CHAPTER

Chapter 3Global ManagementEvery organization is affected in some way by the global environment. In this chapter, will learn what managers need to know about managing globally, including regional trading alliances, how organizations go international, and cross-cultural differences. Focus on the following learning outcomes as you read and study this chapter.

LEARNING OUTCOMES

3.1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business.

3.2 Discuss the importance of regional trading alliances and global trade mechanisms.

3.3 Describe the structures and techniques organizations use as they go international.

3.4 Explain the relevance of the political/legal, economic, and cultural environments to global business.

SPOTLIGHT: A Manager at Work

In Chapter 3, students will explore the opportunities and challenges managers encountered in todays global business environment. Managers in all types and sizes of organizations must constantly monitor changes and consider the particular characteristics of their own location as they plan, organize, lead, and control in this dynamic environment. In this chapters opening illustration, students read about Alan Mulallys, CEO of Ford Motor Company, ONE FORD concept. Competing on an international scale is difficult and Ford has decided to adopt a global vision where cars and trucks produced in the United States and abroad are more competitive in international markets. The idea behind the ONE FORD plan is to leverage the resources of Ford to achieve profitable growth. This means manufacturing cars, like the Focus, in a way that as many parts as possible are shared with other models in the US and abroad. The ONE FORD plan also means expanding into untapped markets, like China, by expanding overseas production. Ask your students to put themselves in Mulallys shoes. How would they prepare to manage the challenges presented by the continued international growth while at the same time paying attention to domestic markets in the United States?CHAPTER OUTLINE

WHO OWNS WHAT?

Students may be astonished to discover the country of ownership origin for many products they use. In taking this quiz and discussing their scores, students may also be surprised to learn that a significant number of well-known companies derive more than half of their revenues from global operations.

3.1WHATS YOUR GLOBAL PERSPECTIVE?

Most U.S. children study only English in school. It is not unusual for Germans, Italians, and Indonesians to speak three or four languages. Americans tend to think of English as the only international business language and see little need to study other languages. How does the USs monolingualism affect our view of culture?A.Parochialism is viewing the world solely through your own perspectives, leading to an inability to recognize differences between people. Parochialism is an obstacle for many U.S. managers and stems from monolingualism.

B.Managers might have one of three perspectives or attitudes toward international business:1.An ethnocentric attitude is the parochialistic belief that the best work approaches and practices are those of the home country (the country in which the companys headquarters are located).

2.A polycentric attitude is the view that the managers in the host country (the foreign country where the organization is doing business) know the best work approaches and practices for running their business.

3.A geocentric attitude is a world-oriented view that focuses on using the best approaches and people from around the globe.

4.To be a successful global manager, an individual needs to be sensitive to differences in national customs and practices.LEADER WHO MADE A DIFFERENCE

Indra Nooyi, CEO of PepsiCo, was recently named for the fourth straight year the Most Powerful Woman in Business by Fortune magazine and was named one of the 100 most powerful women in the world by Forbes magazine. Born in India, Ms. Nooyi recognizes how important her companys global business operations are. On a recent trip to China, she spent 10 days immersing herself in China. She says, I wanted to look at how people live, how they eat, what the growth possibilities are.

3.2UNDERSTANDING THE GLOBAL ENVIRONMENT

Several significant forces are reshaping todays global environment. Important features of the global environment include regional trading alliances and different types of global organizations.

A.Regional Trading Alliances

Regional trading alliances are reshaping global competition. Competition is no longer limited to country versus country, but region versus region.

