21 the african Union (aU) 21

the Global Manager’s role 22

the Political and Economic Environment 22

Political risk 24 Political risk assessment 25 Managing Political risk 25 Managing terrorism risk 26 Economic risk 26

the Legal Environment 27 Contract Law 28 other regulatory Issues 28

the technological Environment 29 Under the Lens: The Global Role of Information Technology (IT) 31

Global E-Business 32

Conclusion 33 Summary of Key Points 34 • Discussion Questions 35 • Application Exercises 35 • Experiential Exercise 35

CASE Study: Apple’s iPhones—Not “Made in America” 36

Endnotes 38

Chapter 2 Managing Interdependence: social Responsibility, ethics, sustainability 42 opening Profile: the Bangladesh disaster: Can Companies outsource Responsibility for workers in its Supply Chain? 43 the Social Responsibility of MNCs 44

CSr: Global Consensus or regional Variation? 47 From CSr to Shared Value? 47

Under the Lens: Nestlé Company Creates Shared Value Globally 48

MNC responsibility toward Human rights 49

Comparative Management in Focus: doing Business in China—CSR and the human Rights Challenge 50 Ethics in Global Management 52

Ethics in Uses of technology 55 Bribery 56

Under the Lens: Rolls-Royce Accused of Bribery to Obtain $100m Petrobras Contract 58

Making the right Decision 59

Managing interdependence 60 Foreign Subsidiaries in the United States 60 Managing Subsidiary–Host Country Interdependence 61 Managing Environmental Interdependence and Sustainability 63

vii

viii CoNtENtS

Culture and Management Styles around the world 102 Under the Lens: Doing Business in Brazil—Language, Culture, Customs, and Etiquette 102

Saudi arabia 106 Chinese Family Small Businesses 108

Conclusion 108 Summary of Key Points 109 • Discussion Questions 109 • Application Exercises 109 • Experiential Exercises 110

CASE Study: An Australian Manager in an American Company 110

Endnotes 113

Chapter 4 Communicating across Cultures 116 opening Profile: the impact of Social Media on Global Business 117 the Communication Process 118

Cultural Noise in the Communication Process 119

the Culture–Communication Link 120 trust in Communication 120 the GLoBE Project 121 Cultural Variables in the Communication Process 121

Under the Lens: Communicating in India—Language, Culture, Customs, and Etiquette 122 Nonverbal Communication 129 Under the Lens: Communicating Italian Style 130 Under the Lens: How Feng Shui Affects Business 131

Context 133

Management in action: Oriental Poker Face: Eastern Deception or Western Inscrutability? 135 Comparative Management in Focus: Communicating with Arabs 136

Communication Channels 138

information technology: Going Global and Acting Local 141 Managing Cross-Cultural Communication 142

Developing Cultural Sensitivity 142 Careful Encoding 142 Selective transmission 143 Careful Decoding of Feedback 143 Follow-up actions 143

Conclusion 144 Summary of Key Points 145 • Discussion Questions 145 • Application Exercises 145 • Experiential Exercise 145

Under the Lens: BP’s Sustainability Systems Under Fire 65 Management in action: TerraCycle— Social Entrepreneurship Goes Global 66

Implementing Sustainability Strategies 67

Conclusion 68 Summary of Key Points 68 • Discussion Questions 69 • Application Exercise 69 • Experiential Exercise 69

CASE Study: Levi Looks to Cut Its Cloth Differently by Rewarding Responsible Suppliers 70

Endnotes 70

Comprehensive Cases PC1-1 NEw: Case 1 Facebook’s Internet.org Initiative:

Serving the Bottom of the Pyramid? (several countries) PC1-1

Case 2 an Ethics role-Playing Case: Stockholders versus Stakeholders (Global/ Sri Lanka) PC1-11

Part 2 The Cultural Context of Global Management 73

Chapter 3 Understanding the Role of Culture 74 opening Profile: Social Media Bring Changes to Saudi Arabian Culture 75 Culture and its Effects on organizations 77

Societal Culture 77 organizational Culture 77 Culture’s Effects on Management 78 Influences on National Culture 82

