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Please write a two-page summary of the materials covered from Chapter 16 to 20 and answer the following questions:

1. What are the key points and skills that I have learned from these five chapters?

2. How do I apply these skills to (1) the country for the Group and (2) my personal Country that I selected?

3. How do I apply these skills to become a better person than before?

4. How do I become a better manager than before?

5. Please also respond to other classmates’ comments.

International Business

Sixteenth Edition

Chapter 6

The Organization of International Business

Learning Objectives (1 of 2)
16-1 Profile the evolving idea of organization in the MNE
16-2 Interpret classical organization structures
16-3 Interpret neoclassical organization structures

Learning Objectives (2 of 2)
16-4 Differentiate the systems used to coordinate
international activities
16-5 Differentiate the systems used to control international
activities
16-6 Explain the purpose and characteristics of
organizational culture

Evolving MNE’s
Objective 16-1
Organizing an MNE
Factors to consider

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 1: Profile the evolving idea of organization in the MNE.
The hierarchical model has routinely organized MNEs’ operations. For many, it defines work life in the modern-day corporation. Now, market trends, design revolutions, and workplace resets pose both opportunities and challenges.
The growth of global business changes MNEs’ opportunity sets and efficiency frontiers.
The Internet, in developing new workplace arrangements, calls for managing new structural formats.
The evolving nature of work changes the conduct and context of employees’ jobs, whether done at the biggest headquarters or the smallest subsidiary. Change in the nature of work changes the nature of management
Competitive changes and performance expectations alter the social contract between high performance workers and MNEs. Traditional concerns for security, pay, and benefits have expanded to expectations of participating in decision-making, devising solutions to unique problems, and receiving challenging assignments.
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Classical Organization Structures
Objective 16-2
Organization Structure
Vertical Differentiation
Centralization
Decentralization
Horizontal Differentiation
Functional
Divisional
Global Matrix
Mixed Structure

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 2: Interpret classical organization structures.
The formal arrangement of roles, responsibilities, and relationships in the MNE represents its organization structure.
Centralization (how high up) versus the decentralization (how low down) decisions will be made. The choice of centralization versus decentralization is not an either-or proposition. Some activities spur centralized decision-making, such as configuring value activities worldwide to exploit location economies or rationalize production systems.
Horizontal Differentiation Vertically speaking, MNEs run from top (the CEO) to the bottom (the entry-level worker). Horizontally speaking, MNEs run sideways from function to function, such as research to production to marketing to finance. Horizontal differentiation involves assigning specific tasks to specific people in specific functions.
Functional structure, as depicted in Figure 16.2, arranges the workplace by business functions (i.e., production people work with production people, marketing people work with marketing people, finance people work with finance people.
Divisional Whereas executives specify roles and relationships in a functional structure in terms of inputs (e.g., oil, natural gas, solar, and coal for an energy producer), they use a divisional structure to specify them according to product (e.g., soap, toothpaste, and cosmetics for a consumer products firm) or markets (e.g., North America, Europe, Africa, and Asia).
Global Matrix The worldwide product division structure centralizes decision-making to improve operational efficiencies. Alternatively, the worldwide area structure decentralizes decision-making to improve local responsiveness. The MNE implementing a global strategy, given its emphasis of integration and standardization, would opt for the former, while an MNE implementing a multi-domestic strategy, given its emphasis of adaptation and responsiveness, would opt for the latter. As we saw in Chapter 12, some MNEs implement the transnational strategy, aiming to ingeniously reconcile global integration and local responsiveness. Organizing workflows to implement this strategy directs management’s attention to the global matrix structure.
Mixed Structure Thus, some MNEs combine features of the functional, geographic, and product structures into a mixed structure.
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Considerations for Centralization vs. Decentralization
Objective 16-2
Figure 16.1 Factors Affecting Organizing Operations

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 2: Interpret classical organization structures.
This figure illustrates the major differences and considerations for a centralization structure versus a decentralized one.
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Functional and Divisional Structure
Objective 16-2
Figure 16.2 The Functional Structure
Figure 16.3 The International Division Structure

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 2: Interpret classical organization structures.
These figures represent and functional structure and divisional structure.
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Matrix Structure
Objective 16-2
Figure 16.6 The Matrix Structure

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Learning Objective 2: Interpret classical organization structures.
These figure represents a Matrix structure.
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Neoclassical Structures
Objective 16-3
Boundaries versus Boundaryless
Network Structure

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Learning Objective 3: Interpret neoclassical organization structures.

Some find the hierarchical architecture of classical structures, designed to maximize command, control, coercion, and compliance, more commonly promotes complexity, bureaucracy, conformity, and inflexibility.
In recourse, some MNEs adopt neoclassical structures to organize different approaches to horizontal and vertical differentiation that broaden relationships, expand communication, and promote collaboration.
Challenge of boundaries In practical terms, boundaries are (1) vertical divisions that separate employees into specific slots, each marked by explicit superior-subordinate roles, in the hierarchy and (2) horizontal divisions that follow from having specific employees do specific jobs in specific units. Boundaryless company, a company where the artificial barriers and walls people are forever building around themselves or each other—for status, security, or to keep change away—are demolished and everyone has access to the same information, everyone pulls in the same direction, and everyone shares in the rewards of winning—in the soul as well as in the wallet.
The network structure, a leading neoclassical format, arranges roles, relationships, and responsibilities in a patterned flow of activity that allocates people and resources to decentralized projects. It t is anchored by a core unit that outsources activities in which it has no core competencies
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Network Structure
Objective 16-3
Figure 16.7 A Network Structure

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 3: Interpret neoclassical organization structures.
This figure shows an example of a network structure.
10

Virtual Organizations
Objective 16-3
Virtual Organization
Technology
“Work across space and time”

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 3: Interpret neoclassical organization structures.
Virtual organization uses technologies to connect otherwise detached entities (from employees to entire enterprises). The neoclassical arrangement between independent companies, suppliers, customers, and even rivals enables them to “work across space, time, and organizational boundaries with links strengthened by webs of communication technologies.
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Coordination Systems
Objective 16-4
What is a coordination System
Coordination by standardization
Coordination by plan
Coordination by mutual adjustment

