ib chapter 11

planning: forecast, goal setting, strategies, budget. Organizing: recruit, train, deploy. šDirecting: lead motivate. Controlling: evaluate, compensate

When decision making is concentrated at headquarters and the structure exerts tight control, the system is called centralization. If subsidiaries are granted a high degree of autonomy with loose controls, the structure is referred to as decentralization.

Changes in the competitive environment, to improve efficiency so as to reduce cost, to improve decision making so that line managers can react faster to changing market conditions, To improve coordination between the various units, improve customer relations, To facilitate innovation and introduce new products at a faster rate

-not able to find qualified personnel in host countries; -If involves sensitive areas such as proprietary technology, confidential operational procedures, complex mathematical models, and so on; -When transfer of technology is involved, -when a company is starting up a new operation, introducing a new product, making a major modification to a product or introducing a totally new production process, -to control the subsidiary operations,-To introduce and educate host country personnel with companies’ policies and procedures, -to provide training ground for understanding complexities of managing across diverse environments in preparation for senior postings.

if the international company’s business is affected by local environmental conditions such as cultures, language, business practices, laws, and established relationship, then it is better for the company to hire local staff. the greater the need for local adaptations the better it is for the international company to use local managers because they understand local conditions better than foreign nationals.

while in some parts of the world the unions are weak and may not offer any benefits to the employees in other parts of the world unions may be very powerful and extremely beneficial to employees.

organizational structures (organizational designs) are used by international companies (or any organization) to arrange its business activities in an orderly fashion between its various working units. Organizational structures show where the formal power is vested, what the lines of decision making are, who is responsible for certain activities, and identifies the formal reporting arrangement.

Divisional Structures, šGeographic Structures, šProduct Structures, šFunctional Structures, Matrix Structures, šHybrid Structures

In centralized organizations, most of the power and control of the company is vested at the headquarters. In a decentralized organization, many of the decision making is left to the country-level managers. The actual choice between centralized versus decentralized operations to a large extent depends on the international company’s corporate philosophy, the type of products and services it sells, the size of the company, and host government regulations

american: Inability of spouse to adjust, Manager’s inability to adjust, šOther family problems, šManager’s personal or emotional immaturity, šInability to cope with larger overseas responsibilities. Japanese: expatriates fail due to their inability to adapt to larger overseas assignment, individualistic approaches needed in global business, Difficulties with the new environment, šPersonal or emotional problems, šLack of technical competence, inability of spouse to adjust

Self-Orientation: šPossessing high self-esteem, self-confidence and mental well-being. Others-Orientation: šAbility to develop relationships with host country nationals, willingness to communicate. šPerceptual Ability: the ability to understand why people of other countries behave the way they do, šBeing nonjudgmental and flexible in management style. Cultural Toughness: šRelationship between country of assignment and the expatriate’s adjustment to it

cultural training: Seeks to foster an appreciation of the host country’s culture, Language training: Can improve expatriate’s effectiveness, aids in relating more easily to foreign culture, fosters a better firm image, šPractical training: Ease into day-to-day life of the host country

Local managers/subordinates rate him or her, Headquarter reviews him or her

exchange rates, tariffs, shipping, insurance, regulatory, legal, and cultural issues

When a company established a foreign subsidiary, the financial manager faces additional issues related to borrowing and lending locally. This requires establishing banking relationships, knowledge of capital markets and taxes in each country. .

a subsidiary is an incorporated legal entity in a foreign country that is free standing and operating as a domestic company in that country. A branch is a legal extension of a parent company and is not incorporated in the foreign country.

A correspondent bank will facilitate the transfer of payments for an overseas bank, and the relationship is usually two way. A correspondent bank acts as a liaison between its client and its dealings with banks that are located in the overseas country. It does not accept deposits or engage in other banking activities.

An IBF is technically an offshore unit of an U.S. bank that is located within the United States. Deposits in the IBF are not subject to U.S. banking regulations. An IBF is allowed to accept deposits only from foreigners. It can perform all the functions of an offshore bank. Multinationals prefer to use offshore banks to plan their cash inflows and outflows at a global level.

advance payments, letters of credit, documentary collections and open revolving accounts. In advance payments, the importer faces the risk that the exporter may not deliver goods according to specification. In an open revolving account, the exporter bears all the risk of payment.

A documentary collection is the same as a letter of credit in that a payment is made according to the terms of the contract when the appropriate documents are presented to the bank. However, in a documentary collection, issuing bank does not guarantee the payment as in the case of a letter of credit.

wire transfers, credit cards and paper checks. Wire transfer is the most common form.

The SWIFT number provides an address to a specific bank to send messages about pending payments. The Routing number provides an address of a specific bank to which payment are made. In Europe, the routing number is known as IBAN.

The two major modes of transportation in international business is by sea and air. In some industries, Internet technology has eliminated the need for shipping such as in the publishing industry.

Political risk refers to the likelihood that a foreign government may enact policies that prevent a foreign company from receiving its payments, usually by through legislative actions such as nationalization.

The Eurocurrency market refers to currencies that trade outside the jurisdiction of the home currency. For example, when U.S. dollars are traded outside of the US, they are termed Eurodollars.

International financial managers should be aware that stock exchanges around the world now provide an alternative means for raising capital instead of relying solely on local financial institutions. Multinational companies can also raise money in the United States by placing their stocks with U.S. banks who then issue new stocks denominated in dollars, termed American depository Receipts (ADRs). The stocks enable U.S. investors to trade without worrying about exchange rate conversions.

the U.S. Customs and Border Protection, Office of Foreign Assets Control, International Trade Administration and the Internal Revenue Service.