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This 12 page Study Guide was uploaded by Shannonymous on Wednesday January 20, 2016. The Study Guide belongs to IB 150 at Hofstra University taught by Dr. Shawn Thelen in Winter 2016. Since its upload, it has received 77 views. For similar materials see International Business in Marketing at Hofstra University.
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Date Created: 01/20/16
Shannon Hogarty IB 150 Knowledge Base I) This is MODULE 1: International Business Overview 1) International Business – any firm that engages in international trade or investment. Example: McDonald’s engages in international business by having foreign operations and deriving more than half of income outside the home country (USA). 2) Globalization – the process or trend toward a more integrated and interdependent world economy. It is the process that companies are more likely to compete anywhere, source their raw material or R&D anywhere, and produce their products anywhere. Example: An American drives a car designed in Germany; assembled in Mexico; from components made in US and Japan; and that were fabricated from Korean steel and Malaysian rubber; filled with gasoline at a service station owned by a British multinational company; and so on. 3) Reasons for international expansions – three major reasons for engaging in international business for a firm are: to expand sales, to acquire resources, and to minimize risk. Example: Samsung of South Korea and Ikea of Sweden are among the world’s largest companies that derive over half their sales from outside their home countries. 4) Types of International Companies – international companies are identified by various names depending on the extent of their operations. In general terms, an international company is any company operating in more than one country; multinational enterprise (MNE)/multinational corporation (MNC) is a company that operates in many countries and is involved in every type of international operations; transnational company (TNC) is a company is owned by and managed by nationals in different countries, TNC is also a term used by the United Nations to refer to and MNE/MNC; and a global company is a company that integrates its operations and has a vast network of operations in many parts of the world. Example: A) International company – Carrefour is a good example of an international company with retail outlets in a few countries outside of France; B) MNE/MNC – General Electric is a diversified multinational company with operations in many countries; C) TNC – Royal Dutch Shell is owned and managed by the British and Dutch; D) Boeing reflects a global company with suppliers, operations, and markets in many countries. 5) Types and role of international organizations – (WTO, UN, IMF, World Bank) – Various international organizations are established to provide stability in the global economy. Explanation: A) World Trade Organization (WTO) a major international organization through countries negotiate trading agreements; B) World Bank, basically a lending institution that has focused on making lowinterest loans to cashstrapped governments in poor nations that wish to undertake significant infrastructure investments; C) International Monetary Fund (IMF) an international agency created to promote Shannon Hogarty IB 150 Knowledge Base international monetary cooperation after World war II. It is the lender to nationstates whose economies are in turmoil and currencies are losing value against those of other nations; D). The United Nations (UN) an international organization whose goals are to promote world peace and security. II) This is MODULE 2: Ethical Considerations in International Business II.1) Business Ethics – is the accepted principles of right or wrong governing the conduct of businesses and the people running them. Example: Nike broke no laws when it subcontracted work to factories in Southeast Asia that had very poor working conditions, but many argued that Nike was acting unethically. II.2) Corporate Social Responsibility (CSR)– the idea that businesses should consider the social consequences of their business economic actions when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and social consequences. Example: Starbucks Coffee has focused on acting responsibly and ethically. One of Starbucks' main focuses is the sustainable production of green coffee. With this in mind, it created coffee and famer equity (C.A.F.E.) practices. C.A.F.E. is a set of guidelines to achieve product quality, economic accountability, social responsibility and environmental leadership. III) This is MODULE 3: External Environment The three critical external environmental variables that have a significant effect on international companies are: Culture; Political and legal environment; and the economy. III.1) Culture III.1a) Definition: Culture is defined as the value system of a society that guides its beliefs, customs, knowledge, and morals. III.1b) Cultural risk – is the risk of business blunders, poor customer relations, and wasted negotiations that results when international companies fail to understand and adapt to the cultural differences between