PAPERS INTERNATIONAL MANAGEMENT
CLASS 2: INTERNATIONAL MANAGEMENT
INCREASING CONNECTEDNESS
• Globalization not now at all
• Wave 1:
o 1870 - 1920
o Electricity and oil
o Major inventions
o Reduction of transportation costs => driver
• Wave 2:
o Since 1991, some say earlier with Thatcher and Reagan
o Especially since 2001 when China became member WTO
o Liberal economic regime in the 1980s
o Technology and ICT revolution
o Reduction of transport costs and lower costs of managing distance
o Production in the cheapest part of the world
o Facilitated by modern technology, managing at a distance
SHIPPING
• Standard 20ft container Rotterdam-Shanghai less than 1000 euros
• Largest ships 400 meters
• Fit 23,000 containers
• Wall from Leuven to Lille
• Average price for renting a ship from Shanghai to somewhere else in the world (image)
o Before Corona => 1000 $ => The
marginal costs are minimized =>
facilitated the idea of a global
factory model, where the world
was just relying on a system
where factories were completely
interdependent
o First warning this would be
dangerous => Fukushima disaster
• One of the things that is happening right now => this perfectly predictive world that we have built over
30 years doesn’t exist => has shifted many executives’ view
• Thinking hard about the supply-chain => don’t know 2nd and 3rd tier suppliers => risks
• Firms are now realizing they might need buffers, instead of just in time => you need another supplier
besides the one in Bangladesh (more expensive) => managing those risks is expensive => inflation is
now structural because of this buffering
,KEY ROLE FOR MULTINATIONAL FIRMS
• Multinational firms are operating in different context and with different risk portfolio
• Market seeking: worldwide consumers
• Efficiency seeking: optimizing value chains
• Natural resource seeking: oil and minerals
• Technology seeking: acquiring knowledge and expertise
OPTIMIZING VALUE CHAINS
Example:
• Production: 90% in China, Korea, Japan
• Ownership: Greece (18%), Japan (11%), China (11%), Singapore (6%), Hong Kong (5%)
• Registration: Panama, Marshall island, Liberia
• Shipbreaking: Pakistan, India, Bangladesh
=> why done in these countries because it is the cheapest
=> Fine slicing of value chains based on efficiency + Disconnecting place from ownership
• One of the things that is happening right now: NGOs are criticizing these practices because the
shipbreaking is done by people in bad working conditions
CHINA AS FACTOR OF THE WORLD
• 2001: China member of the WTO => meant that Chinese firms could start competing with other firms
all over the world
• Number of bilateral trade => line goes up (image)
• Share in worldwide exports
15
• More Chinese MNCs (Huawei, AliBaba)
• Chinese Fortune500 10
• 2003: 10
• 2020: 124 5
Example: Foxconn Technology group
0
•
1970
1980
1990
2000
2010
2018
Taiwanese factor operating in China => makes a
lot of iPhones etc.
• 1988: First factory in Shenzhen in China
o 150 employees
• 2020: 30 industrial parks in China
o 1.2 million employees
• 350 Iphones per minute (!)
• Designed in California, Assembled in China
,INTERNATIONAL MANAGEMENT DEALS WITH
1. Management of firms in a multinational context – study of the MNC => firms are exposed to different
practices across borders
2. Comparison of management practices in firms across countries => even if they are in the same industry, they
are not organized and managed in the same way
Some scholars add non-US studies/studies of firms outside the US. E.g. a study of Belgian firms in Belgium. This
is NOT IM
US bias: Myopic view of the world and use of the US as the global standard – (cf. role of hegemon in Witt’s JIBS
article)
• After WW2, US multinationals became very active => in Europe the Marshall plan
• The 1980: liberalize the economy
o Reduce the tax for the richest
• At the same time that there were more and more multinationals coming from the US, that’s also when
people started to say that we have to copy the management practices of the US => slowly the idea
came that the US is so powerful and the economy is so big that if you are a multinational yourself, you
want to copy these management practices from the US
2 THEORIES
THEORY 1: UNIVERSALISTIC THEORY
• This is not international management, but is the wat neoclassical economics would think
• Management and organization are subject to the same universal “laws” everywhere in the world.
• The key assumption that UT relies on is the fundamental characteristics of human behavior all over
the world.
• If there are cross country differences, these are only temporarily.
• UT assumes one “best” and most efficient model. Countries that do not have that yet will do so over
time.
• It assumes that there is 1 best way to manage, and that countries will start to look alike => in the
1990s this was voiced a lot
US bias
• Americanization as a result of economic power US since WW2 and rise of management theories in
that same period: “might ≠ right”
• American management theory as universal theory?
