Description
Your assignment this week will focus on the case study HSBC in China (p. 563) . We revisit the country of China, this time to look at the financial and banking sectors. China acceded to the World Trade Organization (WTO) in 2001, which was important to integrate China into the global economy. The WTO requirements guaranteed China entry into the important financial sector, setting it on a course to become a financial powerhouse. A case study is a puzzle to be solved, so before reading and answering the specific questions, develop your proposed solution by following these five steps: Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module, which apply to the situation described in the case study. Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers. Describe in some detail the actions that would address or correct the situation. Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks. Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case. Reflecting on this week’s content focusing on ethical leadership, strategy, and alliances, develop an essay responding to the following questions. How has HSBC adapted its global strategy to operate in China, both before and after China’s WTO accession? Discuss HSBC’s strategy for entering and operating in other emerging markets. Where has it found success, and where has it faced setbacks? Why? What are the pros and cons of HSBC’s “Managing for Growth” strategy? For companies that are participating in Saudi Vision 2030, what strategies and tools might they adopt to manage political risks? Your well-written paper should meet the following requirements: Be 5-6 pages in length, which does not include the title page, abstract, or required reference page, which are never a part of the content minimum requirements. Provides strong thought, insight, and analysis of concepts and applications. Start with introduction stating the goals of the assignment concisely. Provide a conclusion summarizing the result and overall thoughts on this case. incorporate specific illustrations or proof to reinforce one’s argument. Use University academic writing standards and APA style guidelines. Support your submission with course material concepts, principles, and theories from the textbook and at least four scholarly, peer-reviewed journal articles.
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Chapter 10
Managing Political Risk, Government
Relations, and Alliances
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Learning Objectives
• Examine how MNCs evaluate political risk
• Present some common methods used for
managing and reducing political risk
• Discuss strategies to mitigate political risk
and develop productive relations with
governments
• Describe challenges to and strategies for
effectively managing alliances
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Russian Roulette: Risks and Political
Uncertainty
• Political uncertainty has long been a part of
doing business in Russia
• Russia’s unpredictable foreign policy actions
have indirectly resulted in financial difficulties
for MNCs
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Russian Roulette: Risks and Political
Uncertainty (continued)
• Many foreign companies have found
themselves incurring huge losses due to lost
business and frozen assets
• Internal rule-changing by the Russian
government poses the potential to lead to
major losses and frustration
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Political Risk
• Unanticipated likelihood that a business’s
foreign investment will be constrained by a
host government’s policies
• Evaluation of the inherent risk of doing
business in emerging economies involves:
– Policy and control mechanisms
– Awareness of the historical treatment of MNCs
within certain nations
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Macro and Micro Analysis of Political
Risk
• Macro political risk analysis
– Reviews major political decisions that are likely to
affect all enterprises in the country
• Micro political risk analysis
– Directed toward government policies and actions
that influence selected sectors of the economy or
specific foreign businesses in the country
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Overseas Expansion
• MNCs need to be wary of the combative
political environment that may exist
• MNCs must:
– Assess political risk
– Install modern security
– Compile crisis plans
– Prepare employees for possible situations
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Expropriation
• Seizure of businesses by a host country with
little, if any, compensation to owners
• Greatest risk – Extractive, agricultural,
infrastructural industries
• Tend to occur in non-Western countries that
are poor, unstable, and suspicious of foreign
multinationals
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Expropriation (continued)
• Strategies to minimize the chances of
expropriation
– Bringing in local partners
– Limiting the use of high technology so that if the
firm is expropriated, the country cannot duplicate
the technology
– Acquiring an affiliate that depends on the parent
company for key areas of the operation
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Comprehensive Framework
• Identifies the various risks and then assigns a
quantitative risk or rating factor to them
• Should consider all political risks and identify
those that are most important
– Categories of political risks
• Transfer risks
• Operational risks
• Ownership-control risks
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Figure 10.1 – Three-Dimensional
Framework for Assessing Political Risk
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Transfer Risk
• Government policies that limit the transfer of
capital, payments, production, people, and
technology in and out of country
– Tariffs on exports and imports
– Restrictions on exports
– Dividend remittance
– Capital repatriation
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Operational Risks
• Government policies and procedures that
directly constrain the management and
performance of local operations
– Price controls
– Financing restrictions
– Export commitments
– Taxes
– Local sourcing requirements
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Ownership-Control Risks
• Government policies or actions that inhibit
ownership or control of local operations
– Foreign-ownership limitations
– Pressure for local participation
– Confiscation
– Expropriation
– Abrogation of proprietary rights
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Nature of Investment
• Conglomerate investment
– Type of high-risk investment in which goods or
services produced are not similar to those
produced at home
• Vertical investments
– Production of raw materials or intermediate
goods that are to be processed into final products
– Run the risk of being taken over by the
government
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Nature of Investment (continued)
• Horizontal investments
– MNC investment in foreign operations to produce
the same goods or services as those produced at
home
– Not likely to be takeover targets