their own and that of the local countries’ cultures. Example: A large American construction company lost a major project in Mexico as it was bentupon starting on time knowing that one of the ministers was going to be late. In defense of the American company, they were given the OK to start the meeting by other members of the negotiating team. It was later learned that the other ministers were just being polite to the visitors and was not meant to be followed by the foreigners. III.1c) Dimensions/characteristics of culture – While there are many different methods used to characterize cultures, one of the most common is that proposed by Gert Hofstede. Shannon Hogarty IB 150 Knowledge Base He identified four dimensions: Power Distance: How a society expects power within organizations and institutions to be distributed. A high power distance society accepts great inequalities between more and less powerful groups and individuals. Individualism/Collectivism: Is a measure of how individuals are expected to be integrated with their groups. Individualistic societies are those in which individuals are expected to take care of themselves while in collectivist societies, individuals are expected to look at the needs of the group as most important. Masculinity/Femininity: In Hofstede’s studies he found differences in levels of modesty, caring, and assertiveness. He assigned modest and caring characteristics to the femininity pole of the dimension and assertiveness to the masculinity pole. Uncertainty Avoidance: This dimension addresses to the degree in which a society’s members deal with uncertainty and ambiguity. It is believed that countries with low scores on uncertainty avoidance tend to promote innovation and risktaking. Example: Hofstede’s cultural dimensions have been used by international marketers in developing advertisements that make use of the individualistic versus collectivistic themes. Global HR managers utilize these cultural dimensions effectively for evaluating and compensating foreign employees’ performance (e.g., group bonus in collectivistic societies). III.1d) Societal/Cultural groupings – is a collections of individuals who identify with each other having common interests, opinions, or activities and may share similar demographic characteristics. Example: International companies have made use of the cultural groupings in workplace situations to train and motivate employees. III.1e) Cultural influences – The forces that affect the communication and interaction patterns of various groups. For instance, media can be viewed as a cultural influence on members of society. III.1f) Culture shock – is the negative feelings and/or anxiety that an individual feels when relocating to another culture or country. This may manifest itself into a sense of disgust for the entire aspects of the new society. Many people suffer from reverse culture shock, that is, the feeling of culture shock upon return to their home culture. III.1g) Cultural orientation – is the attitude of managers and their companies towards outside cultures. There are distinctive cultural orientation types ethnocentric, polycentric, and geocentric. III.1h) Ethnocentric behavior – is the belief that one’s own culture is superior to that of other cultures. There is a related concept called consumer ethnocentrism, which is the belief that one should purchase domestically produced and not imported goods. III.1i) Polycentric behavior – is the recognition that it is important to understand the differences in cultures and act accordingly in interacting with people from other cultures. Mangers following the polycentric approach try to accommodate cultural differences. III.1j) Geocentric behavior – is the belief that in certain cultures change can be made and in some other cultures one has to adapt to the local culture. Example: Failures by U.S. companies in the early 70’s was attributed to the U.S. managers’ ethnocentric focus that caused friction with the local staff. III.2) Political and Legal Environment Shannon Hogarty IB 150 Knowledge Base III.2a) Different political systems – Political systems can be characterized as either democratic or totalitarian. Democratic systems have elected officials and are often represented by individuals having the guarantee of various freedoms (speech, media, religion, etc.). Totalitarian systems are characterized by one person or a political group having power over the society and citizenry. In totalitarian systems freedom of individuals is severely restricted. Example: U.S. is a good example of a democratic system that values freedom. On the other hand, the rule by the Junta in Myanmar is totalitarianism where the population does not have any freedom. III.2b) Political risk – is the risk of loss by an international company of assets, earning power or managerial control as a result of political actions by the country. Before entering a nation for business or investment, it is important to assess political risk since it affects business. Example: a territorial dispute between China and Japan led to a steep drop in production and sales of Japanese car makers in 2012. III.2c) Types of legal systems – there are three types of legal systems. Common