1MultinationalManagementInaChangingWorldLearningObjectivesDefinemultinationalmanagement.Understandthecharacteristicsofamultinationalcompany.Understandthenatureoftheglobaleconomyandthekeyforcesthatdriveglobalization.Knowthebasicclassificationoftheworld’seconomies.Identifythecharacteristicsofthenextgenerationofmultinationalmanagers.TheDefinitionof

MultinationalManagementTheformulationofstrategiesandmanagementsystemstotakeadvantageofinternationalopportunitiesandrespondtointernationalthreatsTheNatureofTheMultinationalCompanyAmultinationalcompanyisanycompanythatengagesinbusinessfunctionsbeyonditsdomesticborders.Suchcompaniesmaybelargeorsmall.Mostmultinationalcompanies(MNCs)aremultinationalcorporations.ThelargestMNCsareallpubliccorporations.TheGlobalizingEconomyGlobalization:theworld’seconomiesarebecomingborderlessandinterlinked.Companiesarenolongerlimitedbytheirdomesticboundaries,andmayconductanykindofbusinessactivityanywhereintheworld.Globalizationcreatesachanging,butnotuniform,andnotalwaysstable,environmentforbusiness.NegativesofGlobalizationNotalleconomiesoftheworldarebenefitingequallyorparticipatingequallyintheprocess.Terrorism,wars,andaworldwideeconomicstagnationhavelimitedorreversedsomeaspectsofglobalization.Globalizationproducesascarcityofnaturalresources,environmentalpollution,negativesocialimpacts,andincreasedinterdependenceoftheworld’seconomies.Globalizationmaybewideningthegapbetweenrichandpoorcountries.TheBenefitsofGlobalizationGlobalizationresultsinlowerpricesinmanycountries,asmultinationalsbecomemoreefficient.GlobalizationbenefitsmanyemergingmarketssuchasIndiaandChina,asthesecountriesenjoygreateravailabilityofjobsandbetteraccesstotechnology.GlobalizationisthemajorreasonwhymanynewcompaniesfromMexico,Brazil,China,India,andSouthKoreaarethenewdominantglobalcompetitors.TheGlobalizingEconomy:

7KeyTrendsFalling,disintegratingbordersGrowingcross-bordertradeandinvestmentTheriseofglobalproductsandglobalcustomersTheinternetandinformationtechnology(IT)Privatizationsofformerlygovernment-ownedfirmsNewcompetitorsintheworldmarketTheriseofglobalstandardsforqualityandproductionCountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(1of4)DevelopedCountries(theArrived)havematureeconomieswithsubstantialpercapitaGrossDomesticProduct(GDP),internationaltradeandinvestments.E.g.,theUnitedStatesofAmerica,Britain,Japan,Germany,andmanyothersCountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(2of4)DevelopingCountries/Regions(theComing)haveeconomiesthathavegrownextensivelyoverpasttwodecades.E.g.,Singapore,Malaysia,Indonesia,Thailand.CountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(3of4)Transitioneconomies(theComing)arecountriesthathavechangedfrommostlycommunistsystemstomarket/capitalisticsystems.E.g.,theCzechRepublic,Hungary,Poland,RussiaCountriesoftheWorld:

TheArrived,TheComing,

andTheStruggling(4of4)EmergingMarkets(theComing)arethosecountrieswhoseeconomiesaregrowingrapidly.E.g.,Brazil,Russia,India,&China(BRIC)BordersareDisintegrating:TheWorldTradeOrganization(WTO)In1947,nationsmettoreducetariffsfrom45%tolessthan7%;thesenegotiationsresultedintheGeneralAgreementonTariffsandTrade(GATT).In1986,negotiationsbeganinUruguaytocontinuereducingtariffs.TheWorldTradeOrganization(WTO)succeededGATT.WTOprovidesstructureforcontinuednegotiationsandsettlingtradedisputesamongnations.WorldTradeOrganizationIn1997,WTOcountriesagreedtoendtariffsonsoftware,computersandrelatedproducts;hi-techexportstoEuropefromAsiaandtheUSdoubled.SinceGATT,worldtradehasgrownatmorethanfourtimestheoutputoftheworld’sGDP.SomesayWTOfavorsdevelopednations,encouragesenvironmentaldamage,andmovesjobsfromhigher-savecountriestolower-wagecountries.RegionalTradeAgreements