• Esp. after collapsing Soviet Union
• This created an atmosphere of => there is 1 good universal system
o This was liberal democratic values, free market economy, minimal interference of the state
• Opening 1990 McDonalds Moscow => Fast forward: march 2022
, Deviations in universalistic theory
• Temporal disequilibrium
• Best practices how to manage and organize will just take time to spread for example by firms
mimicking behavior from more efficient firms, or because of trade which forces the least efficient
firms to leave the industry.
• Globalization has often been argued to reduce such cross country differences. No longer: multipolar
world, US hegemony challenged. Chinese management practices? See Witt’s JIBS article
• Now the debate has shifted to a world where everything was possible, to a world to with increasing
constraint
But…
• Z may be context specific, societies may differ in their preferred outcome variable; high profits?
happiness? equality? Environmental protection?
o “Belief systems embody the internal representation of the human landscape. Institutions are
the structure that humans impose on that landscape in order to produce the desired outcome.
Belief systems therefore are the internal representation and institutions the external
manifestation of that representation” (North, 2005: 49-50)
• Managers may have different objective functions depending on context
• Single peak landscape thinking dominates economic theorizing
THEORY 2: PARTICULARISTIC THEORY
• Organization and management in different countries differ fundamentally and require different
explanations.
• Multiple way to organize a firm
• Cross national differences persist because history matters and institutions are path dependent.
• What is efficient and/or legitimate in one setting may not be efficient/legitimate in another setting.
• Multipeak landscape and not a single peak landscape. Cultures and institutions do change, but they
remain place specific.
• E.g.: on average the way a Dutch firm is organized is much more flat (egalitarian culture) => not clear
who the leader is Germany, Belgium => more hierarchical
• Bottom line: what is efficient in one setting, may not be efficient in another country
o What is legitimate in one country, may not be legitimate in another country (e.g.: not graded
system in Sweden)
• Legitimacy and efficiency are the 2 key mechanisms why firms are organized different
Country rankings: A the country level you can observe these differences
• Outcome: e.g.
o GDP per capita, innovation, human capital, entrepreneurship, health..
o Overall prosperity index
• Institutional dimensions: e.g.
o Labor market protection
o Venture capital market
o Pubic-private R&D
o Income taks
CLASS 2: INTERNATIONAL MANAGEMENT
INCREASING CONNECTEDNESS
• Globalization not now at all
• Wave 1:
o 1870 - 1920
o Electricity and oil
o Major inventions
o Reduction of transportation costs => driver
• Wave 2:
o Since 1991, some say earlier with Thatcher and Reagan
o Especially since 2001 when China became member WTO
o Liberal economic regime in the 1980s
o Technology and ICT revolution
o Reduction of transport costs and lower costs of managing distance
o Production in the cheapest part of the world
o Facilitated by modern technology, managing at a distance
SHIPPING
• Standard 20ft container Rotterdam-Shanghai less than 1000 euros
• Largest ships 400 meters
• Fit 23,000 containers
• Wall from Leuven to Lille
• Average price for renting a ship from Shanghai to somewhere else in the world (image)
o Before Corona => 1000 $ => The
marginal costs are minimized =>
facilitated the idea of a global
factory model, where the world
was just relying on a system
where factories were completely
interdependent
o First warning this would be
dangerous => Fukushima disaster
• One of the things that is happening right now => this perfectly predictive world that we have built over
30 years doesn’t exist => has shifted many executives’ view
• Thinking hard about the supply-chain => don’t know 2nd and 3rd tier suppliers => risks
• Firms are now realizing they might need buffers, instead of just in time => you need another supplier
besides the one in Bangladesh (more expensive) => managing those risks is expensive => inflation is
now structural because of this buffering
,KEY ROLE FOR MULTINATIONAL FIRMS
• Multinational firms are operating in different context and with different risk portfolio
• Market seeking: worldwide consumers
• Efficiency seeking: optimizing value chains
• Natural resource seeking: oil and minerals
• Technology seeking: acquiring knowledge and expertise
OPTIMIZING VALUE CHAINS
Example:
• Production: 90% in China, Korea, Japan
• Ownership: Greece (18%), Japan (11%), China (11%), Singapore (6%), Hong Kong (5%)
• Registration: Panama, Marshall island, Liberia
• Shipbreaking: Pakistan, India, Bangladesh
=> why done in these countries because it is the cheapest
=> Fine slicing of value chains based on efficiency + Disconnecting place from ownership
• One of the things that is happening right now: NGOs are criticizing these practices because the
shipbreaking is done by people in bad working conditions
CHINA AS FACTOR OF THE WORLD
• 2001: China member of the WTO => meant that Chinese firms could start competing with other firms
all over the world
• Number of bilateral trade => line goes up (image)
• Share in worldwide exports
15
• More Chinese MNCs (Huawei, AliBaba)
• Chinese Fortune500 10
• 2003: 10
• 2020: 124 5
Example: Foxconn Technology group
0
•
1970
1980
1990
2000
2010
2018
Taiwanese factor operating in China => makes a
lot of iPhones etc.
