International Management Chapter 3

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National Context
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National culture and social institutions that influence how managers make decisions regarding the strategies of their organizations
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Social Institutions
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A complex of positions, roles, norms and values organizing relatively stable patterns of human resources that sustain viable societal structures within a given environment
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Key Social Institutions
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Economic system Level of industrialization Religion Education Levels of social inequality
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Economic System
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Is the interrelated network or system of beliefs, activities, organizations and relationships that provide the goods and services consumed by the members of a society
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Capitalist or Market Economy
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Refers to an economic system where production activities are decentralized to private-property-rights holders (or their agents) who carry out those activities for the purpose of making profits in a competitive market
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Socialist or Command Economy
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Is one in which production resources are owned by the state and production decisions are centrally coordinated
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Mixed Economy
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Combines aspects of capitalist and socialist economic systems Certain sectors of the economy are left to private ownership while the state runs others
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Economic Systems Implications for Strategic Multinational Management
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Dominant market type Market transitions
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Dominant Market Type
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Decisions to operate in a country can be made based on the dominant economic type Multinational managers consider a country’s index of economic freedom to determine the extent of its governmental intervention
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Index of Economic Freedom
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Determines the extent of governmental intervention in a country
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Economic Freedom
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Is the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself
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Market Transitions
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Are the changes often experienced by societies that are moving from socialism toward a market-based system
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An Important Component of Market Transitions
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Has been to understand socialism and its effects on both people and organizations in order to better understand the workers’ reactions to market mechanisms
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Understanding Socialism
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Under socialism, most enterprises were only factories, with no need for cost control Often these enterprises did not have any strategic planning, accounting, or marketing departments Central planners guaranteed the survival of these firms – despite their inefficiencies – by setting up prices that were not accurate reflections of costs
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Socialist Societies
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The government is considered as nonfacilitative because it does not provide the structure to ensure that people can depend on interpersonal trust Government officials are actually more likely to have the power to distribute rewards and to make important salary decisions
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Socialist Workers
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Workers tend to develop a severe distrust of each other because they are all competing for the same limited rewards They focused their energies on refining their networks rather than on performance because networks were more likely to help with success
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Multinational Challenges with Socialist Workers
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Managers need to train these workers to trust each other Managers also need to change the mentality that personal relationships are key components of success
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Industrialization
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Refers to the cultural and economic changes that are brought about by fundamental changes in how production is organized and distributed in society
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Levels of Industrialization
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Preindustrial society Industrial society Postindustrial society
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Preindustrial Society
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Agriculture dominates and shapes the economic environment Religious norms and tradition are emphasized and social mobility is discouraged Occupational placement tends to be based on ascription (family background) and social status is largely determined through inheritance Tend to be the least economically developed Tend to provide fewer opportunities Provide relatively cheap labor Tend to have poor infrastructure and business support
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Industrial Society
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Tends to be characterized by the dominance of the manufacturing or secondary sector Reflect the prevalence of technological development that makes rapid economic growth possible Tend to require wider ranges of skills in their workforce relative to preindustrial societies Occupational placement is based on universalistic criteria, such as achievement Favor innovation and individualism Economic achievement becomes the top priority for industrial societies Discipline and achievement-oriented norms predominate Tend to present significant opportunities Tend to have governments that are favorable to businesses Tend to present lower non-market risks
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Postindustrial Society
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Emphasizes the service sector The dominance of employment by the service sector leads to a drastic expansion on the role of formal education due to the need for highly trained workers with specialized skills Productivity and growth tend to come from the generation of knowledge
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What are the Indicators of the Degree of Industrialization
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Economic growth Maintaining discipline
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Inward Oriented Industrialization Efforts
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Is where local industries are promoted to satisfy the domestic market and preserve foreign exchange
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Outward Oriented Industrialization Efforts
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Is where foreign investment is encouraged and export is heavily promoted
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Modern Post-Industrialization
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The emphasis on economic achievement as the top priority is now giving way to an increasing emphasis on the quality of life As a result, people are more likely to adopt values related to individual expression and a movement toward a more humane society
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Religion
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Is a shared set of beliefs, activities and institutions based on faith in supernatural forces Reflects individual wishes and activities
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Religion Types
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Christianity Islam Hinduism Buddism
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The 4 Main Religions make up how much of the world’s population?
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71% of the world’s population Of the remaining 29%, approximately 20% are considered nonreligious
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Christianity
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Is a faith based on the life, teachings, death and resurrection of Jesus, and is the most practiced religion around the world
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Islam
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Is the religion based on the submission of the will to Allah (God) Islam can be traced back to Muhammad, a prophet born in 570 BC
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Hinduism
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Is the acceptance of the ancient traditions of India that are based on the Vedic scriptures
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Buddhism
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Is a religious tradition that focuses primarily on the reality of world suffering and the ways in which all beings can be freed from suffering
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Education
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Consists of the organized networks of socializing experiences which prepare individuals to act in society It is also a central element in the table of organization of society, constructing competencies and helping create professions and professionals
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Educational Systems
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Determine the nature of the workforce, and having an abundant supply of well-educated individuals allows countries to facilitate the absorption of technology from developed countries
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Determining a Countries Education Levels
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Test scores on mathematics and science, as conducted by the International Evaluation of Educational Achievement and International Assessment of Educational Progress, provide a good idea of the quality of a workforce and the educational system’s preference for specific areas
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Social Inequality
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Is the degree to which people have privileged access to resources and positions within societies
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Countries with High Social Inequality
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A few individuals have the ability to control and use important resources This access to resources also enables the select few to use this power to gain access to even more power and in turn to use it to perpetuate inequality May result in more demoralized workers who are suspicious of their exploiters Result in a less-favorable work environment
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Social Inequality Implications for Multinational Management
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Companies are subject to significant criticism for their operations in countries with high social inequalities Many firms endure negative publicity for paying low wages or using child labor, and the high levels of social inequality only magnify the publicity
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How do Companies get an Indication of the Degree of Social Inequality in a Country?
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The GINI Index
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GINI Index
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Measures the degree to which people’s income deviates from a perfectly equal income distribution

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