Under the Lens: Religion and the Workplace 82 Cultural Value dimensions 84

Project GLoBE Cultural Dimensions 84 Cultural Clusters 86 Hofstede’s Value Dimensions 86 trompenaars’s Value Dimensions 90 Consequence or Cause? 91 Critical operational Value Differences 92

the internet and Culture 93 Management in action: Google’s Street View Makes Friends in Japan but Clashes with European Culture 95 developing Cultural Profiles 96 Comparative Management in Focus: Profiles in Culture—Japan, Germany, Latin America 97

CoNtENtS ix

Part 3 Formulating and Implementing strategy for International and Global Operations 181

Chapter 6 Formulating strategy 182 opening Profile: Amazon, eBay, and Flipkart Bet Big on india 183 Reasons for Going international 185

reactive reasons 185 Proactive reasons 186

Comparative Management in Focus: Global Companies take Advantage of Growth opportunities in South Africa 187 Strategic Formulation Process 190 Steps in developing international and Global Strategies 191

Step 1. Establish Mission and objectives 192 Step 2. assess External Environment 193

Under the Lens: McDonald’s in Russia: A Political Pawn? 194

Step 3. analyze Internal Factors 196 Competitive analysis 197 Step 4. Evaluate Global and International Strategic alternatives 199 approaches to World Markets 200 Global Integrative Strategies 202 Using E-Business for Global Expansion 203 Step 5. Evaluate Entry Strategy alternatives 205

Under the Lens: Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive 208 Strategic Planning for Emerging Markets 213 Management in action: Strategic Planning for Emerging Markets 214

Step 6. Decide on Strategy 219 timing Entry and Scheduling Expansions 220 the Influence of Culture on Strategic Choices 220

Conclusion 221 Summary of Key Points 221 • Discussion Questions 222 • Application Exercises 222 • Experiential Exercise 222

CASE Study: “Foreign Businesses Tread Carefully as Cuba Opens Up,” 222

Endnotes 224

CASE Study: Miscommunications with a Brazilian Auto Parts Manufacturer 146

Endnotes 148

Chapter 5 Cross-Cultural negotiation and decision Making 150 opening Profile: Facebook’s Continued Negotiations in China 151 Negotiation 152 the Negotiation Process 153

Stage one: Preparation 153 Negotiating teams 154 Variables in the Negotiation Process 154 Stage two: relationship Building 154 Nontask Sounding 155 Stage three: Exchanging task-related Information 156 Stage Four: Persuasion 156 Stage Five: Concessions and agreement 157

understanding Negotiation Styles 157 Successful Negotiators around the World 159 Comparing Profiles 160

Managing Negotiation 160 Using the Internet to Support Negotiations 162 Managing Conflict resolution 162 Context in Negotiations 162

Comparative Management in Focus: Negotiating with the Chinese 163 decision Making 167

the Influence of Culture on Decision Making 168

Under the Lens: Negotiations and Decisions to Save the Eurozone System 168 Management in action: Target: Frozen Out 170

approaches to Decision Making 171

Comparative Management in Focus: decision Making in Japanese Companies 172 Conclusion 174 Summary of Key Points 174 • Discussion Questions 174 • Experiential Exercises 175

CASE Study: Search Engines Aid Decision Making and Negotiation 176

Endnotes 177

Comprehensive Cases PC2-1 NEw: Case 3 Vodafone in Egypt: National Crises

and their Implications for Multinational Corporations (Egypt) PC2-1

NEw: Case 4 Hailing a New Era: Haier in Japan (China/Japan) PC2-11

x CoNtENtS

Evolution and Change in MNC organizational Structures 256

Integrated Global Structures 258

organizing for Globalization 260 organizing to Be Global, act Local 262

Under the Lens: Amazon of India Uses Curry-Carrying Dabawallas to Spice Up Parcel Delivery 262 Management in action: Procter & Gamble’s Think Globally–Act Locally Structure 263 Emergent Structural Forms 265

teams as a Global–Local Structure 265

Comparative Management in Focus: Changing organizational Structures of Emerging Market Companies 266