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 4: Differentiate the systems used to coordinate international activities.
Configuring resources, capabilities, and competencies arranges the strategic architecture of the firm. Making it perform requires, as we saw earlier, setting a structure, and as we see now, coordinating how people and processes work. One way to engage this idea is to think of the configuration process as the MNE placing its pieces atop the global game board. An MNE moves its R&D piece to Sweden, factory piece to Vietnam, logistics piece to the United States, marketing piece to Italy, and the service piece to Malaysia. Once configured, executives specify how these pieces link to and relate with each other. In other words, MNEs develop coordination systems to link the people and processes that run its various ‘pieces.’ Coordination ranges from nonexistent (each piece is independent) to comprehensive (all pieces are interdependent).
Standardizing rules and routines to compel operational consistency has a straightforward mandate: do the same thing, the same way, everywhere. Coordination by standardization attains this goal by specifying the way employees do their jobs, work with one another, and deal with customers.
Coordination by Plan Applying general objectives, extensive guidelines, and sequences and schedules to link people and processes implements coordination by plan. Generally, plans set success factors, specify expectations, assign accountability, and formalize deadlines. They regulate how units accept, adopt, and, where legitimate, adjust tactics. Plans identify participating managers and programs, establish timing and format, and set communication schedules. Unlike coordination by standardization, managers of interdependent units have the latitude to mutually adjust goals and schedules—provided they still hit targets.
Coordination by Mutual Adjustment Some MNEs coordinate people and processes with a personal touch, socially engineering their systems to cultivate relationships among workers that, in turn, promote coordination. Rather than rules and routines in the context of standardization, or objectives and schedules in the context of planning, coordination by mutual adjustment relies on social networking outlooks and methods. Promoting collaboration among coworkers, goes the reasoning, builds systems that support sophisticated strategies.
12

Control Systems
Objective 16-5
What is a control system?
Bureaucratic Control
Market Controls
Clan Control
Control Mechanisms

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 5: Differentiate the systems used to control International activities.
A key function of management is making sure workers are doing what must be done. If not, and productivity is sliding, schedules are slipping, and resources are wasting, then managers step in and correct problems. Control systems, the methods and means of problem correction, are part of a well-designed organization.
Explicit rules and routines that govern activities install bureaucratic control. This control system supports operations that lend themselves to universal rules and exact scripts and, importantly, fits workplaces where rules regiment behaviors.
Market Control Establishing performance benchmarks with external market mechanisms, such as Profitability or market share, installs market controls. Objective standards, not subjective interpretations, control activities.
Clan control relies on values, beliefs, shared norms, and informal relationships to regulate employee behaviors. Its goal is socializing employees to personally identify with the MNE’s vision and mission as they go about their day-to-day routines, thereby necessitating minimal.
Control Mechanisms Effective control requires objective mechanisms. A generation ago, the costs of travel, data exchange, and communication technologies endorsed certain control mechanisms. Improving economics, courtesy of expanding infrastructures and revolutionary technologies make control cheaper, faster, and easier. Reports, visiting subsidiaries, and information systems are all control mechanisms.
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The role of Organizational Culture
Objective 16-6
Organizational Culture Definition
How organizational culture influences people’s jobs
The Power of a Common Cause

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Learning Objective 6: Explain the purpose and characteristics of organizational culture.
Having profiled the roles played by structure and systems in organizing an MNE, we turn to the final design element: organizational culture. In theory, one could profile it from an applied perspective, specifying it as the way things are done in an MNE and evaluating how workers organize around rules, rewards, and punishments.96 Alternatively, we could adopt a philosophical view and assess how organizational culture, as an embedded set of shared values and normative principles, guides actions and sanctions behaviors within the MNE. We opt to integrate these perspectives and define organizational culture as the coherent, consistent system of workplace norms and idealized values that describe the goals and endorse the practice shared by employees.
Everywhere and always, organization culture influences how employees do their job. The importance of organizational culture grows as the rise of emerging economies and maturing growth in the West push managers to rethink strategies and reset operations. Expanding to increasingly diverse markets with increasingly diverse workplace norms calls for boosting the flexibility and versatility of an organization.
The Power of Common Cause Successful MNEs develop a culture that instills in their employees the engagement and enthusiasm beyond that justified solely by economic rewards. Certainly, pay motivates performance. An effective organizational culture, however, stimulates people to identify with the company’s vision, do their jobs well, and collaborate with others while lessening the need to regulate their behaviors with elaborate structures and systems.
14

Company Culture
Objective 16-6
Key features of company culture

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 6: Explain the purpose and characteristics of organizational culture.
Key features of a company’s organization culture include:
Values and principles of management.
Work climate and atmosphere.
Patterns of “how we do things around here,”
Traditions.
Ethical standards.
15

International Business

Sixteenth Edition

Chapter 17

Marketing Globally

Learning Objectives (1 of 2)
17-1 Classify international marketing strategies in
terms of marketing orientations, segmentation,
and targeting
17-2 Discuss the pros and cons of adaptation
versus global standardization of products
17-3 Describe pricing complexities when selling in
foreign markets

Learning Objectives (2 of 2)
17-4 Recognize the advantages and problems of
using uniform promotional marketing practices among countries
17-5 Explain the different branding strategies
companies may employ internationally
17-6 Discern major practices and complications of
international distribution
17-7 Illustrate how gap analysis can help in
managing the international marketing mix

Common Marketing Orientations
Objective 17-1
Production orientation
Sales orientation
Customer orientation
Strategic marketing orientation
Social marketing orientation

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 1: Classify international marketing strategies in terms of marketing orientations, segmentation, and targeting.
Five common marketing orientations can be applied around the world:
Production Orientation Rather than analyzing foreign consumer needs to a high degree, managers concentrate on production by assuming that customers simply want products with lower prices, higher quality, or whatever they sell domestically.
Sales Orientation In a sales orientation, a company sells abroad what it sells domestically by assuming that consumers are sufficiently similar.
Customer orientation What and how can the company sell in country A or to a particular type of consumer? In this case, the country or type of consumer is held constant and the product and marketing method vary. An MNE may most likely take this approach because the country’s size and growth potential or the consumer type is attractive.
Strategic Marketing Orientation Companies committed to continual rather than sporadic foreign sales usually adopt a strategy that combines production, sales, and customer orientations.
Social Marketing Orientation Companies with social marketing orientations pay close attention to the potential environmental, health, social, and work-related problems that may arise when selling or making their products.
4