• 1988: First factory in Shenzhen in China
o 150 employees
• 2020: 30 industrial parks in China
o 1.2 million employees
• 350 Iphones per minute (!)
• Designed in California, Assembled in China
,INTERNATIONAL MANAGEMENT DEALS WITH
1. Management of firms in a multinational context – study of the MNC => firms are exposed to different
practices across borders
2. Comparison of management practices in firms across countries => even if they are in the same industry, they
are not organized and managed in the same way
Some scholars add non-US studies/studies of firms outside the US. E.g. a study of Belgian firms in Belgium. This
is NOT IM
US bias: Myopic view of the world and use of the US as the global standard – (cf. role of hegemon in Witt’s JIBS
article)
• After WW2, US multinationals became very active => in Europe the Marshall plan
• The 1980: liberalize the economy
o Reduce the tax for the richest
• At the same time that there were more and more multinationals coming from the US, that’s also when
people started to say that we have to copy the management practices of the US => slowly the idea
came that the US is so powerful and the economy is so big that if you are a multinational yourself, you
want to copy these management practices from the US
2 THEORIES
THEORY 1: UNIVERSALISTIC THEORY
• This is not international management, but is the wat neoclassical economics would think
• Management and organization are subject to the same universal “laws” everywhere in the world.
• The key assumption that UT relies on is the fundamental characteristics of human behavior all over
the world.
• If there are cross country differences, these are only temporarily.
• UT assumes one “best” and most efficient model. Countries that do not have that yet will do so over
time.
• It assumes that there is 1 best way to manage, and that countries will start to look alike => in the
1990s this was voiced a lot
US bias
• Americanization as a result of economic power US since WW2 and rise of management theories in
that same period: “might ≠ right”
• American management theory as universal theory?
• Esp. after collapsing Soviet Union
• This created an atmosphere of => there is 1 good universal system
o This was liberal democratic values, free market economy, minimal interference of the state
• Opening 1990 McDonalds Moscow => Fast forward: march 2022
, Deviations in universalistic theory
• Temporal disequilibrium
• Best practices how to manage and organize will just take time to spread for example by firms
mimicking behavior from more efficient firms, or because of trade which forces the least efficient
firms to leave the industry.
• Globalization has often been argued to reduce such cross country differences. No longer: multipolar
world, US hegemony challenged. Chinese management practices? See Witt’s JIBS article
• Now the debate has shifted to a world where everything was possible, to a world to with increasing
constraint
But…
• Z may be context specific, societies may differ in their preferred outcome variable; high profits?
happiness? equality? Environmental protection?
o “Belief systems embody the internal representation of the human landscape. Institutions are
the structure that humans impose on that landscape in order to produce the desired outcome.
Belief systems therefore are the internal representation and institutions the external
manifestation of that representation” (North, 2005: 49-50)
• Managers may have different objective functions depending on context
• Single peak landscape thinking dominates economic theorizing
THEORY 2: PARTICULARISTIC THEORY
• Organization and management in different countries differ fundamentally and require different
explanations.
• Multiple way to organize a firm
• Cross national differences persist because history matters and institutions are path dependent.
• What is efficient and/or legitimate in one setting may not be efficient/legitimate in another setting.
• Multipeak landscape and not a single peak landscape. Cultures and institutions do change, but they
remain place specific.
• E.g.: on average the way a Dutch firm is organized is much more flat (egalitarian culture) => not clear
who the leader is Germany, Belgium => more hierarchical
• Bottom line: what is efficient in one setting, may not be efficient in another country
o What is legitimate in one country, may not be legitimate in another country (e.g.: not graded
system in Sweden)
• Legitimacy and efficiency are the 2 key mechanisms why firms are organized different
Country rankings: A the country level you can observe these differences
• Outcome: e.g.
o GDP per capita, innovation, human capital, entrepreneurship, health..
o Overall prosperity index
• Institutional dimensions: e.g.
o Labor market protection
o Venture capital market
o Pubic-private R&D
o Income taks