law –is a legal systems based on tradition, precedent, and customs of a society; civil law – a system that is highly organized into codes with less flexibility than common law; and theocratic law – a legal system based upon a religion. Example: In UK and most of the Commonwealth countries common law is practiced, in Germany the civil law is more prevalent, and in many of the Middle Eastern countries theocratic law based on the Koran is practiced. Multinational business executives often cite the legal system disparity as one of the major concerns for doing business overseas. According to one survey in 2012, Canadian firms active in China identified inconsistent interpretation of laws (e.g., intellectual property law) in China as their biggest challenges. III.3) Economy III.3a) Importance of the economic environment – it is critical for international businesses to evaluate the economic environment in developing strategies. Understanding the economic environment of foreign countries can help managers predict trends and events that might affect a company’s performance. Example: When dollar lost its value significantly relative to euro, some department stores in New York City enjoyed sudden increase in revenue as more tourists from Europe visited the city. III.3b) Economic risk or exposure – is the potential of longterm effects on a firm’s profitability and value as the result of changing economic conditions and currency values. Example: Ford motor company has lost substantial market share and profits due to the economic crisis in Europe. III.3c) Assessing economic risks –international companies undertake economic risk analysis to identify potential markets that have growth potentials and minimal risk in terms of downturns that result in losses. Example: Even during the recent global recession, foreign nations invest in the U.S. bonds believing that the U.S. market is still the most stable and reliable one in the world. III.3d) Economic factors – many factors contribute to the growth/decline of an economy. These are: gross domestic product (GDP), defined as the total of all domestic economic activity of a country; inflation defined as the increase in prices of basic commodities; balance of payments (BOP) is a statement that summarizes all economic transactions between one Shannon Hogarty IB 150 Knowledge Base country and the rest of the world; and external debt is the amount of money borrowed by one country from all foreign financial institutions. Example: China surpassed Japan as the second largest economy in 2010 with an average GDP of 10% over the last decade. Rapid economic growth led to a considerable increase in flow of foreign direct investments (FDI) in China. III.3e) Economic integration – is the removal of all trade barriers and factor mobility between countries to facilitate growth. Example: The U.S. entered into a bilateral free trade agreements (FTA) with Panama, Colombia, and South Korea in 2011. These agreements will remove trade barriers (e.g., tariffs) and promote trade between the nations. IV) This is MODULE 4: International Trade and Investments IV.1) Reasons for crossborder trade – if countries trade freely, consumers benefit from cheaper goods and services and higher quality goods because of allocation of the most efficient resources and competition. Example: Because of trade, many Chinese are now able to access many foreign goods such as home appliances and cell phones, which are of higher quality and available at a lower price. IV.2) Trade theories – There are many theories of trade, but the two most often mentioned are theory of absolute advantage and trade theory of comparative advantage. Absolute advantage theory proposed by Adam Smith states that because some countries can produce some goods more efficiently than others, they should specialize in the production of these goods in sufficient volume for their own consumption and the balance for exports to other countries. Meanwhile they should import goods from other countries that might have more efficient production factors. Theory of comparative advantage – is the ability to produce goods and services more cheaply, relative to other goods and services, than is possible in other countries. Example: Absolute advantage If Thailand can produce rice more efficiently than Malaysia, but Malaysia can produce motorcycles more efficiently than Thailand, it will benefit both countries if Thailand could produce enough rice for the two and Malaysia could produce enough motorcycles for the two countries. IV.3) Foreign direct investments (FDI) – foreign direct investments are flows from overseas companies that enable them to control operations in a foreign country or a company. FDI flows are influenced by opportunities offered by foreign operations. FDI flows help countries that receive them to achieve faster economic growth and maintain a more stable currency. Example: In the last ten years, China has received 200 billion dollars in FDI flows that has to some extent fueled its economic growth. IV.4) Trade barriers – are restrictions in the form of tariffs and nontariff barriers (quotas on imports, additional paperwork, more detailed inspection of imported goods, etc.,) that