(1of2)RegionalTradeAgreementsareagreementsamongnationstoreducetariffsanddevelopsimilartechnicalandeconomicstandards.Thethreelargestaccountforhalftheworld’strade:theEuropeanUnion(EU)theNorthAmericanFreeTradeAssociation(NAFTA),andtheAsia-PacificEconomicCooperation(APEC)RegionalTradeAgreements

(2of2)TheEuropeanUnion(27Europeannations,andgrowing)allowsfreemovementofgoodsandservicesandacommoncurrency(EMU).TheNorthAmericanFreeTradeAgreement(NAFTA)linkingtheUS,Canada,andMexico,allowsthefreerexchangeofgoodsandservices.TheAsia-Pacific-EconomicCooperation(12Asiannations)withgoalsforfreetradeby2020.SellAnywhere,LocateAnywhere:TradeGrowing,butSetbacksWorldtradegrewanaverageof6.5%peryearbetween1990and2000,slowedto4%in2004,grewagainto6%in2005andto8.5%in2006.WTOreportstheglobaleconomyissufferingfromaverysevereslowdown.EUcountriesaresufferingtheworstdebtcrisistheyhaveeverfaced.Changeinimports&exportshigherfordevelopingandemergingeconomiesthanfordevelopedeconomies.SellAnywhere,LocateAnywhere:ForeignDirectInvestment(FDI)ForeignDirectInvestment(FDI)occurswhenamultinationalcompanyfromonecountryhasanownershippositioninanorganizationalunitlocatedinanothercountry.FDIincreasedbymorethan36%from1996-2000.Since2001,therehasbeenadeclineinFDI,butwillprobablyresumeitssteadygrowth.EmergingmarketswillcontinuetoattractFDI.ForeignDirectInvestmentDevelopingcountriesprovideopportunitiesandrisks.MNCsshouldconsidertwotypesofrisk:Economicrisk:includesallfactorsofanation’seconomicclimatethatmayaffectaforeigninvestor.Politicalrisk:anythingagovernmentmightdoornotdothatmightadverselyaffectacompany.TheInternetandInformationTechnology(1of2)Emailandtheinternetallowmultinationalstocommunicatewithcompanysitesthroughouttheworld.Textandgraphicinformationcanflowtoanypartoftheworldalmostinstantaneously.Headquarters,R&D,manufacturingcanbelocatedanywhereintheworld.Informationtechnologyisspurringaborderlessfinancialmarket.TheInternetandInformationTechnology(2of2)Informationtechnologiesmakeavailablemanynewtoolsthatfacilitatebusinessoperations:WorldwidecommunicationusingVoice-Over-InternetProtocol(VOIP)systemssuchasSkype,MSNMessengerandAOLiscost-effective.CollaborativenetworkscanbeprovidedbyWIKIfirmsatverylowcost.InformationcanbeobtainedbyincreasinglysophisticatedsearchengineslikeGoogle.TheRiseofGlobalProductsandGlobalCustomersTheneedsofcustomersformanyproductsandservicesaregrowingmoresimilarE.g.,McDonald’s,Boeing,Toyota.Globalcustomerssearchtheworldfortheirsupplieswithoutregardfornationalboundaries.Thesefactorslinkeconomiesbecausecompaniescanproduceoneproductforeveryone,andanyonecanbuyanythingfromanywhere.NewCompetitors(1of2)Freemarketreformsarecreatingapotentialgroupofnewcompetitors.Thesecompanieshavesurvivedbrutalcompetitioninlocalmarkets,andareabletodealwithcompetitionfromwesternMNCs.Theyhavedevelopedstrategiestogenerateprofitsatverylowprices.NewCompetitors(2of2)Globaltradehastwoimportanteffectsindevelopingnewcompetitors:Whendevelopingcountriesareusedaslow-wageplatformsforhigh-techassembly,multinationalsfacilitatethetransferoftechnology.Assemblersmaybecomebuildersandcreatorsoftechnology.Aggressivemultinationalsfromemergingmarketsarealsoexpandingbeyondtheirownborders.TheRiseofGlobalStandards(1of2)Whenaproductstandardisacceptedgloballyorregionally,companiescanmakeoneoronlyafewversionsofaproductfortheworldmarketratherthanhundreds.Productsaredevelopedtoaccommodatedifferentregionalstandards,suchaselectricalcurrents&plugs.Thecompanythatcanestablishitsstandardasdominanthasatremendousstrategicadvantage.TheRiseofGlobalStandards(2of2)ThedriveforconsistencyinqualityledtotheInternationalorganizationforstandardization(ISO)inGeneva,Switzerland.ISOdevelopedtechnicalstandardsknownasISO9001:2000,adoptedbylawinEurope.ManylargeEuropeanMNCsnowrequireISOcertification.CorporateSocialResponsibilityandBusinessEthics(1of2)Despitetheirsizeandclout,MNCsfaceincreasedpressuretobesociallyresponsiblefromboththemediaandthepublic.Mindfulofrankingsonethics,proactiveMNCspaycloseattentiontotheseissues,andtakeappropriateaction.CorporateSocialResponsibilityandBusinessEthics(2of2)SomeMNCsarebecomingmoreproactiveinrespondingtosocialandethicalissuesthatarisefromtheiroverseasoperations.Someissuesare:ClimatechangeEnvironmentaldegradationandpollutionSweatshopconditionsforlaborBriberyTheNextGenerationofMultinationalManagers(1of2)ThesuccessfulMultinationalManagerneedsthesecharacteristics:AglobalmindsetEmotionalintelligenceAlong-rangeperspectiveThetalenttomotivateallemployeestoachieveexcellenceTheNextGenerationofMultinationalManagers(2of2)CharacteristicsofthesuccessfulMultinationalManager(continued):AccomplishednegotiationskillsAwillingnesstoseekoverseasassignmentsAnunderstandingofnationalculturesMultinationalManagement:

AStrategicApproachYoumaywellfindyourselfamultinationalmanager;foreigncompetitionanddoingbusinessinforeignmarketsaredailyfactsoflifefortoday’smanagers.Competingsuccessfullyrequiresastrategicapproach;formulateandimplementyourstrategy.Multinationalstrategiesmustincludemaneuversthatdealwithoperatinginmorethanonecountryandculture.Positionyourselfforanevolvingglobaleconomy.TrendsShapingThe

FutureBusinessEnvironmentInformulatingyourstrategy,considerthetrendsthatwillshapethefuturebusinessenvironment:BlurringofindustryboundariesTheneedforflexibilitymorethansizeTheneedtofindyournicheHypercompetitionEmphasisoninnovationandthelearningorganizationSummaryChapter1provideskeybackgroundinformationtosupportstudyofmultinationalmanagement.Worldeconomiesareincreasinglylinked,creatingboththreatsandopportunities.NewcompetitorsarecomingfromdevelopingnationsinAsia,theAmericas,andEasternEurope.Multinationalmanagersneedaglobalmindset,andstrategiesforsucceedingindifferentnationsandcultures.2CultureandMultinationalManagementLearningObjectives(1of2)Definecultureandunderstandthebasiccomponentsofculture.Identifyinstancesofculturalstereotypingandethnocentrism.Understandhowvariouslevelsofcultureinfluencemultinationaloperations.LearningObjectives(2of2)ApplytheHofstede,GLOBE,and7dmodelstodiagnoseandunderstandtheimpactofculturaldifferencesonmanagementprocesses.Appreciatethecomplexdifferencesamongculturesandusethesedifferencestobuildbetterorganizations.Recognizethecomplexityofunderstandingnewculturesandthedangersofstereotypingandculturalparadoxes.WhatisCulture?(1of2)Pervasiveandsharedbeliefs,norms,values,andsymbolsthatguidetheeverydaylifeofagroup.Culturalnorms:bothprescribeandproscribebehaviorsWhatwecanandcannotdo.Culturalvalues:whatisgood,whatisbeautiful,whatisholy,andwhatarelegitimategoalsforlife.WhatisCulture?(2of2)Culturalbeliefs:representourunderstandingsaboutwhatistrue.Culturalsymbols,stories,andrituals:communicatethenorms,values,andbeliefsofasocietyoragrouptoitsmembers.Cultureispervasiveinsociety:affectsallaspectsoflife.Cultureisshared:similarityinvalues,beliefs,norms.ThreeLevelsofCulture(1of2)Nationalculture:thedominantculturewithinthepoliticalboundariesofthenation-state.Buttheremaybesubcultureswithinthenationalculture.Businessculture:norms,values,andbeliefsthatpertaintoallaspectsofdoingbusinessinaculture.Tellspeoplethecorrect,acceptablewaystoconductbusinessinasociety.ThreeLevelsofCulture(2of2)3.OccupationalandorganizationalcultureOccupationalculture:thenorms,values,beliefs,andexpectedwaysofbehavingforpeopleinthesameoccupationalgroup,regardlessofemployer.Organizationalculture:thesetofimportantunderstandings(oftenunstated)thatmembersofanorganizationshare.CulturalDifferencesand