1.The European Union (EU) is a union of 27 European nations created as a unified economic and trade entity (see Exhibit 3-1). Three more countries (will be gaining membership soon).a.The primary motivation for the creation of the EU in February 1992 was to allow member nations to reassert their position against the industrial strength of the United States and Japan. Currently its membership covers a base of nearly have a billion people and 31% of the worlds economic output.b.Sixteen of the 27 member states of the EU have agreed to adopt the common currency of the EU, the euro. Denmark, the United Kingdom and Sweden have opted out of using the euro.c.The Lisbon Treaty, signed in December 2007, provides the EU with a common legal framework to meet current challenges facing European economies, such as climate change, security and energy needs.

d. The concept of solidarity has been a challenge as individual member states struggle with the maintaining a common currency at the same time valuing protectionist measures that foster nationalism. Another recent struggle has been the massive debt crisis of Greece which has been bailed out by the International Monetary Fund.2.The North American Free Trade Agreement (NAFTA) is an agreement among the Mexican, Canadian, and U.S. governments in which barriers to trade have been eliminated.

a.NAFTA went into effect on January 1, 1994 and today is the worlds largest trading block in terms of GDP. Canada is currently the USs top trading partner with Mexico being number three (China is number two). As of 2012, it remains the largest trading bloc in terms of combined GDP of its members.b.Eliminating barriers to free trade (tariffs, import licensing requirements, customs user fees) has resulted in a strengthening of the economic power of all three countries.

c.Colombia, Mexico, and Venezuela signed an economic pact eliminating import duties and tariffs in 1994.

d.The Central American Free Trade Agreement (CAFTA) is agreement between the US and five Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Currently, only Costa Rica and El Salvador have signed onto this agreement.e.Thirty-four countries in the Western Hemisphere continue to negotiate a Free Trade Area of the Americas (FTAA) agreement. FTAA was to have been in effect no later than 2005, but has not yet become operational; its future is still undetermined.3.The Association of Southeast Asian Nations (ASEAN) is a trading alliance of Southeast 10 Asian nations (see Exhibit 3-2).

a.In the future, the Southeast Asian region promises to be one of the fastest-growing and increasingly influential economic regions of the world.

b.The future economic impact of the Southeast Asian region could rival that of both NAFTA and the EU.

4. Other Trade Alliances. The 53-nation African Union (AU) came into existence in July 2002. AU members plan to achieve greater economic development and unity among Africas nations. The South Asian Association for Regional Cooperation (SAARC) is composed of eight Asian member states that began eliminating tariffs in 2006.B.Global Trade Mechanisms

1. The World Trade Organization (WTO)Formed in 1995 and evolving from GATT, the WTO is the only global organization dealing with the rules of trade among nations.

a. Membership consists of 153 countries and 30 observer governments as of 2008.

b. The WTO appears to play an important role even though critics are vocal and highly visible.2. International Monetary Fund and World Bank Group

a. The International Monetary Fund (IMF) is an organization of 185 countries that promotes international monetary cooperation and provides member countries with policy advice, temporary loans, and technical assistance to establish and maintain financial stability and to strengthen economies. b. The World Bank Group is a group of five closely associated institutions, all owned by its member countries, that provides vital financial and technical assistance to developing countries around the world. 3.Organization for Economic Cooperation and Development (OCED)

The Organization for European Economic Cooperation, formed 194, is a Paris-based international economic organization whose mission is to help its 30 member countries achieve sustainable economic growth and employment and raise the standard of living in member countries while maintaining financial stability in order to contribute to the development of the world economy.3.3DOING BUSINESS GLOBALLYA.Different Types of International Organizations

Business has been conducted internationally for many years (e.g., DuPont conducted business in China in 1863, H. J. Heinz manufacturing their brands since 1905, and Ford established its first overseas sales branch in France in 1908). Multinational corporations did not become popular until the mid-1960s. Global organizations can be classified in the following categories: 1.The term multinational corporation (MNC) is a broad term that refers to any and all types of international companies that maintain operations in multiple countries. 2.A transnational corporation (TNC), sometimes called a borderless organization, is a type of international company in which artificial geographical barriers are eliminated.

3. Your students should keep in mind that neither the national origin of a company nor the national origin of its employees is any longer a good measure of where that company conducts business. B. How Organizations Go InternationalAn organization that goes international typically progresses through three stages, which are illustrated in Exhibit 3-3.1. Companies that go international may begin by using global sourcing (also called global outsourcing). In this stage of going international, companies purchase materials or labor from around the world, wherever the materials or labor are least expensive. Beyond the stage of global sourcing, each successive stage to become more international involves more investment and risk. 2. In the next stage, companies may go international by exporting (making products domestically and selling them abroad) or importing (acquiring products made abroad and selling the products domestically). Both exporting and importing require minimal investment and risk. 3. In the early stages of going international, managers may also use licensing (giving another organization the right to make or sell its products using its technology or product specifications) or franchising (giving another organization the right to use its name and operating methods).4. After an organization has done international business for a period of time, managers may decide to make more of a direct investment in international markets by forming a strategic alliance, which is a partnership between an organization and a foreign company partner(s). In a strategic alliance, partners share resources and knowledge in developing new products or building production facilities.