restrict imports through higher prices because of the tariffs. Example: India levies over 120 % tariff on imported automobiles to encourage sales in domestically manufactured automobiles. Shannon Hogarty IB 150 Knowledge Base V) This is MODULE 5: Foreign exchange V.1) Foreign exchange rate and markets – an exchange rate is the price of a currency against another currency. Foreign exchange market is the system through which transactions in various currencies take place. Example: Exchange rate – On December 20th, 2012, one European Euro = US$1.32 V.2) Foreign exchange market – is the market where foreign exchange is traded. Usually by commercial banks, financial institutions specializing in foreign currency trading, and exchanges such Chicago Mercantile Exchange (CME). V.3) Determinants of foreign exchange rates – exchange rates between countries is determined by supply and demand. Example: If the U.S. imports automobiles and electronic goods from Japan the demand for the Yen rises and its value against the dollar appreciates. V.4) Spot rate – spot rate is an exchange rate quoted for immediate delivery and the transaction occurs within two business days. Example: Spot rate A business man traveling from New York to Frankfurt Germany may convert his dollars to European Euro for expenses. If he converts $100 at 1Euro=1.32 dollar, the business man receives 75.76 Euros from a foreign exchange trader at the airport minus the traders fee. V.5) Forward rate is – is a rate quoted today for future delivery (typically 30, 60 or 90 days). Example: Forward rate – a Japanese exporter might sell some goods to an Indian importer with immediate delivery of the goods, but the payment might be due in 30 days. Hence the Indian importer will enter into a forward contract at a preset exchange rate. Forward rates are a good way to hedge against exchange rate fluctuations. VI) This is MODULE 6: Country selection and entry strategies Country selection VI.1) Country risk analysis is an assessment of the political, economic, and financial risk associated with doing business in a foreign country. Risks include sudden and dramatic shifts in trade policies, a weakening or failing economy, civil unrest, government transparency, profit repatriation, and an unstable political regime. VI.2) Entry strategies – international companies have many ways of entering a country to market their products. These include: exports, licensing/franchising, joint ventures, wholly owned subsidiaries, and strategic alliances VI.2a) Exports – are sale of goods or services produced by an international company based in one country to customers that reside in a different country. Many firms begin their global expansion with exports and later switch to another entry mode strategy. (Importing is the opposite of exporting). VI.2b) Benefits of exports Compared to other entry mode strategies, exporting avoids substantial costs of establishing manufacturing operations in the host country and it helps Shannon Hogarty IB 150 Knowledge Base a firm achieve experience curve and location economies. Exporting may not be desirable in situations where transport costs are high or if significant tariff barriers are in place in the importing country. Exporting may also not be beneficial if it is cheaper to produce the goods abroad than it is to produce them in the firm’s home base. Example: Wines made in France are exported to the U.S and many other countries. VI.2c) Export Process – involves the steps that have to be completed in selling goods and services in foreign countries. The steps include country selection, documentary collection including bill of lading, creating letter of credit, negotiations with importers and or distributors, and drawing up sales and other agreements. VI.2d) Reasons for the export process because firms involved in exporting and importing are often times unknown to one another, live in separate countries, speak different languages, and abide by different legal systems, exporters have to be cautious in their approach to exporting. VI.2e) Bill of lading – is a receipt for goods delivered to the common carrier for transportation, contract for the services rendered by the carrier, and a document of title. VI.2f) Letter of Credit (LC) – is one of the most important documents in the export process. The letter of credit provides a guarantee to the exporter that the importer’s bank will make payment for the goods upon presentation of the bill of lading. VI.2g) Dumping is the selling of goods in a foreign market at below their cost of production or “fair” market value using profits from their home market to subsidize prices. This is often done to unload excess production or to drive out existing competition in a market. VI.3a) Definition of licensing/franchising licensing is an arrangement whereby a company (licenser) grants the rights to intangible property like patents, inventions, formula, process, designs, copyrights, and trademarks to another company (licensee) for a specified period of time. The licenser receives a royalty fee from the licensee. Example: in the early 1960s, Xerox licensed its patented xerographic knowhow to FujiXerox. In return, FujiXerox paid Xerox a royalty fee