International Business Management - Essay Example

? INTERNATIONAL BUSINESS MANAGEMENT Answers …………………. College/ ………….. …………. Q Plant Relocation from U.S to Mexico, Summary Analysis The operation management team of the assembly plant seriously thinks of moving its plant from USA to Mexico, with its strategic vision of uncovering opportunities by directly establishing its business foundation in Mexico. This thought is basically driven by company’s intention to find better marketing opportunities from Mexico and achieve greater competitive advantages as well. Though this decision causes concerns among major stakeholders like employees, suppliers and customers, the company finds it as an opportunity to reduce costs and increase its potential to gain competitive advantages through better manufacturing environment. The analysis of benefits and costs of moving the plant from US to Mexico are detailed below: Strategic Implications of Moving the Plant There can be a number of different reasons behind a company’s thought to move its operation, either completely or partly, to another country. As Plenert (2002) stated, out of various reasons for a company to relocate its operation, advantages of labor cost and total costs are the major drives for US companies to take wise decisions regarding relocations (p. 378). Moving to another country is strategically important as it helps a company gains more competitive advantages, build stronger brand worldwide etc. Benefits of labor cost and total costs are more evident in cases where companies decide to move from a developed country to a developing or under-developed country. Almost all major Multinationals have shown their place in China due to the availability of cheap labor that ensures increased productivity, greater accuracy and more effectiveness in business operation. Relocating the plant from US to Mexico is not only driven by labor or total cost factor. Mexico has attracted manufacturers worldwide due to the proven quality, high productivity, low labor costs and proximity to the US. A company thinking to move from USA to Mexico is therefore basically with an aim to gain advantages of quality, productivity and low-cost labors. Manufacturing costs are found lower in Mexico. Around 50 % of Mexico’s total manufacturing assets are controlled by large Multinationals, mainly in border zones, making these border zones main cities of the country (Hamnett, 1999, p. 261). Moving company’s plant to Mexico thus helps the company gain greater advantages of labor and total cost, greater efficiency and increased productivity. But, if the company doesn’t decide to move, it may not be able to gain greater competitive advantages and ensuring the efficiency in its operation. Social Responsibility of the business in Mexico Social responsibility is perhaps one of the most important buzzwords of today’s business world. No matter whether the business stays in home or goes global, social responsibility is an extremely important factor that determines how good the business is and how far it can be successful. A business should never be a profit-only oriented business, but rather, it must seek to align its values, visions and strategies with needs, views and perceptions of its various stakeholders, including employees, customers, government and wider social interests (Mallin, 2009, p. 1) When the company plans to move its plant from US to Mexico, it is highly important that its management must consider corporate social responsibility. An extensive market research may be required to recognize the tastes, specific requirements and interests of customers that it targets. As Kotler and Lee (2005) noted, social responsibility is a commitment to improve community well-being through discretionary business practices and contributions of business practices (p. 3). The proposed manufacturing plant to be established in Mexico and its operational activities should be able to add values to the community well-being. Business activities that are mandated by law or are justified by law may not alone meet social responsibility, but its contributions should be for society’s good. The social requirements of Mexico people are to be studied and analyzed in order to assess how the company can meet these requirements. Giving proper information to the public, making them aware of various social issues like AIDS, major infections, facilitating better working environment to employees and helping poor by granting them contributions are some of very common social responsibilities that a business is expected to do. Mexican Factory workers; Culture and conditions The Human Resource Department of the company requires to understand behaviour, attitudes and cultural values of Mexican workers when it moves to that country. The company will have large number of workers from Mexico and they, as resources, can be well managed if their perceptions and culture are understood. Pitt and Vargas (1999) stated that Mexican workers are found to have eagerness in factory working and they have proved that they could work in industrial environment (p. 12). Mexican workers can be paid relatively less compared to labors in many other developed countries. Rodriguez and Vincent (1997) noted that Mexican workers are paid less being known to be ‘Mexican wage’. They have been found to be more tractable because they are more likely to accept gratefulness and less likely to join unions (p. 208). Many multinational companies have already positioned their plants for manufacturing in Mexico due to a number of factors, mainly nearness to US and Mexican wage. The relatively less wage to be paid to the Mexican employees has attracted large number of business to establish their business in Mexico and it will continue to increase because, companies that moved to China started facing challenges of increasing wages whereas Mexico wage rate almost remains constant. Q. 2. Ethnocentrism, ethical relativism, and moral universalism. Ethnocentrism Ethnocentrism is a term used to refer the belief and views of a person that his culture is better than or superior to other cultures (Neelankavil and Rai, 2009, p. 62). Ethnocentrism is perhaps a danger that many organizations face from their managers. This attitude is commonly found among managers of multinational companies when they get indulged with other country’s managers and their cultures. Naturally, most people think that others are just like them