5. A joint venture (a specific type of strategic alliance) may be undertaken to allow partners to form a separate, independent organization for some business purpose.6. Managers may decide to make a direct investment in a foreign country by establishing a foreign subsidiary, in which a company sets up a separate and independent production facility or office. Establishing a foreign subsidiary involves the greatest commitment of resources and the greatest risk of all of the stages in going international.3.4MANAGING IN A GLOBAL ENVIRONMENT

Managing in a global environment entails challenges.

A.The Legal-Political Environment

The legal-political environment does not have to be unstable or revolutionary to be a challenge to managers. The fact that a countrys political system differs from that of the United States is important to recognize.B.The Economic Environment

The economic environment also presents many challenges to foreign-based managers, including fluctuations in currency exchange rates, inflation, and diverse tax policies.1. In a free market economy, resources are primarily owned by the private sector.2. In a planned economy, all economic decisions are planned by a central government.C.The Cultural Environment

Countries have different cultures, just as organizations do. National culture is the values and attitudes shared by individuals from a specific country that shape their behavior and their beliefs about what is important. See Exhibit 3-4 for a synopsis of American national culture. An approach developed by Geert Hofstede serves as a valuable framework for understanding differences between national cultures.

1.Hofstede studied individualism versus collectivism. Individualism is the degree to which people in a country prefer to act as individuals rather than as members of groups. Collectivism is characterized by a social framework in which people prefer to act as members of groups and expect others in groups of which they are a part (such as a family or an organization) to look after them and to protect them.2.Another cultural dimension is power distance, which measures the extent to which a society accepts the fact that power in institutions and organizations is distributed unequally.

3.Uncertainty avoidance describes the degree to which people tolerate risk and prefer structure over unstructured situations.

4.Hofstede identified the dimension of achievement versus nurturing. Achievement is the degree to which values such as assertiveness, the acquisition of money and material goods, and competition prevail. Nurturing emphasizes sensitivity in relationships and concern for the welfare of others.5.Long-term and short-term orientation. People in countries having long-term orientation cultures look to the future and value thrift and persistence. Short-term orientation values the past and present and emphasizes a respect for tradition and fulfilling social obligations.6.Countries have different rankings on Hofstedes cultural dimensions, and managers should be aware of the cultural differences present in countries in which they do business (see Exhibit 3-5).7.The Global Leadership and Organizational Behavior Effectiveness (GLOBE) research program is an assessment that updates Hofstedes studies.a.GLOBE began in 1993 and identified nine dimensions on which national cultures differ: Assertiveness, future orientation, gender differentiation, uncertainty avoidance, power distance, individualism/collectivism, in-group collectivism, performance orientation, and humane orientation.

b. Exhibit 3-6 indicates how different countries rank on these nine dimensions.D. GLOBAL MANAGEMENT IN TODAYS WORLD1. The Challenge of Openness. As companies compete in the international arena, the openness that is necessary to conduct business successfully in a global environment poses great challenges.

a. The increased threat of terrorism, economic interdependence of trading countries, and significant cultural create a complicated environment in which to manage.

b. Successful global managers need to have great sensitivity and understanding.

c. Managers must adjust leadership styles and management approaches to accommodate culturally diverse views.

2. Challenges of Maintaining a Global Workforce. As more businesses go global, managers have a greater need to understand the global workforce.a. Cultural Intelligence encompasses three main areas: knowledge of the culture, mindfulness (the ability to pay attention to signals and reactions across cultural situations), and behavioral skills.

b. A Global Mindset allows leaders to be effective in cross cultural environments and includes three elements: intellectual capital, psychological capital, and social capital (see Exhibit 3-7).