Segmenting Global Markets
Objective 17-1
Global Segment
By Country
Mixing the Marketing Mix
Mass Markets

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 1: Classify international marketing strategies in terms of marketing orientations, segmentation, and targeting.
Segmenting Global Markets
Global Segment. An MNE may identify some global segments that transcend countries. Each country may have some people within the same segment, but the proportional and actual size of the segment will vary by country.
By Country. Let’s say a company decides to go to the Canadian market. It may modify its global segmentation to fit Canadian nuances, for example by including regional ethnic differences such as Quebec’s and British Columbia’s French and Chinese speakers, respectively.
Mixing the Marketing Mix. A company may hold one or more elements of its marketing functions—prices, promotion, branding, and distribution.
.
Mass Markets. Versus niche markets at the same time, most companies have multiple products and product variations that appeal to different segments; thus, they must decide which to introduce abroad and whether to target them to mass markets or niche segments.
5

Country Adaptation vs. Global Standardization
Objective 17-2
Why Adapt?
Legal considerations
Cultural considerations
Economic considerations

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 2: Discuss the pros and cons of adaptation versus global standardization of products.
Why adapt products to a specific country or region?
Legal considerations such as labeling requirement differences and/or environmental protection regulations,
Cultural considerations Religious differences obviously limit the standardization of product offerings globally, such as the limitation of pork product sales by food franchises in Islamic countries.
Economic considerations might include things like income level and income distribution, and infrastructure.
6

Potential Issues in Pricing
Objective 17-3
Government intervention
Market Diversity
Export Price Escalation
Fluctuations in Currency
Fixed versus Variable pricing

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 3: Describe pricing complexities when selling in foreign markets.
.Government Intervention Every country has laws that affect the prices of goods. Minimum prices are usually set to prevent companies from eliminating competitors and gaining monopoly positions. Maximum prices are usually set so that poor consumers can buy products and services.
Market Diversity Country-to-country variations in demand and competition create natural segments and limitations in pricing possibilities. In terms of culture, a seafood company would sell few sea urchins or tuna eyeballs in the United States at any price, but it can export them to Japan at a high price, where they are considered delicacies.
Export Price Escalation If standard markups occur within distribution channels, lengthening the channels or adding expenses somewhere in the system will further raise the price to the consumer—a situation known as export price escalation.
Fluctuations in Currency Value For companies accustomed to operating with one relatively stable currency, pricing in highly volatile currencies can be extremely troublesome.
Fixed Versus Variable Pricing MNEs often negotiate their export prices with importers. Small firms, especially those from developing countries, frequently give price concessions too quickly, limiting their ability to negotiate on a range of marketing factors that affect their costs:
7

Push-Pull Promotion Decisions
Objective 17-4
Push and Pull Definition
Factors in Push-Pull Decisions

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Learning Objective 4: Recognize the advantages and problems of using uniform promotional marketing practices among countries.
The Push–Pull Mix Promotion may be push, which uses direct selling techniques, or pull, which relies on mass media.
Factors in Push–Pull Decisions.

Type of distribution system.
Cost and availability of media to reach target markets
Consumer attitudes toward sources of information.
Price of the product compared to incomes.
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Standardize Advertising?
Objective 17-4
Advantages of standardizing Advertising
Considerations when standardizing

Advantages of standardized advertising include:
Some cost savings.
Better quality at the country level.
A common image globally.
Rapid entry into different countries.
Translation Selling in a country with a different language necessitates translation unless the advertiser tries to communicate an aura of foreignness.
Legality The legality of advertisements varies mainly because of diverse national views on consumer and competitive protection, civil rights promotion, standards of morality and behavior, and nationalism.
Message Needs An advertising theme may not be appropriate everywhere because of country differences in consumers’ product awareness and perception, the people who make the purchasing decision, and what appeals are most important.
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Global Branding
Objective 17-5
What is a brand?
Global Brands
Considerations

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 5: Explain the different branding strategies companies may employ internationally.
A brand is an identifying mark for products or services.
Some companies, such as Apple, use the same brand and logo for most of their products around the world. This helps develop a global image, especially for customers who travel internationally.
Considerations for using a global brand
Language A brand name may carry a different association in another language.
Country-of-Origin Images Consumers have limited knowledge of the nationality of most brands, and they often misclassify the production origins.
Locational Origin of Names One ongoing international legal debate concerns product names associated with location. The EU protects the names of many European products based on location names, such as Roquefort and Feta cheeses, Parma ham, and Chianti wine.70 It has also pushed for protection against the foreign use of regulated names associated with wines, such as clos, chateau, tawny, noble, ruby, and vintage
Generic and Near-Generic Names Companies want their brands to become household words, but not so much that they become generic, a situation whereby competitors can use the names to call their products. In the United States, the brand names Xerox and Kleenex are nearly synonymous with copiers and facial tissue, but they have nevertheless remained proprietary brands.
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Working with Product Distribution
Objective 17-6
Internalization of distribution?
Factors to determining a internalization strategy
Distribution partnerships as an option

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 6: Discern major practices and complications of international distribution.
Should companies handle their own distribution? Some considerations:
Sales Volume and Cost When sales volume is low, a company usually must rely on external distributors to be more economical. As sales grow, it may handle some distribution itself to gain more control.
Circumstances conducive to internalization include not only high sales volume but also the following factors:
When a product has the characteristic of high price, high technology, or the need for complex after-sales servicing (such as aircraft), the company will probably have to deal directly with the buyer, but may simultaneously use a distributor to identify sales leads.
When the company deals with global customers, especially business-to-business (such as an auto-parts manufacturer selling original equipment to the same automakers in multiple countries), sales may go directly to the global customer.
When the company’s main competitive advantage is its distribution methods, it may control distribution abroad, such as Avon’s direct selling through independent representatives.
Distribution Partnerships
Companies who choose to use distributors:
May need to give incentives.
may use successful products as bait for new ones.
must convince distributors that product and company are viable.
11

What is GAP analysis?
Objective 17-7
Definition of GAP analysis
Types of GAPS

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Learning Objective 7: Illustrate how gap analysis can help in managing the international marketing mix.