Interorganizational Networks 266 the Global E-Corporation Network Structure 267 the transnational Corporation (tNC) Network Structure 268

Choice of organizational Form 269 organizational Change and Design Variables 270

Control Systems for Global operations 271 Under the Lens: FIFA—Restructuring for Governance Oversight of Ethics 272

Direct Coordinating Mechanisms 273 Indirect Coordinating Mechanisms 274

Managing Effective Monitoring Systems 275

the appropriateness of Monitoring and reporting Systems 275 the role of Information Systems 275 Evaluation Variables across Countries 276

Conclusion 276 Summary of Key Points 277 • Discussion Questions 277 • Application Exercises 277 • Experiential Exercise 278

CASE Study: HSBC in 2015: Complex Global Operations and Downsizing 278

Endnotes 280

Comprehensive Cases PC3-1 NEw: Case 5 alibaba versus tencent: the Battle

for China’s M-Commerce Space (China/ Global) PC3-1

NEw: Case 6 Business Model and Competitive Strategy of IKEa in India (India) PC3-9

NEw: Case 7 Wal-Mart in africa (africa) PC3-21 NEw: Case 8 Fiat Chrysler automobiles N.V.

(2015): From an alliance to a Cross-Border Merger (Global) PC3-31

Chapter 7 Implementing strategy: strategic alliances, small Businesses, emerging economy Firms 227 opening Profile: tAG heuer in Smartwatch Alliance with Google and intel 228 Strategic Alliances 228

Joint Ventures 229 Equity Strategic alliances 230 Non-equity Strategic alliances 230 Global Strategic alliances 230 Global and Cross-Border alliances: Motivations and Benefits 231 Challenges in Implementing Global alliances 232 Implementing alliances between SMEs and MNCs 233 Guidelines for Successful alliances 233

implementing Strategy 234 Comparative Management in Focus: Joint Ventures in the Russian Federation 235

Implementing Strategies for SMEs 237

Under the Lens: Breaking Down Barriers for Small-Business Exports 238

Implementing a Global Sourcing Strategy: From offshoring to Next-Shoring? 239

Under the Lens: Global Supply Chain Risks—The Japanese Disaster 240

Implementing Strategies for Emerging Economy Firms 241

Management in action: Infosys’s Path From Emerging Start-up to EMNE 242

Challenges in Implementing Strategies in Emerging Markets 243 Managing Performance in International Joint Ventures 243 Knowledge Management in IJVs 245 Government Influences on Strategic Implementation 245 Cultural Influences on Strategic Implementation 246 E-Commerce Impact on Strategy Implementation 248

Conclusion 249 Summary of Key Points 249 • Discussion Questions 249 • Application Exercise 250

CASE Study: Foreign Companies in China Under Attack 250

Endnotes 251

Chapter 8 Organization structure and Control systems 254 opening Profile: BMG Signs distribution deal with Alibaba 255 organizational Structure 256

CoNtENtS xi

the Role of Repatriation in developing a Global Management Cadre 322

Knowledge transfer 322

Under the Lens: Expatriates’ Careers Add to Knowledge Transfer 324 Global Management teams 325

Virtual transnational teams 325 Managing transnational teams 328

the Role of women in international Management 329 Management in action: Women in Management Around the World 330 working within Local Labor Relations Systems 331

the Impact of Unions on Businesses 332

Under the Lens: Ford’s Bitter Struggle to Close a Plant in Belgium 332

organized Labor around the World 333 Convergence versus Divergence in Labor Systems 335

Under the Lens: Vietnam: The Union Role in Achieving Manufacturing Sustainability and Global Competitiveness 336

adapting to Local Industrial relations Systems 338 NaFta and Labor relations in Mexico 339

Comparative Management in Focus: Labor Relations in Germany 339 Conclusion 342 Summary of Key Points 342 • Discussion Questions 342 • Application Exercise 342 • Experiential Exercise 343