ANSWERS TO REVIEW AND DISCUSSION QUESTIONS

1. Contrast ethnocentric, polycentric, and geocentric attitudes toward global business.

The ethnocentric, polycentric, and geocentric views vary by their degree to which the holder adheres to the belief that their culture is the best and their willingness to accept best approaches from other cultures. An ethnocentric attitude is the parochialistic belief that the best work approaches and practices are those of the home country (the country in which the companys headquarters are located). A polycentric attitude is the view that employees in the host country (the foreign country in which the organization is doing business) know the best work approaches and practices for running their business. A geocentric attitude is a world-oriented view that focuses on using the best approaches and people from around the globe. Managers with this type of attitude have a global view and look for the best approaches and people regardless of origin. (LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business, AACSB: Dynamics of the global economy)2. Describe the current status of each of the various regional trading alliances.

Recently, the EU is the most active of all of the regional trading alliances. With the adoption of majority of the guiding principles established in their charter, these countries are pushing forward on reforms that will solidify the political, economic and social commonalities between their countries. However, this is not to say that the EU does not have its problems, with fears that the economic turmoil in weaker EU countries like Greece could spread to other member states. NAFTA has seen less recent development as the partners (US, Mexico, & Canada) are not seeking to push for reforms other than free trade. For the most part, the members of NAFTA are pleased with the economic growth results attributed to the agreement. Issues regarding certain specifics of NAFTA, such as investor disputes and claims of dumping, are still to be resolved. (LO: 2 Discuss the importance of regional trading alliances and global trade mechanisms, AACSB: Dynamics of the global economy)3. Contrast multinational, multidomestic, global, and transnational organizations.

A multinational corporation (MNC) refers to a broad group of organizations and refers to any type of international company that maintains operations in multiple countries. The types of MNC vary with respect to the degree to which they decentralize decision making across countries in which they operate. One type of MNC is a multidomestic corporation, which decentralizes management and other decisions to the local country. A global company is a MCN which centralizes its management and other decisions in the home country. This type of company takes a world view of operations, seeking to maximize efficiency by producing goods that have a global appeal. Finally, the transnational company eliminates artificial geographical barriers and seeks the best possible arrangement without regard to country to maximize efficiencies and competitive advantage. (LO: 3 Describe the structures and techniques organizations use as they go international, AACSB: Dynamics of the global economy)4. What are the managerial implications of a borderless organization?

In a borderless organization, artificial geographic borders do not separate functions, divisions, or activities. The managerial implications of such an organization are that it is infinitely more flexible in its ability to respond to changing marketplace conditions. However, this type of organization is much more difficult to control. (LO: 3 Describe the structures and techniques organizations use as they go international, AACSB: Dynamics of the global economy)5. Describe the different ways organizations can go international.

Management makes its first attempt to go international by using global sourcing, in which companies take advantage of lower costs and minimal risk.

Next, managers may go international by exporting products to other countries and/or importing products from other countries. Exporting and importing involve minimal risk and provide more control over the companys product(s).

In licensing (primarily used by manufacturers) and franchising (mainly used by service organizations), management continues to look at ways to enter the global market, and at the same time, avoid investing a lot of capital.

Strategic alliances and joint ventures allow partners to share both the risks and the rewards incurred in business conducted by the partners through the alliance.

Establishing a foreign subsidiary involves the greatest commitment of resources and the greatest amount of risk of all of the stages of going international. Companies setting up a foreign subsidiary do not have to share profits with a partner but, at the same time, do not have a partner who will share the loss if a business enterprise fails. (LO: 3 Describe the structures and techniques organizations use as they go international, AACSB: Dynamics of the global economy)6. Can the GLOBE framework presented in this chapter be used to guide managers in a Thai hospital or a government agency in Venezuela? Explain.

Yes, the GLOBE framework discussed in Chapter 3 is applicable to both situations. Managers must first understand the unique cultural characteristics of each country in order to modify management decisions and practices. (LO: 3 Explain the relevance of the political/legal, economic, and cultural environments to global business, AACSB: : Dynamics of the global economy)7. What challenges might confront a Mexican manager transferred to the United States to manage a manufacturing plant in Tucson, Arizona? Will these issues be the same for a U.S. manager transferred to Guadalajara? Explain.