equal to 5% of the net sales revenues that it earned. VI.3b) Franchising is similar to licensing except that it requires a longer commitment. In franchising, the franchiser not only sells intangible property to the franchisee, but also insists that the franchisee abide by the rules of the business. In some cases, the franchiser also assists the franchisee in running the business. The franchiser receives a royalty payment that is usually a percentage of the franchisee’s revenues. Service companies usually opt for franchising. Example: McDonald’s pursues its expansion abroad through franchising. McDonald’s sets down strict rules for the franchisees to operate their restaurants. The rules extend to cooking methods, staffing policy and design and location of the restaurants. McDonald’s also organizes the supply chain and provides management training and financial assistance. VI.3c) Benefits of licensing/franchising – require low developmental investments and cost at a reduced risks. VI.3d) Problems in licensing/franchising lack of control over technology; inability to realize location and experience curve economies; and inability to engage in global strategic coordination. Shannon Hogarty IB 150 Knowledge Base VI.4) Joint ventures VI.4a) What is a joint ventures – joint ventures are investments in which two or more companies share the ownership. Joint ventures are contractual arrangements and can take form as a minority partnership, that is, the foreign company owns less than 50% of the joint venture, or majority partnership where the foreign firm owns more than 50%. Example: General Motors entered China by entering into a joint venture partnership with SAIC Motors of China. VI.4b) Benefits of joint ventures access to local partner’s knowledge; sharing development costs and risks; and can be more politically acceptable in the host country. VI.4b) Problems in joint ventures lack of control over technology; inability to engage in global strategic coordination; and inability to fully realize location and experiences economies. VI.5) Wholly Owned Subsidiaries VI.5a) What is a wholly owned subsidiary in a wholly owned subsidiary, the firm owns 100% of the overseas operations. Wholly owned subsidiaries can be established in a foreign country in two ways. A firm can set up new operations in the foreign country from the ground up (greenfield) or it can acquire a firm and promote its products through that firm (acquisition). Example: Toyota owns 100 percent of its manufacturing operations in UK. VI.5b) Benefits of wholly owned subsidiaries protection of technology; ability to engage in global strategic coordination, and ability to realize location and experience economies. VI.5c) Problems in wholly owned subsidiaries high costs and high risks. In addition, local governments severely restrict wholly owned operations of foreign companies. VI.6) Strategic Alliances VI.6a) Strategic alliances refer to cooperative agreements between potential or actual competitors and can range from formal joint ventures to shortrun contractual agreements. Example: Canon, Minolta, and Nikon camera manufacturers entered into a strategic alliance with film manufacturers Fuji and Kodak to jointly create the Advanced Photo System for cameras and film. Once the development was completed, each partner then marketed the resulting products as his or her own. For example, Kodak called its new film Advantix and Minolta named its new cameras Vectis. VI.6b) Benefits of strategic alliances it facilitates the entry into foreign markets, allows firms to share the fixed costs of developing new products or processes, permits firms to bring together complementary skills and assets that neither company could easily develop on its own; and help to establish technology standards for the industry. VI.6c) Problems with strategic alliances it provides competitors a lowcost route to new technologies and markets and firms can give away more knowledge than it receives. VII) This is MODULE 7: Coordination of international strategic functions Shannon Hogarty IB 150 Knowledge Base In operating in overseas markets, international businesses have to develop functional strategies and coordinate the various activities to be successful. The key functional areas include production and operations management, finance, marketing, human resources, and accounting. VII.1) International production and operations management VII.1a) Factors that affect international production and operations management (POM) – materials and supplies, technological factors, cost and availability of utilities, logistics, and supplier network. Example: Volkswagen in deciding to setup manufacturing facilities in Mexico first considered the supplier network and then only invested in the country. VII.1b) Quality factors in POM – quality is defined as meeting the expectations of a customer. In POM, quality is critical as it could lower costs, reduce waste and make operations more efficient. The most often practiced quality concepts are Total Quality Management (TQM) and Six Sigma techniques. Example: GE attained worldwide dominance in many of its products by adhering to the Six Sigma quality techniques that improved its brand