BasicValuesThreediagnosticmodelstoaidthemultinationalmanager:HofstedemodelofnationalcultureGlobalLeadershipandOrganizationalBehaviorEffectiveness(GLOBE)project7dculturemodelHofstede’sModelof

NationalCultureFivedimensionsofbasicculturalvalues:PowerdistanceUncertaintyavoidanceIndividualismMasculinityLong-termorientationHofstede’sModelAppliedtoOrganizationsandManagement

(1of2)FivemanagementpracticesconsideredinthediscussionofHofstede’smodelinclude:1. HumanresourcesmanagementManagementselectionTrainingEvaluationandpromotionRemunerationHofstede’sModelAppliedtoOrganizationsandManagement

(2of2)2.Leadershipstyleshowleadersbehave3.Motivationalassumptionsbeliefsrehowpeoplerespondtowork4.Decisionmakingandorganizationaldesignhowmanagersmakedecisionsandorganize5.StrategyeffectsofcultureonselectingstrategiesPowerDistance(1of2)Powerdistanceconcernshowculturesdealwithinequalityandfocuseson:Normsthattellsuperiors(e.g.,bosses)howmuchtheycandeterminethebehavioroftheirsubordinatesThebeliefthatsuperiorsandsubordinatesarefundamentallydifferentkindsofpeoplePowerDistance(2of2)Highpowerdistancecountrieshavenorms,values,andbeliefssuchas:Inequalityisfundamentallygood.Everyonehasaplace:somearehigh,somearelow.Mostpeopleshouldbedependentonaleader.Thepowerfulareentitledtoprivileges.Thepowerfulshouldnothidetheirpower.UncertaintyAvoidanceUncertaintyAvoidance:Norms,values,andbeliefsregardingtoleranceforambiguity:Conflictshouldbeavoided.Deviantpeopleandideasshouldnotbetolerated.Lawsareveryimportantandshouldbefollowed.Expertsandauthoritiesareusuallycorrect.Consensusisimportant.IndividualismIndividualism:Focusisontherelationshipbetweentheindividualandthegroup.Countrieshighonindividualismhavenorms,values,andbeliefssuchas:Peopleareresponsibleforthemselves.Individualachievementisideal.Peopleneednotbeemotionallydependentonorganizationsorgroups.CollectivismCollectivism:Collectivistcountrieshavenorms,values,andbeliefssuchas:One’sidentityisbasedongroupmembership.Groupdecisionmakingisbest.Groupsprotectindividualsinexchangefortheirloyaltytothegroup.MasculinityMasculinity:Tendencyofaculturetosupporttraditionalmasculineorientation.Highmasculinitycountrieshavebeliefssuchas:Genderrolesshouldbeclearlydistinguished.Menareassertiveanddominant.Machismoorexaggeratedmalenessinmenisgood.People–especiallymen-shouldbedecisive.Worktakespriorityoverotherduties,suchasfamily.Advancement,success,andmoneyareimportant.Long-Term