Gap analysis, whereby a company estimates potential sales for a given type of product and compares how emphasis on different marketing mix elements can better help it serve prospective customers.
The difference between total market potential and a company’s sales is due to several types of gaps:
Usage—collectively, all competitors sell less than the market potential.
Product line—the company lacks some product variations
Distribution—the company misses coverage by geography or type of outlet.
Competitive—competitors’ sales are not explained by product-line and distribution gaps.
12

GAP Analysis Process
Objective 17-7
Figure 17.3 Gap Analysis

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 7: Illustrate how gap analysis can help in managing the international marketing mix.

This figure illustrates the process of GAP analysis.
13

International Business

Sixteenth Edition

Chapter 18

Global Operations and Supply Chain Management

Learning Objectives (1 of 2)
18-1 Define what is meant by global supply-chain
management
18-2 Describe the different facets of global
operations strategies
18-3 Show how global sourcing is an important
aspect of global supply-chain and operations
management

Learning Objectives (2 of 2)
18-4 Explain how information technology is used in global operations and supply-chain management
18-5 Summarize how quality management is important in global operations

Global Supply Chain Strategy
Objective 18-1
Figure 18.1 An Integrated Global Supply Chain and Operations Strategy
Source: S. Thomas Foster, Scott Sampson, Cindy Wallin, and Scott Webb, Managing Supply Chain and Operations: An Integrative Approach(Pearson Education, Inc., 2016): 2.

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 1: Define what is meant by global supply-chain management.
This figure explains how supply, logistics and operations come together to form a global supply chain strategy.
4

What is Supply Chain Management?
Objective 18-1
Supply Chain Management
Operations Management (Logistics Management)

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 1: Define what is meant by global supply-chain management.
Supply-chain management refers to activities in the value chain that occur outside the company, whereas operations management (also known as logistics management) refers to internal activities.
5

Operations Management Strategy
Objective 18-2
Compatibility
Configuration
Coordination
Control

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 2: Describe the different facets of global operations strategies.
One piece in the supply-chain strategy for both manufacturing and services is operations: the conversion of inputs into outputs. The success of a global operations strategy depends on four key factors: compatibility, configuration, coordination, and control.
Compatibility in this context is the degree of consistency between the foreign investment decision and the company’s competitive strategy. Some companies such as Walmart adopt a low-cost strategy. Others, like Apple, have adopted a differentiation strategy where they design products that are relatively unique.
Manufacturing Configuration In the global supply chain, suppliers transform raw materials into parts which make up the inputs that go into the conversion of parts into final products in the operations management phase.
Coordination is the or integrating of activities into a unified system.15 The activities include everything along the global supply chain, from purchasing to warehousing to shipment. It is hard to coordinate supplier relations and logistics activities if those issues are not considered when the manufacturing configuration is set up.
Control Once the company determines the manufacturing configuration it will use, it must adopt a control system to ensure that company strategies are carried out. Control can be the measuring of performance so a firm can respond appropriately to changing conditions.
6

Global Sourcing Visual
Objective 18-3
Figure 18.2 When a company wants to source raw materials, parts, or components as a function of its global strategy, it’s faced with some key decisions. It may, for example, decide to source components at home, assemble them abroad, and then export the final product to the home market, to foreign markets, or to both.

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Learning Objective 3: Show how global sourcing is an important aspect of global supply-chain and operations management.
Global sourcing is the first step in the process of materials management, which includes obtaining a supply of inputs used in the production process, inventory management, and transportation between suppliers, manufacturers, and customers.
When a company wants to source raw materials, parts, or components as a function of its global strategy, it’s faced with some key decisions. It may, for example, decide to source components at home, assemble them abroad, and then export the final product to the home market, to foreign markets, or to both. This figure shows that process.
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Global Sourcing
Objective 18-3
Outsourcing Definition
Why Global Sourcing?

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Learning Objective 3: Show how global sourcing is an important aspect of global supply-chain and operations management.
Outsourcing, for instance, refers to a situation in which one company externalizes a process or function to another company.
Companies pursue global sourcing strategies for a number of reasons:
To reduce costs through cheaper labor, laxer work rules, and lower land and facilities costs.
To improve quality.
To increase exposure to worldwide technology.
To improve the delivery-of-supplies process.
To strengthen the reliability of supply by supplementing domestic suppliers with foreign ones.
To gain access to materials that are only available abroad, possibly because of technical specifications or product capabilities.
To establish a presence in a foreign market.
To satisfy offset requirements.
To react to competitors’ offshore sourcing practices.
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Major Sourcing Configurations
Objective 18-3
Vertical Integration
Industrial Clusters
Make or Buy Decisions
Supplier Relationships
Conflict Minerals

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Learning Objective 3: Show how global sourcing is an important aspect of global supply-chain and operations management.
Vertical integration occurs when a company owns the entire supplier network, or at least a significant part of it as was the case with Apple before it began to outsource to suppliers and use contract manufacturers.
Utilizing industrial clusters is an alternative way to reduce transportation and transaction costs. Under clustering, buyers and suppliers locate close to each other to facilitate doing business.
Make or Buy Decisions When it comes to production activities, MNE managers struggle with a make-or-buy decision: Which should be performed internally and which could be subcontracted to independent companies? In the case of subcontracting, a company must also decide whether the activities should be carried out in the home market or abroad. This often involves developing a strategy that might be a combination of outsourcing, offshoring, and/or supply chaining.
Supplier relationships are very important but sometimes complicated, especially for MNEs trying to manage them around the world.
Conflict Minerals is a real challenge for U.S.-based MNEs is compliance with a provision in the Dodd–Frank Act that requires companies to disclose the use of certain minerals mined in war-torn or conflict areas, primarily in Africa.
9

Technology in Global Operations
Objective 18-4
EDI (Electronic Data Interchange)
ERP (Enterprise Resource Planning)
RFID (Radio Frequency ID)

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Learning Objective 4: Explain how information technology is used in global operations and supply-chain management.
EDI The key to making a global information system work is getting the relevant information in a timely manner. Apple, for example, has established a B2B (business to business) gateway that all of its suppliers are required to use, which basically allows suppliers to share electronic data with Apple. Many companies use electronic data interchange (EDI) to link suppliers, manufacturers, customers, and intermediaries, especially in the food-manufacturing and car-making industries, in which suppliers replenish in high volumes.
The next wave of technology affecting the global supply chain was the implementation of IT packages known as enterprise resource planning (ERP). Companies such as Oracle, Baan, PeopleSoft, and German software giant SAP introduced software to integrate everything in the back office (the part of the business dealing with internal matters, as opposed to the front office, which deals with the customer). ERP is essential for bringing together the information inside the firm with information from different geographic areas, but its inability to tie in to the customer and take advantage of e-commerce has been a problem.
A newer wave has recently swept the technology scene in the form of radio frequency ID (RFID), a system that labels a product with an electronic tag that stores and transmits
Information on the product’s origin, destination, and quantity. When electronic readers scan the tags by means of radio waves, the data can be rewritten or captured and sent to a computer-network database, which collects, organizes, stores, and moves the data—often in conjunction with an ERP system.