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Special Nature of Foreign Direct
Investment (FDI)
• Relates to the sector of economic activity,
technological sophistication, and pattern of
ownership
– Sectors of economic activity
• Primary sector – Agriculture, forestry, mineral
exploration and extraction
• Industrial sector – Manufacturing operations
• Service sector – Transportation, finance, insurance, and
related industries
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Special Nature of Foreign Direct
Investment (FDI) (continued)
• Can be categorized as one of five types
– Type I – Highest-risk venture
– Type V – Lowest-risk venture
• Risk factor is assigned based on sector,
technology, and ownership
– Primary sector industries have highest risk factor,
service sector industries have next highest, and
industrial sector industries have lowest
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Special Nature of Foreign Direct
Investment (FDI) (continued)
– Firms with technology that is not available to the
government have lower risk than those with
technology that is easily acquired if taken over
– Wholly owned subsidiaries have higher risk than
partially owned subsidiaries
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Managing Political Risk
• Some firms attempt to manage political risk
through a quantification process
– Factors that are quantified reflect:
• Political and economic environment
• Domestic economic conditions
• External economic conditions
– Each factor is given a minimum or maximum
score, and the scores are tallied to provide an
overall evaluation of the risk
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Techniques for Responding to Political
Risk
• Relative bargaining power analysis
• Integrative, protective, and defensive
techniques
• Proactive political strategies
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Relative Bargaining Power Analysis
• MNC works to maintain a bargaining power
position stronger than that of host country
• Gaining bargaining power depends on:
– Host country’s perception of the MNC’s size
– Experience
– Legitimacy
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Integrative Techniques
• Help overseas operations become part of host
country’s infrastructure
– Developing good relations with host government
and other local political groups
– Producing as much of the product locally as
possible with use of in-country suppliers and
subcontractors
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Integrative Techniques (continued)
– Creating joint ventures and hiring local people to
manage and run operations
– Doing as much local research and development as
possible
– Developing effective labor-management relations
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Protective and Defensive Techniques
• Discourage the host government from
interfering in operations
– Doing as little local manufacturing as possible and
conducting all research and development outside
the country
– Limiting responsibility of local personnel and
hiring only those who are vital to operations
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Protective and Defensive Techniques
(continued)
– Raising capital from local banks, host government,
and outside sources
– Diversifying production of the product among a
number of countries
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Proactive Political Strategies
• Leveraging bilateral, regional, and
international trade and investment
agreements
• Drawing on bilateral and multilateral financial
support
• Using project finance structures to separate
project exposure from overall firm risk
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Specific Proactive Political Strategies
• Formal lobbying
• Campaign financing
• Seeking advocacy through the embassy and
consulates of home country
• Formal public relations and public affairs
activities
– Such as grassroots campaigning and advertising
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Managing Alliances
• Partners may be:
– Current or former state-owned enterprises
– Controlled or influenced by government agencies
• Alliance and joint ventures can significantly
improve the success of MNC entry and
operation
• Managing the relationships inherent in
alliances can be challenging
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Alliance
• Arena where both value-claiming and valuecreating activities take place
– Value-claiming – Competitive, distributive
negotiation
– Value-creating – Collaborative, integrative
negotiation
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Alliance (continued)
• Motivating factors to enter into alliances
– Faster entry and payback
– Economies of scale and rationalization
– Complementary technologies and patents
– Co-opting or blocking competition
• Challenge – Managing operations with
partners from different national cultures
– Cultural differences may create uncertainties and
misunderstandings in the relationship
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Successful Management of Alliances
• Depends on situational conditions,
management instruments, and performance
criteria
• Success factors
– Partner selection, cooperation agreement,
management structure, acculturation process,
and knowledge management
• Important aspect – Preparation for the likely
eventual termination of the alliance
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Legal Issues Critical to Termination of
Alliance
• Conditions of termination
• Disposition of assets and liabilities
• Dispute resolution
• Distributorship arrangements
• Protection of proprietary information and
property
• Rights over sales territories and obligations to
customers
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Business Issues Critical to Termination
of Alliance
Basic decision
to exit
People-related
issues
Relations with
the host
government
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Role of Host Governments in Alliances
• Host governments
– Are active in mandating that investors take on
partners
– Require investors to share ownership of their
subsidiaries with local partners
– Play a substantial role in the terms of formation
and dissolution of alliances
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Role of Host Governments in Alliances
(continued)
• Having alliance or joint-venture partners may
be advantageous to MNC entry and expansion
– Seen in highly regulated industries such as
banking, telecommunications, and health care
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Be the Management Consultant
• As an international management consultant,
what advice would you give to a foreign
company looking to move operations into
Brazil?
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Be the Management Consultant
(continued)
• Do you think Brazil still holds the potential for
future growth?
– As an investor, do you think that the “buy low”
mindset applies to Brazil?
• If not, what changes would you like to see before
making any investment in the country?
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Review and Discuss
1. What types of political risk would a company
entering Russia and France face?