(Confucian)Orientation(1of2)Long-TermOrientation:Orientationtowardstimethatvaluespatience.Managersareselectedbasedonthefitoftheirpersonalandeducationalcharacteristics.Aprospectiveemployee’sparticularskillshavelessimportanceinthehiringdecision.Trainingandsocializationforalong-termcommitmenttotheorganizationcompensateforanyinitialweaknessesinwork-relatedskills.Long-Term

(Confucian)Orientation(2of2)Easternculturesrankhighestonlong-termorientation.Valuesynthesisinorganizationaldecisionsratherthansearchforcorrectanswer.Designedtomanageinternalsocialrelationships.Investmentinlong-termemploymentskills.Focusonlong-termindividualandcompanygoals.Short-termOrientationShort-TermOrientation:focusisonimmediatelyusableskillsWesterncultures,whichtendtohaveshort-termorientations,valuelogicalanalysisintheirapproachtoorganizationaldecisions.Designedandmanagedpurposefullytorespondtoimmediatepressuresfromtheenvironment.Wantimmediatefinancialreturns.GLOBENationalCultureFrameworkGLOBE(GlobalLeadershipandOrganizationalBehaviorStudies)involves170researcherswhocollecteddatafrom17,000managersin62countries7of9dimensionsofGLOBEaresimilartoHofstedeGLOBE’s2Uniquedimensions:PerformanceorientationHumaneorientationPerformanceOrientationPerformanceOrientationreferstothedegreetowhichthesocietyencouragessocietalmemberstoinnovate,toimprovetheirperformance,andtostriveforexcellence.E.g.,theUnitedStatesandSingaporehavehighscoreswhileRussiaandGreecehavelowscoresonthedimension.HumaneOrientationHumaneOrientationisanindicationoftheextenttowhichindividualsareexpectedtobefair,altruistic,caring,andgenerous.Needforbelongingnessandaffiliationisemphasizedmorethanmaterialpossessions,self-fulfillment,andpleasure.Lesshumane-orientedsocietiesaremorelikelytovalueself-interestandself-gratification.MalaysiaandEgypthavehighhumaneorientationscores,whileFranceandGermanyhavelowscores.7dCulturalDimensionsModel

(1of3)Buildsontraditionalanthropologicalapproachestounderstandingculture.Cultureexistsbecausepeopleneedtosolvebasicproblemsofsurvival.Challengesinclude:HowpeoplerelatetoothersHowpeoplerelatetotimeHowpeoplerelatetotheirenvironment7dCulturalDimensionsModel

(2of3)5ofthe7dimensionsofthismodeldealwithrelationshipsamongpeople:Universalismvs.ParticularismCollectivismvs.IndividualismNeutralvs.AffectiveDiffusevs.SpecificAchievementvs.Ascription7dCulturalDimensionsModel