E-Commerce
Objective 18-4
Extranet
Intranet
PTX (Private Technology Exchange)
The Digital Divide

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Learning Objective 4: Explain how information technology is used in global operations and supply-chain management.
Companies with web-based systems usually establish an extranet for suppliers—a linkage to its information system via the Internet—so they can organize production and delivery of parts. The real attraction of the Internet in global supply-chain management is that it not only helps automate and speed up internal processes in a company through an intranet, but also spreads efficiency gains to the business systems of its customers and suppliers.43 A recent development in technology is private technology exchange (PTX), an online collaboration model that brings manufacturers, distributors, value-added resellers, and customers together through the Internet to execute trading transactions and share information about demand, production, availability, and more.
The Digital Divide The challenge in global supply-chain management is that although some networks can be managed through the Internet, others—particularly in emerging markets—cannot because of the lack of technology or low Internet speeds. The use of the Internet varies by location and by industry.
11

What is Quality?
Objective 18-5
Definition of Quality
Zero Defects
Acceptable Quality Level (AQL)

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Learning Objective 5: Summarize how quality management is important in global operations.
Quality can be defined here as meeting or exceeding customer expectations. More specifically, it is conformance to specifications, value, fitness for use, support (provided by the company), and psychological impressions.
Quality also refers to zero defects, an idea perfected by Japanese manufacturers who refuse to tolerate flaws of any kind. Before this strong emphasis on getting rid of defects, many companies operated according to the premise of acceptable quality level (AQL), which held that a few faulty products would be dealt with through repair facilities and service warranties.
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Lean Manufacturing and TQM
Objective 18-5
What is TQM?
TQM and Foreign Sourcing
Kanban System

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Learning Objective 5: Summarize how quality management is important in global operations.
Total quality management (TQM) is a process that stresses three principles: customer satisfaction, continuous improvement, and employee involvement.52 The goal is to eliminate all defects. TQM often focuses on benchmarking world-class standards, product and service design, process design, and purchasing.
Foreign sourcing can create big risks for companies that use lean manufacturing and JIT because interruptions in the supply line can cause havoc. MNEs are becoming expert at meeting the requirements of JIT—ships that take two weeks to cross the Pacific docking within an hour of scheduled arrival, factories that are able to more easily fill small orders, and so on. However, because of distances alone, the supply chain is open to more problems and delays.
The Kanban System One system pioneered by Toyota to facilitate its JIT strategies is the kanban system, named after the Japanese word for “card” or “visible record.” Kanban cards are used to control the flow of production through a factory.
13

Quality Standards
Objective 18-5
Six Sigma
ISO Standards
Industry Specific Standards
Company Specific Standards

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 5: Summarize how quality management is important in global operations.

Six Sigma is an effective statistical approach to quality management developed by Motorola and popularized by General Electric. As a highly focused system of quality control that scrutinizes a company’s entire production system, it aims to eliminate defects, slash product cycle times, and cut costs across the board. The system uses data and rigorous statistical analysis to identify “defects” in a process or product, reduce variability, and achieve as close to zero defects as possible.
General-Level Standards The International Organization for Standardization (ISO) in Geneva was formed in 1947 to facilitate the international coordination and unification of industrial standards. From the beginning, it has partnered with the IEC (International Electrotechnical Commission), which is the originator of global technical standards. It also collaborates with the International Telecommunications Union and the World Trade Organization. As an NGO, the ISO represents a network of standard setters in 161 countries and has established over 21,000 international quality standards.
Industry-Specific Standards In addition to the general standards described earlier, there are industry-specific standards for quality, especially for suppliers to follow.
Company-Specific Standards Individual companies also set their own standards for suppliers to meet if they are going to continue to supply them. Most large MNEs with large supply chains have set and published supply-chain standards, often in the context of a sustainability report.
14

International Business

Sixteenth Edition

Chapter 19

International Accounting and Finance Issues

Learning Objectives (1 of 2)
19-1 Explain the crossroads of accounting and
finance
19-2 Identify the major factors affecting the
development of accounting objectives,
standards, and practices
19-3 Describe international accounting standards
and the process of global convergence
19-4 Demonstrate how companies account for
foreign-currency transactions

Learning Objectives (2 of 2)
19-5 Determine how companies can translate foreign-currency financial statements
19-6 List some of the key international finance functions
19-7 Show how companies protect against foreign- exchange risk

Accounting and Finance
Objective 19-1
The role of the CFO
Controller
Global Financial Challenges

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 1: Explain the crossroads of accounting and finance.
As noted in Chapter 11, the Chief Financial Officer (CFO) of a company is responsible for overseeing the financial activities of a company.2 Working under the CFO, the controller has responsibility for accounting-related activities, providing management with relevant and reliable information, and preparing information for the external users of financial information.
The accounting and finance functions are closely related, with each relying on the other to fulfill its responsibilities. The CFO relies on the controller, or chief accountant, to provide the right information for making decisions, while the internal audit staff ensures that corporate policies and procedures are followed. The internal auditors, the controller, and the CFO work closely with the external auditor to try to safeguard the assets of the business.