image. VII.1c) Outsourcing – is the practice of using outside suppliers to perform functions that are executed more efficiently by the outside firms. Example: Apple outsourcer’s parts and components for its I Phone and I Pad to manufacturers in China to save on cost. VII.1d) Inventory management – is a management function critical to the continuous flow of supplies and goods that minimizes the cost of maintaining a safe volume of stock. In international business because of distances between suppliers and markets this function takes on an added importance. VII.1e) Economies of scale – is the effect of optimal production capacities that reduces total cost by lowering unit cost as output increases through reduction in fixed costs. Example: In the early 70’s, Japanese automobile manufacturers used to build plants that had capacity far more than the demand for domestic markets, but would produce to full capacity to gain from economies of scale. The excess of the units produced beyond domestic consumption was most often exported to foreign markets. VII.2) International finance function VII.2a) Sourcing of Funds (financing function) – international companies can acquire fund for investments internally from profitable operations or externally by the sale of assets, equity, or borrowing in the capital markets. VII.2b) Evaluating Projects (investment function) projects are evaluated by estimating the expected cash flow, costs, and risks of the project over its economic life. There are several techniques used to evaluate projects including payback period, net present value (NPV), and internal rate of return (IRR). VII.2c) Exchange Rate Management Firms which are involved in international business face foreign exchange risks defined as adverse consequences of unpredictable changes in exchange rates. Shannon Hogarty IB 150 Knowledge Base VII.2d) Exchange rate risks there are three types of exchange rate risk exposure: transaction risks which are related to changes in the exchange rates during the process of single purchases or sales; translation risks which result from the need to translate financial statements from subsidiaries and affiliates in foreign countries into the currency of the home country; and economic risks which is involved with evaluating how exchange rate changes affect the long range earning prospects for the firm in its various overseas operations. VII.2e) Tax Considerations firms conducting international business try to minimize their global tax payments. Achieving this objective is complicated by the fact that tax rates differ greatly between countries. Multinational firms use a variety of techniques to reduce their tax liabilities including transfer pricing manipulation, setting up holding companies in taxhaven countries, and delaying reporting of profits from overseas operations. VII.3) International marketing function VII.3a) Target market selection target market selection (also known as market segmentation) refers to the selection of a homogeneous segment based on characteristics such as demographics within a single country, or alternatively across multiple countries. Example: Automobile companies sell vans and sports utility vehicles (SUV) for parents with small children to help them drive their off springs to various activities. VII.3b) Standardization – is a strategy adopted by international companies to market the same product and applying unified marketing programs across many countries. Example: Nike markets the same products in all countries without changing any characteristics or features of its sneakers. VII. 3c) Customization (adaptation) refers to marketing a company’s product to suit local needs and tastes. Example: General Electric sells different types and models of refrigerators in the U.S. and Europe to accommodate for the different needs and requirements of the customers in the U.S. versus Europe. VII.3d) International branding strategy international branding strategy occurs when a marketer attempts to either create an image of its products or services specific to a single country (customized), or seeks in contrast to come up with a uniform brand image across multiple countries (standardized). Example: One of Proctor & Gamble’s detergent brands is called Tide in the U.S. but Ariel in Europe (customization). All Siemens products are sold under the same name (Siemens) in every country that their products are marketed (standardization). VII.3e) Countryoforigin effect – the positive effects gained by the quality and reputation of products originating from one country. Example: Watches made in Switzerland have an image of high quality and are desired by watch buyers. This applies to any brand of watches made in Switzerland. VII.3f) International pricing issues – are factors that affect the final price paid by buyers of specific goods and services. These factors include demand, cost of production, distribution cost, competitor’s prices, brand image, and regulations. Example: analgesic brands such as Aspirin, Advil, and Tylenol are cheaper in India compared to European countries because of lower cost of manufacturing and lack of copyright laws in India. VII.3g) International distribution issues – distribution helps