(3of3)The2remainingdimensionsdealwithhowaculturemanagestimeandhowitdealswithnature:Time:Past,Present,Future,orMixtureNature:Controlofvs.AccommodationwithNatureUniversalismvs.ParticularismTheseconceptspertaintohowpeopletreateachother:Universalism:Basedonabstractprinciplessuchasrulesoflaw,religion,orculturalprinciples.Particularism:Rulesareonlyaroughguide.Eachjudgmentrepresentsauniquesituation,whichmusttakeintoaccountwhothepersonis,andhisrelationshiptotheonemakingthejudgment.Individualismvs.CollectivismSimilardistinctionstoHofstede’sviewCollectivistsocieties:Focusonrelationships.“Deals”areflexible,basedonsituationandperson.Contractsareeasytomodify.Individualistsocieties:Focusonrules.“Deals”areobligations.Contractsaredifficulttobreak.Neutralvs.AffectiveConcernstheacceptabilityofexpressingemotions.Neutral:Interactionsshouldbeobjectiveanddetached.Focusismoreontasksratherthanemotionalnatureofinteraction.Affective:Emotionsareappropriateinalmostallsituations.Preferredtofindimmediateoutletforemotions.Specificvs.DiffuseAddressestheextenttowhichanindividual’slifeisinvolvedinworkrelationshipsSpecific:BusinessissegregatedfromotherpartsoflifeContractsoftenprescribeanddelineaterelationshipsDiffuse:BusinessrelationshipsencompassingandinclusivePrefertoinvolvemultiplelifeareassimultaneously.Achievementvs.AscriptionAddressesthemannerinwhichsocietyaccordsstatusAchievement:PeopleearnstatusbasedonperformanceandaccomplishmentsAscription:CharacteristicsorassociationsdefinestatusE.g.,statusbasedonschoolsoruniversitiesTimeOrientationTimeHorizon:Howculturesdealwiththepast,presentandfutureFuture-orientedsocieties,suchastheU.S.,considerorganizationalchangeasnecessaryandbeneficial. Believeastaticorganizationisadyingorganization.Past-orientedsocietiesassumethatlifeispredeterminedbasedontraditionsorwillofGod. Reverestabilityandaresuspiciousofchange.Internalvs.ExternalControlConcernedwithbeliefsregardingcontrolofone’sfateBestreflectedwithhowpeopleinteractwiththeenvironmentDoesnaturedominateusordowedominatenature?Insocietieswherepeopledominatenature,managersaremoreproactiveandbelievesituationscanbechanged.CaveatsandCautionsStereotyping:assumesthatallpeoplewithinoneculturebehave,believe,feel,andactthesame.Ethnocentrism:occurswhenpeoplefromoneculturebelievethattheirsaretheonlycorrectnorms,values,andbeliefs.Culturalrelativism:allcultures,nomatterhowdifferent,arecorrectandmoralforthepeopleofthosecultures.CulturalIntelligence:abilitytointeracteffectivelyinmultipleculturesSummaryThereareanimmensevarietyofculturesintheworld.Thischapterprovidesoneapproachtounderstandingnationalcultures.Goalistomakeoneawareofcomplexandsubtleinfluencesofcultureonmultinationalmanagement.Astutemanagersrealizethatunderstandingculturesisanever-endinglearningprocess.3TheInstitutionalContextofMultinationalManagementLearningObjectives(1of3)Understandthenationalcontextandhowitaffectsthebusinessenvironment.Understandtheinfluenceoftheinstitutionalcontextofcountriesonindividualsandorganizations.Definesocialinstitutionsandunderstandtheirbasicforms.Explainhowsocialinstitutionsinfluencebothpeopleandorganizations.LearningObjectives(2of3)Describethebasiceconomicsystemsandtheirinfluenceonmultinationaloperations.Understandthebasicstagesofindustrializationandtheirimplicationsformultinationals.Discusstheworld’sbasicreligionsandhowtheyshapethelocalbusinessenvironment.Developanunderstandingofeducationanditseffectsonmultinationaloperations.LearningObjectives(3of3)Definesocialinequalityanditsimplicationsformultinationals.Understandtheimportanceofthenationalcontextanditsconnectionwithotherinternationalmanagementareas.