CASE Study: Expatriate Management at AstraZeneca Plc 343

Endnotes 345

Chapter 11 Motivating and Leading 348 opening Profile: the Eu Business Leader—Myth or Reality? 349 MotiVAtiNG 350 Cross-Cultural Research on Motivation 350

the Meaning of Work 352 the Needs Hierarchy in the International Context 354

Comparative Management in Focus: Motivation in Mexico 355 Under the Lens: Managing in Russia—Motivation and Leadership Challenges 358

reward Systems 359

LEAdiNG 360 the Global Leader’s Role And Environment 361

Part 4 Global Human Resources Management 283

Chapter 9 staffing, Training, and Compensation for Global Operations 284 opening Profile: Staffing Company operations in Emerging Markets 285 the Role of ihRM in Global Strategy implementation 286 Staffing for Global operations 288 Under the Lens: Tata’s Staffing Challenges in the United States 290 Managing Expatriates 294

Expatriate Selection 295 Expatriate Performance Management 295

Under the Lens: Tales from Trailing Husbands 296

Global team Performance Management 298

Expatriate training and development 298 Comparative Management in Focus: Expatriate Performance Management Practices: Samples from Five Countries 298

Cross-Cultural training 300 training techniques 302 Compensating Expatriates 304

training and Compensating host-Country Nationals 306

training HCNs 306

Management in action: Success! Starbucks’ Java Style Helps to Recruit, Train, and Retain Local Managers in Beijing 307

training Priorities for E-Business Development 309 Compensating HCNs 309

Conclusion 310 Summary of Key Points 310 • Discussion Questions 310 • Application Exercises 311 • Experiential Exercise 311

CASE Study: Kelly’s Assignment in Japan 311

Endnotes 314

Chapter 10 developing a Global Management Cadre 316 opening Profile: the Expat Life 317 Expatriate Career Management 319

Preparation, adaptation, and repatriation 319 the role of the Expatriate Spouse 320 Expatriate retention 321

xii CoNtENtS

CASE Study: Interview: Carlo D’Asaro Biondo, Google’s Europe Strategy Chief in Charm Offensive 373

Endnotes 375

Comprehensive Cases PC4-1 NEw: Case 9 Leading across Cultures at Michelin

(France/US) PC4-1 NEw: Case 10 Ethical Leadership: ratan tata and

India’s tata Group (Global) PC4-5

Integrative section iC-1 Integrative Term Project IC-1 NEw: integrative Case: Case 11 IKEa in russia:

Emerging Market Strategies and Ethical Dilemmas (russia) PC5-1

Glossary 377 Index 383

Under the Lens: Interview: Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational 363

Women in Global Leadership roles 364 Global team Leadership 364 the role of technology in Leadership 364

Under the Lens: Women in Business Leadership 365 Cross-Cultural Research on Leadership 366 Management in action: Leadership in a Digital World 367 Contingency Leadership: the Culture Variable 368

the GLoBE Project 368 Earlier Leadership research 370

Conclusion 372 Summary of Key Points 372 • Discussion Questions 373 • Application Exercises 373 • Experiential Exercise 373

Preface

nInTH edITIOn CHanGes • Comprehensive cases: Ten of the 11 comprehensive cases are new and current; one is a

popular one from the eighth edition. Three of the new cases have won awards: Vodafone in Egypt; Leading Across Cultures at Michelin; Ethical Leadership: Ratan Tata and India’s Tata Group. The case selection provides increased coverage of emerging markets and high-technology companies. A range of topics and geographic locations is included as well as the interactive “Ethics Role-Playing” case.

• Integrative section: The new comprehensive case in the Integrative section—“IKEA in Russia: Emerging Market Strategies and Ethical Dilemmas”—is especially informative and challenging because it covers a range of topics from throughout the book. In addition, the popular Integrative Term Project has been retained.

• The feature box called “Under the Lens” has been expanded with a total of 19 boxes. This feature gives an in-depth look at important aspects of the chapter subjects, including, for example, “Nestlé Company Creates Shared Value,” “The Global Role of Information Technology (IT),” “Doing Business in Brazil—Language, Culture, Customs, and Eti- quette,” “Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive,” “Communicating Italian Style,” “Breaking Down Barriers for Small-Business Exports,” “Amazon of India Uses Curry-Carrying Dabawallas to Spice up Parcel Delivery,” “Tales from Trailing Husbands,” “Women in Business Leadership,” and “Interview: Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational.”