and thus they assume that others are similar to them rather than different. But, some people think in superior way that they believe that their ways of doing things are right and others are wrong or not preferable ways. Cullen and Parboteeah (2005) emphasized that ethnocentrism occurs when people belonging to a particular culture believe that their cultural values are the only current norms, values and beliefs. Managers with ethnocentrism may look at other people and consider them backward, dirty, wired, stupid and so on (p. 72). Managers with ethnocentric attitude often ignore significant values of host country’s culture and this eventually may cause greater challenges on organization in meeting its objectives like social responsibility and customer focus etc. Ethical relativism Ethical relativism refers to the willingness of people and management in international business to accept different rules for different contexts. It can also be referred as a positive attitudes towards change and others opinions. ‘When in Rome, do as the Romans do’ is a famous slogan that details the concept of ethical relativism (Trevino and Nelson, 2010, p. 413). Cultural relativism is quite opposite to ethnocentrism. Managers who are ready to accept changes are very welcome to most businesses, because this managerial attitude is very critical to business success. This is also termed as cultural relativism, in which, people strongly believe that all cultures are right and none is in preference of the other. As Cullen and Parboteeah (2005) noted that cultural or ethical relativism occurs when people believe that their cultures are not different in values to others’ cultures (p. 72). Ethical relativism claims that when there are two different cultures or two individuals belonging two different cultures and they hold different ethical vies, both can be right. A norm or idea of a person belonging to a culture or religion is right to him as well as to the one who holds ethical relativism. Managers with ethical relativism wont impose their cultural values on others. When a business moves to another country, for instance, from US to Mexico or China, it is highly critical element to its success that its managers must be able to accept the values of the culture in the host country. Otherwise, it gradually will affects adversely on business reputation and its long term dependability. Moral universalism Moral Universalism involves the identification of particular set of ethical standards that have broad international support. It is an ethical position that people with moral universalism believe that some system of ethics applies universally (Luo, 2007, p. 205). Managers with moral universalism believe that fundamental basis for universally applicable ethical codes exist. These ethics are applicable to all humanity. When it comes to a business that went global, management’s attitude to the local cultures and ethics in a way of moral relativism is relatively good from the business, as compared to ethnocentrism. But, Cullen and Parboteeah (2005) stressed that extreme moral universalism has its pitfalls, because the assumption that one can identify universal ethics that all other people should follow may lead to type of ethnocentrism (p. 649). Those managers who assume that they know rights ways of ethics can view the moral systems of foreign cultures as unethical or immoral. Based on this argument, it can be concluded that out of the above detailed three attitudes that are found among managers when working abroad, ethical relativism is far good than two other attitudes. When managers are able to accept others culture based on a belief that cultures are not different and culture in host country makes no difference can lead to bring greater success to the business. Q. 3- Two strategic choices: Comparative advantages and structural elements in implementing them There are a large number of strategies that a business can adopt in its international business. Generic strategy, competitive advantage strategy, differentiation strategy, low-cost strategy, focus strategy, value chain and supply chain strategies are some of the very commonly used international strategies. This part of the paper discusses 1) differentiation strategy and 2) Low-cost strategy. 1- Differentiation Strategy Differentiation strategy is based on finding ways to design and develop products and services to provide superior values to the customers. In order to gain sustainable competitive advantage, a firm may focus on enhancing outstanding product quality, unique product features, innovation, technological advance, high quality service etc (Cullen and Parboteeah, 2005, p. 126). For instance, BMW focuses on high quality and high valued sports cars to provide to the customer. When a business goes global, it is highly important that it must have a specific strategy in order to dominate the market or at least survive the competition. When viewed from the perception of consumers, they find differentiated products as closer but not perfect substitutes. Manufacturers are free to differentiate their products, through innovation, R&D, newer design etc to take account of the particular characteristics of international market. Product differentiation is one of most powerful elements to compete with other firms as well as to survive competition from other firms. 2- Low-Cost Strategy Low-cost strategy is producing products or services almost equal to those of competitors at a lower cost than their costs. Businesses implementing low-cost strategy produce and market products or services very equal to those of competitors, by finding ways to produce them more efficiently and in lower costs (Cullen and Parboteeah, 2005, p. 126). These companies aim at reducing the costs of their manufacturing and other processes without reducing the quality to be delivered to the customers. Companies that target reducing costs and adopt low-cost strategy when going global may find cheap or more availability of raw materials, cheaper labors, use more efficient production methods and adopt more efficient product distribution and marketing methods. For instance, Acer Inc has brought cheaper laptops by reducing their costs and increasing the efficiency of its operation. Comparative Advantage Differentiation strategy seems to be more powerful strategy because it helps a company ensure long term profitability as well as a very strong brand name, brand