InstitutionalContext(1of2)

InstitutionalContext:Includesotherelementsofsocietybesidesnationalculturesuchas:EducationThegovernmentThelegalsystemThesecanaffectimportantbusiness-relateddifferencesamongsocieties.Mayencourageadoptionofvaluesinconsistentwithnationalcultures.InstitutionalContext(2of2)Itisimportanttounderstandthedominantinstitutionalcontextofanysociety,andappreciateitsinfluenceonindividualsandorganizations.Understandingtheinstitutionalcontextiscriticaltoeffectivemultinationalmanagement.Atabasiclevel,amanagercannotcompletelyunderstandanysocietywithoutexaminingitsnationalcultureandinstitutionalcontext.NationalContextNationalContext:Thenationalcontextiscomposedoftherespectivenationalculturesandsocialinstitutionsofasociety.Intertwinedwithnationalculturalforcesaresocialinstitutionssuchas:TheeconomicsystemReligionEducationSocialInstitutionsSocialInstitutions:maybedefinedas:acomplexofpositions,roles,norms,andvalueslodgedinparticulartypesofsocialstructures,andorganizingstablepatternsofhumanresourcesregardingfundamentalproblemsinsustainingviablesocietalstructureswithinagivenenvironment.Socialinstitutionshaveprofoundeffectsonpeople’slifeconditions,andprovidecontextforpsychologicaldifferencesamongpeople.KeySocialInstitutionsthatInfluenceOrganizationsThreekeysocialinstitutionsthatinfluencebusinessenvironment:TheeconomicsystemThelevelofindustrializationTypesofreligionsAdditionally,EducationLevelofsocialinequalityEconomicSystems(1of3)Economicsystems:networkorsystemofbeliefs,activities,organizationsandrelationshipsthatprovidethegoodsandservicesofasocietyTypifiedbyextremesofcapitalism,socialismandamixofbothImportantimplicationsbasedonDominantmarkettypeMarkettransitionsEconomicSystems(2of3)Capitalist/marketeconomy:productionisdecentralizedtoprivatepropertyrightsownerswhoacttomakeprofitsincompetitivemarketSocialist/commandeconomy:productionresourcesareownedbythestate,andproductiondecisionsarecentrallycoordinatedMixedeconomy:combinesaspectsofcapitalistandsocialisteconomiesE.g.,Sweden,France,Denmark,ItalyandIndiaEconomicSystems(3of3)Economicsystemshavetwomajorimplicationsforstrategicmultinationalmanagement:DominantmarkettypeMarkettransitionsDominantMarketTypeDominantMarketType:Whetherthemarketandeconomicsystemofacountryarepredominantlycapitalist,socialistormixed.Thedecisionwhethertooperateinanothercountrymaydependonthedominantmarkettype.Inmixedeconomies,MNCsshouldsubordinatetheireconomicgoalsandrespectsocialobjectivesMultinationalmanagersmaywanttoconsidertheIndexofEconomicFreedom.IndexofEconomicFreedomIndexofEconomicFreedom:Defineseconomicfreedomas:Theabsenceofgovernmentcoercionorconstraintontheproduction,distribution,orconsumptionofgoodsandservicesbeyondtheextentnecessaryforcitizenstoprotectandmaintainlibertyitselfTheindexincludes10indicatorsrangingfromtradeandtaxationpolicies,topropertyrightsandregulation,includinggovernmentinterventionintheeconomy.MarketTransitionsMarketTransitions:ChangessocietiesexperienceastheymovefromsocialismtoamarketbasedeconomyMultinationalimplications:Needtoturnaroundinefficientformerlystate-ownedcompaniestobecomecosteffectiveMotivationalissueswithworkersInterpersonaltrust,teams,meritocracyIndustrialization(1of2)Industrialization:CulturalandeconomicchangesthatoccurbecauseofhowproductionisorganizedanddistributedinsocietyStagesofindustrializationPre-industrialIndustrialPostindustrialIndustrialization(2of2)Pre-industrialsociety:AgriculturedominatestheeconomicenvironmentReligiousnorms,traditionemphasizedIndustrialsociety:DominanceofmanufacturingorsecondarysectorTechnologicaldevelopmentPostind