• Maps added throughout.

• Chapter-opening profiles: There are seven new opening profiles, such as “BMG Signs Dis- tribution Deal with Alibaba,” “Social Media Bring Changes to Saudi Arabian Culture,” and “TAG Hueur in Smartwatch Alliance with Google and Intel.” The rest are updated favorites.

• Chapter-ending cases: There are seven new chapter-ending cases (keeping four favorites, such as, “Kelly’s Assignment in Japan”). New examples are, “Foreign Companies in China Under Attack,” “Foreign Businesses Tread Carefully as Cuba Opens Up,” and “An Australian Manager in an American Company.”

• All of the “Comparative Management in Focus” sections have been revised and updated. These provide in-depth comparative applications of chapter topics in a broad range of specific countries or regions.

• All of the “Management in Action” boxes have been replaced or updated; examples consider global cybertheft, Infosys, Target, and emerging markets.

• New coverage of geopolitical developments, such as in Ukraine, and their effects on strategy have been added throughout the ninth edition.

• Updated coverage of developments in globalization and its growing nationalist backlash.

• Expanded coverage on sustainability and creating shared value.

• Expanded and updated coverage of management issues regarding emerging market economies—in particular China, India, Brazil, Africa, and Russia.

• Expanded section on strategies for emerging markets.

• Added and expanded sections on small businesses and strategies for SMEs.

xiii

xiv PrEFaCE

• Expanded sections on e-businesses, on born-global companies, and on strategy models.

• Expanded sections on the role of technology on business planning and operations.

• New sections throughout the chapters on global management teams and virtual teams.

• New research data and examples added throughout.

The ninth edition of International Management: Managing Across Borders and Cultures prepares students and practicing managers around the world for careers in a dynamic global environ- ment wherein they will be responsible for effective strategic, organizational, and interpersonal management with a focus on sustainability. Although managing within international and cross- cultural contexts has been the focus of this text since the first edition, the ninth edition portrays the burgeoning level, scope, and complexity of international business facing managers in the twenty-first century. The ninth edition explores how recent developments and trends within a hypercompetitive global arena present managers with challenging situations; it guides the reader in what actions to take and how to develop the skills necessary to design and implement global strategies, to conduct effective cross-national interactions, and to manage daily operations in and with foreign subsidiaries and with global allies and partners. Emphasis is also placed on the con- siderable cross-border management that takes place among teams—often virtually. Companies of all sizes wishing to operate overseas are faced with varied and dynamic environments in which they must accurately assess the political, legal, technological, competitive, and cultural factors that shape their strategies and operations. The fate of overseas operations depends greatly on the international manager’s cultural skills and sensitivity as well as on the ability to carry out the company’s strategy within the context of the host country’s business practices. Although much of the research has originated in the United States and Europe, we stress that there is no one best way to manage and no cultural behaviors that are viewed as preferred. We take the perspective of managers around the world so that they can learn about and from one another, how to work effectively in cross-national teams, and how to combine best practices for the local environment in which the firm is operating.

In the ninth edition, cross-cultural management and competitive strategy are evaluated in the context of global changes—the pervasive influence of technology, e-business, and social media on business strategy and operations, including on born globals; the eurozone crisis; the increasing trade between the two Americas; the emerging markets and rapidly growing economies in Asia and Africa—that require new management applications; and the challenges posed by the global war for talent. These developments take place in the context and influence of continuing political and economic problems in the eurozone, in ongoing geopolitical and security crises around the world, and in an era of cybertheft—all of which provide threats and opportunities for businesses, their supply chains, and their personnel. Importantly, the ninth edition includes increased emphasis on small- and medium-sized businesses and their strate- gies. Throughout, the text emphasizes how the variable of culture interacts with other national and international factors to affect managerial processes and behaviors. Concerns about corpo- rate social responsibility (CSR), sustainability, and ethics while operating in global locations are addressed at length.