Today’s controller is engaged in a variety of activities outside the typical accounting and reporting functions that support the firm’s general strategy such as evaluating potential acquisitions abroad, disposing of a subsidiary or a division, managing cash flow, hedging currency and interest-rate risks, tax planning, internal auditing, and helping to plan corporate strategy.
The types of financial information required in different countries can differ, while companies also have to consider who their audience is: Are they providing financial information only for the local market, or also for users from the broader global capital markets?
Major reporting issues:
Language
Currency
Underlying GAAP on which the financial statements are based
4

Influences on Accounting Standards
Objective 19-2
Figure 19.1 Sources of Influence on Accounting Standards and Practices

Factors Affecting Accounting
Objective 19-2
Cultural Differences in Accounting
Secrecy-Transparency/Optimism-Conservatism Matrix
Figure 19.2 A Disclosure/Assessment Matrix for National Accounting Systems
Source: Based on Lee H. Radebaugh, Sidney J. Gray, and Ervin L. Black, International Accounting and Multinational Enterprises, 6th ed.(New York: John Wiley & Sons, 2002): 51.

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 2: Identify the major factors affecting the development of accounting objectives, standards, and practices.
Cultural Differences in Accounting The differences in measurement and disclosure practices among countries are of special interest to international investors. Measurement means how companies value assets, including inventory and fixed assets, whereas disclosure refers to how and what information companies provide and the level of detail and transparency.
The Secrecy–Transparency/Optimism–Conservatism Matrix Figure 19.2 depicts the accounting practices of various groupings of countries within a matrix of the cultural values of secrecy–transparency and optimism–conservatism. With respect to accounting, secrecy and transparency indicate the degree to which companies disclose information to the public. In the past, countries such as Germany, Switzerland, and Japan tended to have less disclosure (illustrating the cultural value of secrecy) than did more transparent U.S. and British companies (Anglo-Saxon in Figure 19.2) due to their reliance on stock markets.
6

Mutual Recognition and Reconciliation
Objective 19-3
Mutual Recognition
Reconciliation
Forces for Global Standards

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 3: Describe international accounting standards and the process of global convergence.
Before the rise in importance of global capital markets and the move to a common set of accounting standards, it was common for many countries to apply the principle of mutual recognition, whereby a regulator, such as the German Stock Exchange, would accept financial statements provided in U.S. GAAP of a U.S. company wanting to list securities in Germany.
The United States uses two approaches: adoption of U.S. standards or the use of IFRS as established by the International Accounting Standards Board. If a foreign company prefers to list according to their home-country GAAP instead of U.S. GAAP or IFRS, they must provide a statement of reconciliation
Major forces for Global Accounting Standards Despite the many differences in accounting standards and practices around the world, a number of forces are leading to convergence:
A movement to provide information compatible with the needs of investors.
The global integration of capital markets, which means easier and faster access to investment opportunities around the world and, therefore, the need for more comparable financial data.
The need of MNEs to raise capital outside their home-country capital markets while generating as few different financial statements as possible.
Regional political and economic harmonization, such as the efforts of the EU, which affect accounting as well as trade and investment issues.
Pressure from MNEs for more uniform standards to allow greater ease and reduced costs in general reporting in each country.
7

International Accounting Standards
Objective 19-3
Drivers of the development of core standards globally

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 3: Describe international accounting standards and the process of global convergence.
Established in 1973, the International Accounting Standards Committee (IASC), the forerunner of the IASB, began working toward harmonizing standards by issuing a set of International Accounting Standards (IAS) that they hoped anyone in the world could use The turning point in the significance of IAS came in 1995, when the International Organization of Securities Commissions (IOSCO) announced publicly it would endorse IAS if the IASC developed a set of core standards acceptable to it.
FASB and IASB are trying to converge their standards through removing differences in existing standards and engaging in joint projects to develop new standards.
International Financial Reporting Standards (IFRS) When the IASB was organized, all of the old standards from the IASC were adopted, and the Board began to go through each one to upgrade them. Then the Board began to issue the new International Financial Reporting Standards; thus, when we use the term IFRS, we refer to the new standards as well as the old IAS.
The Relationship Between the FASB and the IASB The U.S. Financial Accounting Standards Board (FASB) and IASB have been working closely to achieve a convergence of accounting standards. In 2002, they issued the Norwalk Agreement, pledging their best efforts to remove individual differences between U.S. GAAP and IFRS and undertake joint projects to develop future standards.
8

Accounting for Foreign Currency Transactions
Objective 19-4
Receivables and Payables
FASB Reporting

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 4: Demonstrate how companies account for foreign-currency transactions.
Foreign-currency receivables and payables give rise to gains and losses whenever the exchange rate changes. Transaction gains and losses must be included in the income statement in the accounting period in which they arise.
The FASB requires that U.S. companies report foreign currency transactions at the original spot exchange rate and that subsequent gains and losses on foreign-currency receivables or payables be put on the income statement. The same procedure must be followed according to IFRS.
9

Translating Financial Statements
Objective 19-5
Translation
Consolidation
Current Rate/Temporal Methods

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 5: Determine how companies can translate foreign-currency financial statements.
The process of restating foreign-currency financial statements into U.S. dollars is called translation. The combination of all of these translated financial statements into one is consolidation.
Two Methods: Current-Rate and Temporal Both standards allow companies to use either of two methods in the translation process: the current-rate method (called the closing rate method under IFRS) or the temporal method. The one the company chooses depends on the functional currency of the foreign operation, which is the currency of the primary economic environment in which that entity operates. Whichever method a company uses, it has to determine the proper exchange rate to translate the foreign-currency balances into U.S. dollars.
10

Selecting a Translation Method
Objective 19-5
Figure 19.3 Selecting a Translation Method

International Finance Functions
Objective 19-6
Capital Budgeting
Internal Sources of Funds
Global Cash Management

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 6: List some of the key international finance functions.
Capital budgeting: is the technique that helps the MNE determine which projects and countries will receive its capital investment funds. The parent company must compare the net present value or internal rate of return of a potential foreign project with that of its other projects around the world to determine the best place to invest resources.
Internal Source of Funds: Although the term funds usually means “cash,” it is used in a much broader sense in business and generally refers to working capital—that is, current assets minus current liabilities. From a general perspective, funds come from the normal operations of a business (selling merchandise or services) as well as from financing activities, such as borrowing money, issuing bonds, or issuing shares. They are used to purchase fixed assets, pay employees, buy materials and supplies, and invest in marketable securities or long-term investments.
Global Cash Management answers the following questions
What are the local and corporate system needs for cash?
How can the cash be withdrawn from subsidiaries and centralized?
Once the cash has been centralized, what should be done with it?
12

