International Management
1. Introduction
International Management?
= “the process of planning, organizing, directing and controlling the organization, which
individuals (managers) use to achieve an organization’s goals when the organization is
involved in cross-border activities or functions outside its nation state”
Cross-border activities:
o International suppliers/customers, export & import
o Outsourcing
o Foreign direct investments (subsidiaries, stores, … located abroad)
o Franchising or licensing abroad (vb. Mcdonalds)
o International Joint ventures (JVs)
o Cross border M&A
Vb. Colruyt Group
Multinational corporation (MNC)
= “a company that operates in its home country, as well as in other countries around the
world + maintains a central office located in one country which coordinates the management
of all of its other offices, such as administrative branches or factories
Largest multinationals:
1. JP Morgan Chase (bank)
2. Berkshire Hathaway Warren Buffet (CEO)
3. Saudi Arabian.
Reasons for internationalization:
Market expansion = access to new customers
o Vb. Coca-cola 2.2 billion servings per day in more than 200 countries
o A “born global” company:
A business organization that seeks to derive significant competitive
advantage from the use of resources and sale of outputs in multiple
countries, designed to think and act globally from the start (not trying
to grow first local)
Access to cheaper & better resources
o Labor costs
A major cost of most businesses (20-70% of gross sales)
Differences in labor costs are significant drivers of internationalization
Variation in labor costs around the world
Belgium very expensive (45,81$ per hour)
Brazil very cheap (2,87$)
o Map of the government AI readiness index how ready is a company for AI
arrival (Mexico less ready than USA)
Managing regulatory environment
o How easy is it to establish and conduct a business? differs in countries
o First place: New Zealand (very easy)
, Risk diversification
Drivers of and barriers to internationalization
Driver:
o Decreasing barriers to cross-border trade and investment
Some countries have reduced tariffs (vb. Tax on import/export)
o Converging of consumer tastes
People around the world want similar products (trends)
o Decrease of transportation and communication costs
Shipping goods around the world has become cheaper and faster
Barriers:
o Significant differences still exist among national markets
o Processes counteracting the globalization
Protectionism: some governments impose tariffs to protect local
industries
Economic nationalism: consumers might prioritize local products over
foreign ones
CAGE Distance Framework
= a tool to help businesses understand the differences between countries and how these
differences might affect international trade
It highlights four types of ‘distance’
1) Cultural distance
Attributes creating distance
- Different languages
- Different religions
- Different social norms
- Different ethnicities
How it affects Industries/products:
o Product design: product features vary by size, standards & packaging
o Marketing strategies
o Customer interactions
2) Administrative distance
Absence of Colonial ties
o Historical relationship between countries (former colonies)
o Vb. French has close ties with former colonies in Africa (trade smoother)
o Vb UK find it easier to work in India due to historical ties and a shared use
of English
Absence of shared monetary or political association
o A shared currency (vb Euro) simplifies transaction between countries
o Fluctuating exchange rates/unstable currencies can create financial risks
Political hostility
o How welcoming a country’s government are toward foreign businesses
o How difficult for foreign firms to enter in a specific country
, Government policies (regulatory and legal environment)
o Rules, regulations that a government implements to control and shape the
business environment
o Vb. Trade policies tariffs, import/export barriers
Institutional weakness
o Lack of strong and effective systems for enforcing laws and supporting
business operations
o Vb. Corruption (businesses may need to pay bribe to obtain permits)
o Inefficient legal systems delay in legal proceedings
Which businesses are affected:
o Producers of staple goods (essential products; vb: water, food, electricity) heavily
regulated
o Large employers
o Large suppliers to government (public goods)
3) Geographic distance
Physical distance
o The actual distance in miles/km between two countries
o time zones
weak transportation or communication links
o availability and quality of roads, ports, airports,
o poor infrastructure increases shipping times & costs
differences in climate
o natural barriers: mountains, deserts, oceans
o extreme weather conditions may impact trade & logistics
o harsh climates or geographical challenges make operations more
expensive
o vb. delivering goods to Sub-Sahara Africa is more challenging than to
center cities
lack of sea and river access
lack of common border
o countries that are closer together often have regional trade agreements
making trade easier
o vb. USA & Canada
How it affects businesses:
o shipping costs
o supply chain efficiency
o availability of resources
, 4) Economic distance
Differences in consumer incomes
o Wealthier countries can afford premium or luxury products
o Lower-income countries may demand budget-friendly goods
Differences in costs and quality of:
o Natural resources
raw materials and energy sources
oil, water, …
o Financial resources
Financial services: loans & investment
o Human resources
o Infrastructure
Physical systems like transportation networks (roads, railways)
Utilities (electricity, water)
Communications infrastructure (internet, telecommunications)
o Intermediate inputs
o Information or knowledge
How it affects businesses:
o Pricing
o Product features
o Market entry strategies need to align with local economy
2. Globalization
Globalization
= “the shift towards a more integrated and interdependent world economy”
the growing economic interdependence of countries worldwide through
o increasing volume and variety of cross border activities
o in goods and services
o international capital flows
o widespread diffusion of technology
1) Globalization of markets
= merging of historically distinct and separate national markets into a single global
marketplace
consequences
o Access to world markets
o Global competition
2) Globalization of production
= sourcing of goods and services from locations around the globe to take advantage
of national differences in the cost and quality of production
Vb. Boeing with production of 787 parts around the world
1. Introduction
International Management?