– Identify and describe three
– How are these risks similar? How are they
different?
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Review and Discuss (continued 1)
2. Most firms attempt to quantify their political
risk, although without specific weights
– Why is this approach so popular?
– Would the companies be better off assigning
weights to each of the risks being assumed?
•
Defend your answer
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Review and Discuss (continued 2)
3. How has terrorism impacted foreign interest
in Iran and Saudi Arabia, considering the vast
oil reserves that are there?
– How have terrorist attacks affected political
relationships between countries such as the
United States and Russia?
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Review and Discuss (continued 3)
4. If a high-tech firm wanted to set up
operations in Iran, what steps might it take
to ensure that the subsidiary would not be
expropriated?
– Identify and describe three strategies that would
be particularly helpful
– How might proactive political strategies help
protect firms from future changes in the political
environment?
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Review and Discuss (continued 4)
5. What are some of the challenges associated
with managing alliances? How do host
governments affect these?
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Chapter 11
Management Decision and Control
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Learning Objectives
• Provide comparative examples of decision
making in different countries
• Present some of the major factors affecting
the degree of decision-making authority
given to overseas units
• Compare and contrast direct controls with
indirect controls
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Learning Objectives (continued)
• Describe some of the major differences in
the ways that MNCs control operations
• Discuss some of the specific performance
measures that are used to control
international operations
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Global Online Retail: Amazon versus
Alibaba
• Competitive strategies
– Alibaba is a conglomerate, whereas Amazon
specializes in business-to-consumer sales
– Alibaba acts as a facilitator for third-party sellers,
whereas Amazon acts as a direct merchant itself
• Geographic positioning of both companies
affects their potential future growths
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Managerial Decision-Making Processes
• Involves choosing a course of action among
alternatives
• Often linear but looping back is common
• Degree of managerial involvement depends
on the:
– Structure of the subsidiaries
– Locus of decision making
• Can be centralized or decentralized
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Figure 11.1 – Decision-Making Process
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Table 11.1 – Factors That Influence Centralization or
Decentralization of Decision Making in Subsidiary Operations
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Cultural Differences in Decision Making
• How managers view time in the decisionmaking process
– French managers tend to spend ample time on
searching for and evaluating alternatives
– Danish managers want to act first and take
advantage of opportunities
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Cultural Differences in Decision Making
(continued 1)
• Germans and Scandinavian countries both
have codetermination
– Codetermination: Legal system that requires
workers and their managers to discuss major
decisions
– Germans tend to be fairly centralized, autocratic,
and hierarchical
– Swedes focus more on quality of work life and the
importance of the individual in the organization
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Cultural Differences in Decision Making
(continued 2)
• Japanese are different from Europeans
though they employ a long-term focus
– Use the following decision-making processes:
• Ringisei: Decision making by consensus
• Tatemae: Doing the right thing according to the norm
• Honne: What one really wants to do
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Research Findings on Decision Making
• Swedish teams
– Higher team orientation, flatter organizational
hierarchies, and open-minded and informal work
attitudes
– Transparent and less formal decision making
• German teams
– Willing to accept a changed or unpopular decision
and have clearer responsibilities for the individual
– Faster in decision making as it is largely
dominated by the decision authority of an expert
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Total Quality Management (TQM)
• Organizational strategy and accompanying
techniques that result in the delivery of highquality products or services to customers
• Critical to achieve world-class competitiveness
• Has a big impact in the manufacturing area
– Employs concurrent engineering or interfunctional
teams to develop new products
• Used by MNCs to tailor their output to
customer needs
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Total Quality Management Techniques
• Employee empowerment
– Empowerment: Gives individuals and teams the
resources, information, and authority needed to
develop ideas and effectively implement them
• Rewards and recognition
– Merit pay, discretionary bonuses, pay-for-skills
and knowledge plans, plaques, and public
recognition
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Total Quality Management Techniques
(continued)
• Ongoing training
– Takes a wide variety of forms
• Ranges from statistical quality control to team
meetings designed to generate ideas for streamlining
operations and eliminating waste
– Objective is to apply kaizen, which is a Japanese
term for continuous improvement
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Decisions to Attack the Competition
• Examples
– Ford Motor Company’s decision to challenge
other automakers and to be a major player in
developing markets, such as Asia and Africa
– Audi company’s decision to target younger
professionals in established markets
– BMW company’s decision to focus on providing
more options and personalization for consumers
– Mercedes company’s decision to go for a lowestcost strategy
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ISO 9000 Certification
• Indirectly related to TQM
– To ensure quality products and services
• Examines design, process control, purchasing,
service, inspection and testing, and training
• Necessary prerequisite to doing business in
the EU
• Screening criterion for getting business in the
U.S. and around the globe
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Decision Making and Controlling
• Interlinked functions
• Controlling
– Process of evaluating results in relation to plans or
objectives and deciding what action, if any, to
take
– Types of control
• Internal and external control
• Direct and indirect controls
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Figure 11.2 – Models of PC Manufacturing Traditional Model
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