Risk Exposure
Objective 19-7
Types of Risk Exposure
Strategies for Exposure Management

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 7: Show how companies protect against foreign-exchange risk.
Translation exposure occurs because exposed accounts—those translated at the current exchange rate—either gain or lose value in dollars when the exchange rate changes.
Denominating a transaction in a foreign currency gives rise to transaction exposure because the company has accounts receivable or payable in foreign currency that must be settled eventually.
Economic exposure, also known as operating exposure, is the potential for change in expected cash flows that arises from the pricing of products, the sourcing and cost of inputs, and the location of investments.
Exposure-Management Strategy To adequately protect assets against the risks from translation, transaction, and economic exposure to exchange-rate fluctuations, management must do the following:
Define and measure exposure.
Organize and implement a reporting system that monitors exposure and exchange-rate movements.
Adopt a policy assigning responsibility for minimizing—or hedging—exposure.
Formulate strategies for hedging exposure.
13

International Business

Sixteenth Edition

Chapter 20

International Human Resource Management

Learning Objectives (1 of 2)
20-1 Profile international human resource
management
20-2 Distinguish the perspective of the expatriate
20-3 Differentiate the staffing frameworks used by
MNEs
20-4 Describe expatriate selection

Learning Objectives (2 of 2)
20-5 Appraise expatriate preparation
20-6 Summarize expatriate compensation
20-7 Profile expatriate repatriation
20-8 Describe expatriate failure

IHRM
Objective 20-1
What is IHRM?
What are the characteristics of IHRM?

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 1: Profile international human resource management.
International Human Resource Management (IHRM) shepherds an MNE’s most valued assets—its people. IHRM organizes people within the MNE, developing policies and systems that improve individual productivity and collective performance. Opening and operating a business, whether a small-scale micronational or a vast multinational, requires finding people to implement the strategy, motivating them to perform well, upgrading their skills so they can move on to bigger challenges and, ultimately, retaining them.
IHRM is a performance driver, identifying, developing, staffing, compensating, and retaining the executives that command the requisite skills and outlooks to direct the MNE.
4

Types of Expatriates
Objective 20-2
Local
Expatriate
Home-country National
Parent-country National
Third-Country National
Inpatriate
Transpatriate

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 2: Distinguish the perspective of the expatriate.

This chapter looks at two broad types of executives: locals and expatriates. A local is hired by the MNE in his or her home country to staff the local operations; no special provisions apply to his or her work contract. A German national working in the Berlin office of a German MNE, for example, fits this profile. An expatriate (or “expat”) is an executive sent to work temporarily in a country that is not his or her legal residence. There are various types of expatriates. A home-country national, also known as a parent-country national, is a citizen of the country where the firm is headquartered (i.e., a Brazilian national sent to the Argentinean subsidiary of her Brazilian MNE). A third-country national is neither a citizen of the home nor the host country (i.e., a Malaysian national running the Russian subsidiary of his Australian company). If the Malaysian executive is transferred to the MNE’s Australian headquarters, he is then an inpatriate. Finally, a transpatriate refers to expat lifers who work an ongoing series of international assignments, plan never to return to headquarters, and in extreme cases, profess neither a corporate nor national “home.”
5

Trends in Expatriate Assignments
Objective 20-2
Commuter Assignments
Who goes abroad
Women
Third-country Nationals
Reverse expatriates

So-called commuter assignments post an expatriate for a short span. In extreme cases, it comprises the workweek, with the expat returning home for the weekend—say, shuttling between Paris and Madrid.
Besides duration, who goes abroad changes. Traditionally, expatriates were mid- and upper-level executives sent overseas to develop leadership potential and prepare for greater responsibilities. Effectively, international assignments were career stepping-stones for the MNE’s best and brightest but now expat searches consider older employees, whose children have grown and whose spouses see an international assignment positively, and younger employees, who are single, more mobile, and eager to experience life abroad.
Expanding Scope of Women The gender dimension of expatriate selection evolves. In absolute terms, females compose roughly 20 percent of expatriates.49 Relative growth has been far more dramatic. Since 2001, MNEs in the Asia–Pacific region have seen a sixteen- fold increase in women on international assignments, MNEs in North America have seen nearly a fourfold rise, and Europe has doubled its count.
Growing Scope of Third-Country Nationals MNEs establish operations abroad in increasingly dissimilar markets—say, from the United States to Canada to England to India to Singapore to China to Vietnam. The changing workflow of globalization elevates the role of third-country nationals, who often have the outlook, resourcefulness, and versatility to run operations in diverse locales
Reverse Expatriates The rising importance of emerging markets refines our evolving ideas of expatriates. Historically, MNEs recruited executives in richer countries and assigned them to units in developing countries. Now, talented executives from emerging economies—so-called reverse-expats—are sent straight to richer countries to speed their development.
6

Staffing Frameworks
Objective 20-3
Ethnocentric
Polycentric
Geocentric

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 3: Differentiate the staffing frameworks used by MNEs.
Ethnocentrism occurs when one group places itself at the top of a supposed hierarchy of relevant groups. Hence, the ethnocentric framework signifies the belief that the management principles and business practices used by headquarters are superior to those used in other countries.
Polycentrism is the principle of organizing around different, but equivalently important political, social, or economic centers. Hence, the polycentric staffing framework acknowledges the business practices of foreign centers as philosophically and practically equivalent to those at home. Because business in the home country differs from that in foreign markets, and given intrinsic cross-national equivalency, IHRM adapts policies and systems to the host business environment. Thus, local executives from local units (e.g., home nationals staff headquarters, Russians run Russian subsidiaries, Mexicans run Mexican subsidiaries, and so on.)
Geocentrism is a world-oriented set of attitudes and values that regards humanity as a single entity sharing universal outlooks and orientations. The geocentric staffing framework sees the blunt split of home-, host-, and third-country managers as needless divisions. Rather, it reasons the best way, wherever discovered, works everywhere, whenever applied. IHRM develops talented executives, regardless of their home nations or eventual host market, with the knowledge, skills, and abilities needed to get the job done.
7

Staffing Frameworks: Advantages and Drawbacks
Objective 20-3
Table 20.1 Frameworks to Staff International Operations: Principles and Practices

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 3: Differentiate the staffing frameworks used by MNEs.
This figure illustrates the advantages and drawbacks to each staffing policy.
8

Expatriate Selection Considerations
Objective 20-4
What is expatriate selection?
What skills are required for success?