customers buy goods and services when they want them and where they want them. Many factors affect distribution Shannon Hogarty IB 150 Knowledge Base including distances between manufacturing location and market location, perishability of the product, frequency of purchase, regulations, quality of infrastructure, and bulkiness (size) of the product. Example: rice in the Philippines is distributed by brokers who buy it in bulk from farmers and is mass distributed through retailers such as grocery stores and supermarkets which are owned and operated by locals. VII.3h) International communication issues – because of language issues, cultural norms, and regulations, and availability of media international communication is complex and challenging. International companies have the option to standardize their message content and media choice or customize it to suit local needs. The choice of standardization versus customization depends on the similarities between the home country and the host country on factors such as language, culture, stage of economic development, and so on. Example: GM’s Buick brand is advertised in Canada and the U.S. using same tagline in English, targeted to similar customer demographics, and in similar media. Whereas in China, Buick is targeted to upper class customers in mandarin and its ads appears in glossy magazines. VII. 4) International human resources function and organizational structures VII.4a) Expatriates versus Local Staff a critical question in planning for international human resources is whether to hire local staff or send foreign nationals to the country. Foreign nationals working in a country are called expatriates or expats. A secondary issue concerns the number of expats to be sent to a country. Example: When HSBC hires tellers and bank mangers in its branches in Brazil, it is hiring local staff. On the other hand when it sends a Dutch national to Brazil as the General Manager of its Brazilian operations it is sending an expatriate. VII.4b) Reasons for sending expatriates although sending expatriates for overseas assignment is relatively expensive, international companies utilize expatriates for many reasons including for better control of operations, to fill local talent gaps, for training and development, and protection of technological innovations and intellectual copy rights. Example: Japanese companies like Cannon and Toshiba in general assign a Japanese national to head their operations in other countries to have better control of the local operations as well as use them to train local staff in the Japanese system. VII.4c) Problems in Expatriate Staff Assignment high expatriate failure (early return of an expatriate staff) is a universal problem among international companies. The reasons for high failure rate include culture shock, adjustment issues for spouse and family, language problems, inadequate health facilities, and high crime rate. Example: In the early 1990s many U.S. firms had high failure rate with expatriates sent to Japan due to adjustment problems as well as the attitude of local staff who were used to a workforce that was homogenous. Similarly, often, western female expatriates find it extremely difficult to operate in a maledominated culture such as the Middle East. VII.4d) Centralized organizational structures the degree to which upper level management at the headquarters controls the operations of the subsidiaries. Example: Hyundai motors of Korea are organized with most of the strategic decisions made by the senior executives at the headquarters in Korea. Shannon Hogarty IB 150 Knowledge Base VII.4e) Decentralized organizational structures – the degree to which decisions are made by local managers at the subsidiary level. Example: Country mangers of Unilever group of companies have substantial leeway in deciding strategies for their local operations. VII.5) International accounting function VII.5a) Definition of international accounting – international accounting collects, analyzes, and reports financial data for the both internal and external use. For example, a balance sheet prepared by the accounting department provides a wealth of information for decision makers within the company as well as for investors who are interested in buying that company’s stocks. VII.5b) Role of the international accounting function – refers to the need of firms to understand and accommodate various accounting practices in different countries in which such firms have business operations. For example, the accounting function plays significant roles in determining how financial statements are prepared especially, when accounting standards vary by country, but the final report should reflect the home country’s accounting standards. VII.5c) Attempts to standardize accounting rules – refer to the efforts undertaken by the International Accounting Standards Board (IASB, which represents 79 countries) to harmonize accounting standards across countries. For example, IASB has issued over 30 International Accounting Standards, which requires voluntary compliance by the members due to the difficulty in gaining the requisite votes for enforcement.
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