equity and brand reputation in the market. Low-cost strategy may not be as effective as differentiation strategy, but still, it is highly useful to gain competitive advantages and attract large customer base when the market is quite wider and the opportunity is more. Appropriate structural elements to implement them In implementing any business strategy, there are various structural elements to be considered. For implementing differentiation strategy, market trends, demands for a new line of the existing product, costs involved in developing the product, relative risks associated with and potential markets to be expected are to be considered. In implementing low-cost strategy, the business is required to assess its profitability, pricing, competitor’s pricing strategy, profit margin, proposed sales, average profit per sale and so on are to be considered. Q. 4- Advantages of Ethnocentric, polycentric and global approaches to staffing A firm’s managerial staffing in its global operation time depends on its stage if internationalization and situational factors and it may be any of the four basic staffing methods, namely ethnocentric, polycentric, regiocentric and global approaches (Deresky, 2011, p. 329). Each of these staffing modes have different HR challenges as well as opportunities. Ethnocentric staffing A company uses ethnocentric approach staffing in global operation when it hires expatriates to staff their high-level foreign positions. Most of senior managerial positions will be held by home-country nationals. The basic theory behind this is mode of staffing is that home office views and issues are more likely to take preference over local perspectives and issues (Steers and Nardon, 2006, p. 277). Main advantages of this approach include- a) It is more useful when the firm is at its internationalization stage, b) Useful mainly for filling the key managerial position with people from headquarters (Deresky, 2011, p. 329). c) It is also very useful when company is in its initial stage and to gain more control over the business (Scullion, 2006, p. 18). d) This system requires relatively little efforts by headquarters for recruiting and selecting home country people for higher managerial posts. Polycentric Staffing A firm with polycentric approach staffs its foreign subsidiaries with host country nationals and its home office with parent-country people (Gary, 2010, p. 379). When a company goes global, polycentric approach is more applicable as local managers from host country nationals are hired to various important positions in their own country. These managers will be very familiar with local culture, market structure, competitive levels and various other important elements about market and business environment. Main advantages of polycentric approach include, a) strong familiarity of business activities and management with local people who are familiar with local custom, culture and systems, b) their language fluency and therefore costs are relatively lower, c) relatively less risks in foreign adjustments, d) helpful to get significant support and confidence of local government and people because large number of local people are used for staffing (Vance, Charles and Paik, 2010, p. 173). Global Approach to staffing Global approach or Geo-centric approach is a staffing method in which a firm focuses on placing best qualified person to each position without considering the country they belong to. There can be an international management team and these facilitate greater multicultural environment and more free flow of knowledge among them (Bogardus, 2004, p. 235). According to this approach, most efficient manager is considered for a position he is best fit. Major advantages of this approach include, a) a good combination of efficient managers, b) multicultural environment, c) greater pool of qualified managers, d) helpful to create global executive base, e) managers are likely to be expert in many languages that add values to the company, f) company will be able to reduce its expenses by recruiting managers from a country where ‘wage’ is relatively less. Factors affecting choice of staffing A growing awareness is that most multinational companies find success through effective staffing and strategic recruiting process. Staffing for global operation is relatively complex and the performance of expatriates often become a problem as it will be very costly to the business. Due to a number of difficulties likely to arise, it is highly important that a the business should consider factors that affect the choice of staffing. For any of the different four staffing modes a firm depends for its global operation, the company requires to consider various factors in relation to staffing, managers, employees, costs, profitability, cultural variation etc. The business may go for geo-centric staffing approach if it requires a great blend of efficient mangers and to encourage multi-cultural perspectives in the business. If main target of business going global is to reduce its costs and find more profitability, it may better select global approach rather than other three. If the business feels that its business requires a country’s people for a business which operates in that country, it can select polycentric approach and similarly if business feels that home country nationals are to be considered for higher positions, ethnocentric approach is preferred. References Cullen, J. B and Parboteeah, K. P (2005) Multinational Management, A Strategic Approach, Thomson, South Western Deresky, H (2011), International Management: Managing Across Borders and Cultures: Text and Cases, Seventh Edition, Prentice Hall, Pearson Education.inc Gary, D 92010), Fundamentals Of Human Resource Management: Content, Competencies And Applications, Pearson Education India Hamnett, B. R (1999), A concise history of Mexico, Illustrated edition, Cambridge University Press Kotler, P and Lee, N (2005), Corporate social responsibility: doing the most good for your company and your cause, Illustrated edition, John Wiley and Sons Inc Luo, Y, (2007), Global dimensions of corporate governance, Illustrated edition, Wiley Blackwell Mallin, C.A, (2009), Corporate social responsibility: a case study approach, Illustrated edition, Edward Elgar Publishing Neelankavil, J. P and Rai, A, (2009), Basics of International Business, Illustrated edition, M. 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