= “the process of planning, organizing, directing and controlling the organization, which
individuals (managers) use to achieve an organization’s goals when the organization is
involved in cross-border activities or functions outside its nation state”
Cross-border activities:
o International suppliers/customers, export & import
o Outsourcing
o Foreign direct investments (subsidiaries, stores, … located abroad)
o Franchising or licensing abroad (vb. Mcdonalds)
o International Joint ventures (JVs)
o Cross border M&A
Vb. Colruyt Group
Multinational corporation (MNC)
= “a company that operates in its home country, as well as in other countries around the
world + maintains a central office located in one country which coordinates the management
of all of its other offices, such as administrative branches or factories
Largest multinationals:
1. JP Morgan Chase (bank)
2. Berkshire Hathaway Warren Buffet (CEO)
3. Saudi Arabian.
Reasons for internationalization:
Market expansion = access to new customers
o Vb. Coca-cola 2.2 billion servings per day in more than 200 countries
o A “born global” company:
A business organization that seeks to derive significant competitive
advantage from the use of resources and sale of outputs in multiple
countries, designed to think and act globally from the start (not trying
to grow first local)
Access to cheaper & better resources
o Labor costs
A major cost of most businesses (20-70% of gross sales)
Differences in labor costs are significant drivers of internationalization
Variation in labor costs around the world
Belgium very expensive (45,81$ per hour)
Brazil very cheap (2,87$)
o Map of the government AI readiness index how ready is a company for AI
arrival (Mexico less ready than USA)
Managing regulatory environment
o How easy is it to establish and conduct a business? differs in countries
o First place: New Zealand (very easy)
, Risk diversification
Drivers of and barriers to internationalization
Driver:
o Decreasing barriers to cross-border trade and investment
Some countries have reduced tariffs (vb. Tax on import/export)
o Converging of consumer tastes
People around the world want similar products (trends)
o Decrease of transportation and communication costs
Shipping goods around the world has become cheaper and faster
Barriers:
o Significant differences still exist among national markets
o Processes counteracting the globalization
Protectionism: some governments impose tariffs to protect local
industries
Economic nationalism: consumers might prioritize local products over
foreign ones
CAGE Distance Framework
= a tool to help businesses understand the differences between countries and how these
differences might affect international trade
It highlights four types of ‘distance’
1) Cultural distance
Attributes creating distance
- Different languages
- Different religions
- Different social norms
- Different ethnicities
How it affects Industries/products:
o Product design: product features vary by size, standards & packaging
o Marketing strategies
o Customer interactions
2) Administrative distance
Absence of Colonial ties
o Historical relationship between countries (former colonies)
o Vb. French has close ties with former colonies in Africa (trade smoother)
o Vb UK find it easier to work in India due to historical ties and a shared use
of English
Absence of shared monetary or political association
o A shared currency (vb Euro) simplifies transaction between countries
o Fluctuating exchange rates/unstable currencies can create financial risks
Political hostility
o How welcoming a country’s government are toward foreign businesses
o How difficult for foreign firms to enter in a specific country
, Government policies (regulatory and legal environment)
o Rules, regulations that a government implements to control and shape the
business environment
o Vb. Trade policies tariffs, import/export barriers
Institutional weakness
o Lack of strong and effective systems for enforcing laws and supporting
business operations
o Vb. Corruption (businesses may need to pay bribe to obtain permits)
o Inefficient legal systems delay in legal proceedings
Which businesses are affected:
o Producers of staple goods (essential products; vb: water, food, electricity) heavily
regulated
o Large employers
o Large suppliers to government (public goods)
3) Geographic distance
Physical distance
o The actual distance in miles/km between two countries
o time zones
weak transportation or communication links
o availability and quality of roads, ports, airports,
o poor infrastructure increases shipping times & costs
differences in climate
o natural barriers: mountains, deserts, oceans
o extreme weather conditions may impact trade & logistics
o harsh climates or geographical challenges make operations more
expensive
o vb. delivering goods to Sub-Sahara Africa is more challenging than to
center cities
lack of sea and river access
lack of common border
o countries that are closer together often have regional trade agreements
making trade easier
o vb. USA & Canada
How it affects businesses:
o shipping costs
o supply chain efficiency
o availability of resources
, 4) Economic distance
Differences in consumer incomes
o Wealthier countries can afford premium or luxury products
o Lower-income countries may demand budget-friendly goods
Differences in costs and quality of:
o Natural resources
raw materials and energy sources
oil, water, …
o Financial resources
Financial services: loans & investment
o Human resources
o Infrastructure
Physical systems like transportation networks (roads, railways)
Utilities (electricity, water)
Communications infrastructure (internet, telecommunications)
o Intermediate inputs
o Information or knowledge
How it affects businesses:
o Pricing
o Product features
o Market entry strategies need to align with local economy
2. Globalization
Globalization
= “the shift towards a more integrated and interdependent world economy”
the growing economic interdependence of countries worldwide through
o increasing volume and variety of cross border activities
o in goods and services
o international capital flows
o widespread diffusion of technology
1) Globalization of markets
= merging of historically distinct and separate national markets into a single global
marketplace
consequences
o Access to world markets
o Global competition
2) Globalization of production
= sourcing of goods and services from locations around the globe to take advantage
of national differences in the cost and quality of production
Vb. Boeing with production of 787 parts around the world