The Mexican manager would have to become familiar with the legal-political, economic, and cultural environments of the United States. The cultural environment would be particularly challenging, since the national culture of Mexico varies greatly from the national culture of the United States in three out of five of Hofstedes dimensions. On the individualism-collectivism dimension, Mexico is a more collective society, whereas the United States is more individualistic. In the power distance dimension, Mexico rates high, while the United States rates low. In the uncertainty avoidance dimension, Mexico again rates high, while the United States rates low. (LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business, AACSB: Dynamics of the global economy)8. How might the cultural differences in the GLOBE dimensions affect how managers (a) use work groups, (b) develop goals/plans, (c) reward outstanding employee performance, and (d) deal with employee conflict?

There are multiple ways to address this question. First, students may address each item by referring to one of the nine dimensions presented in the GLOBE model. For example, a) institutional collectivism, b) future orientation, c) performance orientation, or d) assertiveness. Or, students may attempt to use multiple dimensions to address each item. On reflection, it is possible to see many combinations of how the dimensions would impact the items presented in the question. (LO: 3 Explain the relevance of the political/legal, economic, and cultural environments to global business, AACSB: Dynamics of the global economy)ETHICS DILEMMA

Outsourcing production overseas has its advantages and disadvantages. In this dilemma, students are asked to consider the implications of how overseas jobs in the high tech industry have hurt workers: work shifts lasting up to 60 hours; factory explosion killing numerous workers that resulted from a build-up of combustible dust; repetitive motion injuries that are so bad workers lose the use of their hands. What are the responsibilities of US managers as they shift production to other countries? Do managers in the US have an obligation to provide for the security of employees who work for their vendors? It would be beneficial to bring in current examples of cases where overseas workers have been hurt or killed as a result of unsafe work environments i.e. the Union Carbide disaster in Bhopal India, or the Foxconn's Chengdu factory explosion which produced Ipad screens. (LO: 3 Describe the structures and techniques organizations use as they go international, AACSB: Dynamics of the global economy)SKILLS EXERCISE: DEVELOPING YOUR COLLABORATION SKILL

An important skill for any employee and new manager is collaboration. In this exercise students are work on building their own political skills based on 4 steps: looking for common points of interest, listening to others, checking for understanding, accepting diversity, seeking additional information, and not becoming defensive. Students are encouraged to take notes to track their progress and then to evaluate their own level of collaboration skill development. (LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business, AACSB: Communication Abilities)WORKING TOGETHER: TEAM EXERCISE

In groups of three to four individuals, students are asked to develop a global aptitude assessment form for Yum Brands. This company was addressed in the opening Managers Dilemma. Students are encouraged to think about what characteristics typify a successful global manager. After the groups develop their list, they should share with the rest of the class. (LO: 3 Explain the relevance of the political/legal, economic, and cultural environments to global business, AACSB: Dynamics of the global economy)MY TURN TO BE A MANAGER

