Exam 2: Chapters 5-8

ANSWER ALL OF THE FOUR QUESTIONS (five points each). Be sure to give full, comprehensive answers with enough detail to convince the reader that you understand the concepts. Be sure that your answer demonstrates knowledge and understanding of the course and text. Use subheadings and bulleted lists as appropriate. 1. Explain three important characteristics of the Chinese culture that affect the negotiation process. Be sure to explain how these characteristics affect the negotiation process. Then, explain three important negotiating styles and expectations of the Chinese that you need to be aware of when negotiating in China. (Chapter 5, pages 167-170) There are three important Chinese cultural norms that affect the negotiation process: ingrained politeness and emotional restraint, emphasis on social obligation, and belief in the interconnection of work, family, and friendship. These cultural norms affect the negotiation process as follows. Because of the Chinese preference for emotional restraint and saving face, attempts at persuasion in negotiation are likely to fail. The concept of face is central to this kind of response. Face has two components- lien (a persons moral character) and mein-tsu (a persons reputation). Americans have to be careful in negotiations to not make it obvious that they have won so that the Chinese do not lose face. It is recommended to make token concessions and other attempts to show respect. The cultural emphasis on social obligation means that appeals to individual members of the Chinese negotiation team will likely backfire. Finally, the interconnection of work, family, and friendship is manifested through guanxi the intricate network of personal relationships that permeates all business relationships including negotiation. Some important negotiating styles and expectations of the Chinese negotiation are: The Chinese will require a lot of detail about product characteristics. Chinese negotiators typically have little authority to make decisions. The Chinese negotiating team is usually about twice as large as the Western team. The Chinese will employ tactics such as delaying and the avoidance of direct, specific answers. Older and more experienced people are more acceptable to the Chinese in cross-cultural negotiations. The Chinese like to deal with top executives of American companies because of the assumption that such managers reached the top by fostering close relationships and building trust among their colleagues.

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2. a) List the eight international entry strategies in your text, in order of ascending risk (without explanation), and note a critical success factor beside each. (Chapter 6, page 230) Mode of Entry 1. Exporting 2. Licensing 3. Franchising 4. Contract manufacturing 5. Service sector outsourcing 6. Turnkey operations 7. Joint ventures 8. Wholly owned subsidiary Critical Success Factor Existence of tariffs and quotas Appropriability of intellectual property Quality control of franchisee Reliability and quality of local contractor Impact on supply chain costs Reliable infrastructure Strategic fit of partner Repatriability of profits

b) List the advantages of international joint ventures compared with fully-owned subsidiaries, and list the advantages of fully-owned subsidiaries over IJVs. Organize your out your answer as IJV Advantages and Fully-Owned Subsidiary Advantages. (Chapter 6, page 230) IJV Advantages Insider access to markets Share costs (and profits) with partner Leverage partners skill base Share risks (and control) with partner Leverage partners local contacts Fully-Owned Subsidiary Advantages Insider access to markets Appropriate all revenues Protect technology and skill base Exercise total control over operation Experience global economies of scale

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3. You are considering a joint venture in Russia between your U.S. firm and a Russian firm: a) List five of the problems you anticipate with the IJV in Russia, along with the possible solutions/ways to minimize the risk of each of those problems. Organize your answer as Problems and Solutions. (Chapter 7, pages 248-250) Problems 1. Possible nationalization of assets Solutions OPIC (Overseas Private Investment Insurance). Have JV partner work on relationships with government authorities. Have JV partner help with negotiating with state bureaucracy. Paying certain bribes is illegal under U.S. law (Foreign Corrupt Practice Act, FCPA). Communicate early and up front that your company does not pay bribes. Have Russian JV partner work on relationships as the means of getting things done. Set up meetings with local ministries and regional authorities. Vertical integration

2. Corruption and bribe-taking at all levels of state bureaucracy

3. Weak legislative and enforcement regimes 4. Poor quality raw material and supplies

b) From your article readings, give an update on the changing business climate in Russia. The instructor may require the students write an update of the business climate in Russia as it relates to IJVs and present their findings in this answer. The update should address the problems above (for example, have there been any changes corruption and bribe-taking?) as well address any new problems not discussed in the Comparative Management in Focus in Chapter 7.

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4. a) Name and explain the two types (extremes) of strategic choice as an overall strategic approach to world markets for firms which operate around the world, discussing their comparative advantages, and give an example of a product or service for each choice. (Chapter 6, pages 219-222) The two basic strategic choices available to MNC in their approach to world markets are globalization and regionalization. Globalization refers to strategies that treat the world as an undifferentiated world wide marketplace. This leads firms to integrate their activities on a world wide basis to capture the linkages among countries. The advantages accrued by following this strategy are reaping benefits of worldwide economies of scale, offshore manufacturing, and international cash flows. Industrial products such as earth-moving equipment like that manufactured by Caterpillar, or certain household appliances like Sony TVs have fared well with global strategies. The regionalization strategy is one in which local markets are linked together within a region, allowing more local responsiveness and specialization. Top managers within each region decide on their own investment locations, productmixes, and competitive positioning thus allowing for flexibility and adaptability to local conditions. The advantages of the regionalization strategies lie in being able to cater to unique consumer preferences resulting from cultural differences, availing of or countering domestic subsidies, and using new technologies that allow variation with little additional cost. A regionalization strategy also exposes the company to less environmental risk. British retailer Tesco is an example of a firm that has succeeded using a regionalization strategy in South Korea. Samsung Tesco is 89% British owned by the British giant, but has relied heavily on local managers from Samsung. Matsushita is another example. In Malaysia, it tries to keep the expatriate headcount down and train local managers. It also tailors products to markets and lets plants set their own rules.

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b) Explain the appropriate structural elements necessary to implement each of the two strategies in a) above. (Chapter 8, pages 267-270) The organization structure will follow the strategic choice that is made whether it is globalization or regionalization. Since most companies follow a mixture of both strategies i.e., they fall somewhere on the continuum between the two extreme choices of globalization (treating all markets as one) and regionalization (treating every market as individual). The most common choice of structure is the global geographic structure where country and regional needs and relative market knowledge take precedence over product expertise. Companies that are heavily into consumer products with a focus on marketing such as Nestle, and Unilever generally follow this structure. On the other hand, a complete globalization strategy could conceivably be achieved through a global functional or a global product structure. Increasingly though, the future of MNCs in terms of organization structure seems to lie in a network structure that is characterized by relational networks which lie on the centralization-decentralization continuum balancing the tension between differentiation and integration.

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