Screening executives to find those with the highest potential and greatest inclination for a foreign assignment anchors expatriate selection.
Successful expats usually have the following skills and abilities.
Technical competence An enduring selection criteria is an executive’s technical expertise, as indicated by past job performance, and his understanding of how to transfer it to the foreign unit.
Self-orientation An expatriate assignment is marked by ambiguity, uncertainty, and risk. Thrust into challenging situations, an expat’s effectiveness depends upon developing new knowledge, skills, and abilities.
Others orientation International travelers note that new situations in new settings challenge their values and outlooks. Understanding how colleagues, customers, and competitors in the local market see events, rather than criticizing dissimilar perspectives, supports strong performance.
Resourcefulness The precise job descriptions found in the job bank of the home office inevitably give way to far broader responsibilities in foreign subsidiaries. Complicating matters is the fact that the expat usually lacks the battery of resources she commanded at the home office. The call to do many jobs simultaneously requires finding ways to interpret how locals engage the workplace, make decisions, tolerate uncertainty, use power, and build consensus.
Global mindset reflects awareness of differences across countries coupled with a capacity to divine overlapping principles.
9

Successful Expats
Objective 20-4
Figure 20.4 Key Competencies of Expatriates

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 4: Describe expatriate selection.
This figure illustrates the key competencies a successful expat will have.
10

Expat Preparation and Development
Objective 20-5
Pre-departure Programs
In-country Development Programs
Family Matters

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 5: Appraise expatriate preparation.
Predeparture preparation programs Host-country familiarization and cross-cultural orientation anchor most preparation programs. A universal method is education about the way things work in the host country. Topics include politics, laws, economics, workplace practices, business etiquette, logistics options, and social situations.
In-country development programs In-country development efforts, often through mentorship programs, virtual meetings, and executive coaching, support the expatriate.
Family Matters Executives decline expatriate assignments for a variety of reasons, including compensation, security, and quality-of-life concerns. All pale in comparison to the influence of family and partner/spouse/children concerns—executives cite those reasons nearly 70 percent of the time they decline an expat offer.110 Furthermore, a persistent cause of poor performance is the struggles an expatriate’s spouse and children experience adapting to their new home. The foreign assignment is stressful for the expatriate, but the transfer can overwhelm the family. Challenges follow from education concerns, lifestyle adjustments, and families. Assistance with these family matters can make an assignment more successful.
11

Compensation Considerations
Objective 20-6
Conditions and considerations for reasonable salaries

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 6: Summarize expatriate compensation.
Considerations for reasonable salaries.
IHRM’s mission is “keeping the expatiate whole,” setting compensation so that working abroad does not impose additional costs that diminish one’s standard of living.
IHRM devises packages that convince an executive and family to go abroad, reflect the responsibility of the foreign assignment, and ensure that their after-tax income will not fall because of the foreign assignment.
IHRM sets plans that preserve pay equity among peers, promote parity among expatriates, and ensure compensation competes with packages offered by rivals.
IHRM delivers compensation packages that reconcile parent- and host-country financial, legal, and customary practices.
IHRM devises efficiently administered compensation systems and policies. These tasks are formidable and inexorably expand in line with the scale and scope of the international operations.
12

Compensation Plans
Objective 20-6
Types of Compensation Plans
Home based method
Headquarters based method
Host based method
Global market method

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 6: Summarize expatriate compensation.
Types of compensation methods.
Home-Based Method This method bases expatriate compensation on the salary of a comparable job in the expat’s hometown, thereby preserving equity with home-country colleagues as well as simplifying their eventual return.
Headquarters-Based Method This method sets the expatriate’s salary in the terms of a comparable job in the city where the MNE has its headquarters.
Host-Based Method Sometimes called destination pricing, going rate, or localization, this method bases expatriate compensation on the prevailing pay scales in the foreign locale. IHRM starts by setting the expatriate’s salary in terms of a local executive with similar responsibilities.
Global Market Method Variability in the types, conditions, and duration of expatriate assignments, from traditional to commuter to flexpatriate, require IHRM tweak compensation methods.
13

Components of Expat Compensation
Objective 20-6
Figure 20.2 Factors Influencing IHRM in IB

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 6: Summarize expatriate compensation.
This figure shows the variety of aspects in relation to expatriates salary..
14

Repatriation
Objective 20-7
What is Repatriation?
Challenges with Repatriation

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 7: Profile expatriate repatriation.
IHRM drives a cycle of events: selection, preparation, compensation, and repatriation. The latter task is the process of reintegrating an expatriate into the home company upon completion of her foreign assignment, intact, and in good spirits.
Career progression The principal cause of repatriation frustrations is finding the right job for the returning executive.
Changes in personal finance Returning home significantly alters the expat’s finances. Many enjoy rich benefits during an international assignment, living in exclusive neighborhoods, sending children to prestigious schools, employing domestic help, socializing with elites, and still saving a good amount. Returning home to a reasonable compensation plan with far fewer privileges can prove demoralizing
Personal readjustment Return challenges repatriates to readjust to home life.163 Problems emerge as they, and their families, experience reverse culture shock
15

Expatriate Failure
Objective 20-8
Definition
Costs associated with failure

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objective 8: Describe expatriate failure.
Expatriate failure, narrowly defined, is a manager’s premature return home due to poor operational performance.
Expatriate failure is operationally costly, professionally detrimental, and personally stressful.
Some folks, despite best-intentions, do not adjust well to working abroad. In theory, an ideal expatriate’s technical qualification, self-confidence, resourcefulness, and global mindset make her effective anywhere and everywhere.172 For some, this ideal rings hollow given struggles overcoming the operational and lifestyle challenges of the assignment. Sadly, awareness of differences, as one might hear from an executive about to depart Boston for Bangkok, does not confirm the capacity to adapt to the odd, strange, and different. Displacement can lead to nostalgia, culture shock, and depression. Notwithstanding the glamour and rewards, the expatriate lifestyle moves some far beyond their comfort zone. Then, no matter the degree of preparation, a sought-after adventure devolves into a nerve wracking exile.
16

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