Find two current examples of each of the ways that organizations go international. Write a short paper describing what these companies are doing. (LO: 3 Describe the structures and techniques organizations use as they go international, AACSB: Dynamics of the global economy) The U.K.-based company Kwintessential has several cultural awareness quizzes on its Web site, www.kwintessential.co.uk/resources/culture-tests.html. Go to the Web site and try two or three of them. Were you surprised at your score? What does your score tell you about your cultural awareness? (LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business, AACSB: Dynamics of the global economy) On the Kwintessential Web site, youll also find Country Etiquette Guides. Pick two countries to study (from different regions) and compare them. How are they the same? Different? How would this information help a manager? (LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business, AACSB: Dynamics of the global economy) Interview two or three professors or students at your school who are from other countries. Ask them to describe what the business world is like in their country. Write a short paper describing what you found out. (LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business, AACSB: Dynamics of the global economy) Create a timeline illustrating the history of the European Union and a timeline illustrating the history of NAFTA. (LO: 2 Discuss the importance of regional trading alliances and global trade mechanisms, AACSB: Dynamics of the global economy) Take advantage of opportunities that you might have to travel to other countries, either on personal trips or on school-sponsored trips. (LO: 3 Explain the relevance of the political/legal, economic, and cultural environments to global business, AACSB: Dynamics of the global economy) Suppose that you were being sent on an overseas assignment to another country (you decide which one). Research that countrys economic, political/legal, and cultural environments. Write a report summarizing your findings. (LO: 3 Explain the relevance of the political/legal, economic, and cultural environments to global business, AACSB: Dynamics of the global economy) If you dont have your passport yet, go through the process to get one. (The current fee in the USA is $100.) (LO: 3 Explain the relevance of the political/legal, economic, and cultural environments to global business, AACSB: Dynamics of the global economy) Steves and Marys suggested readings: Nancy J. Adler, International Dimensions of Organizational Behavior, 5th edition (South-Western Publishing, 2008); Kenichi Ohmae, The Next Global Stage (Wharton School Publishing, 2005); John Hooker, Working Across Cultures (Stanford Business Books, 2003); and Thomas L. Friedman, The Lexus and the Olive Tree (Anchor Books, 2000). (LO: 1 Contrast ethnocentric, polycentric, and geocentric attitudes toward global business, AACSB: Dynamics of the global economy)(LO: 2 Discuss the importance of regional trading alliances and global trade mechanisms, AACSB: Dynamics of the global economy)(LO: 3 Describe the structures and techniques organizations use as they go international, AACSB: Dynamics of the global economy)(LO: 3 Explain the relevance of the political/legal, economic, and cultural environments to global business, AACSB: Dynamics of the global economy)ANSWERS TO CASE APPLICATION QUESTIONS

Dirty Little Secret

1. Whats your reaction to these events? Are you surprised that bribery is illegal? Why do you think bribery takes place? Why do you think it needs to be outlawed?

While it is possible that students may have a variety of reactions to this question, it probable that the common reaction is that Ferrostaal and/or Siemens crossed the line and committed a serious infraction by bribing public officials in Greece. Students should agree that this tradition of payments for preferential treatment may be acceptable in some cultures, it is not acceptable in most Western cultures and is indeed illegal in many. In addressing the issue of why companies use bribery, the fact is that many companies feel pressured to engage in activities that they perceive will put them on a level playing field with other companies. On the other hand, this is what makes bribery wrong is that it makes the playing field biased toward larger companies that can afford payments to make lucrative contracts and expedite government paperwork. In turn, this stifles competition and creates an environment that decreases competition. 2. Research whether other countries outlaw bribery. (Hint: look at the Organization for Economic Cooperation and Development.)

The OECD maintains a long list of companies that seek to provide better policies for international business. Going through the website for the OECD, students will find that there are 34 other countries that belong to the convention on for combating bribery of public officials. See http://www.oecd.org/corruption/briberyininternationalbusiness/3. Weve said its important for managers to be aware of external environmental forces, especially in global settings. Discuss this statement in light of the events described.

Failure to understand the legal constraints on doing business overseas has hurt Siemens international reputation and may continue to hurt their efforts to expand into other countries. The legal environment is especially important (and difficulty to understand) in an international context when companies must not only abide by local laws, but the laws of the host country as well. 4. What might Siemens managers have done differently? Explain.

The managers of Siemens should have been aware of the OECD guidelines.

5. Siemens is not the only company to be linked to bribery. Find at least three other examples and describe those.

Students can find examples from the OECD website in their annual reports or simply by doing an internet search on the topic. Students can also try the website for Transparency International.

HSBCs Farewell to Japanese Retail Banking

1. What problems do you see in HSBCs efforts in penetrating into Japanese market in 2007? There are 4 major problems faced by HSBC in Japan. These include communication (English Vs Japanese), staffing (expatriates in Japan) and employment policy (life-time employment practices in Japan), decision making (fast and centralized process in HSBC Vs slow and decentralized process in Japan) and ATM (global standardized Vs local ATM).

2. Is HSBC adopting an ethnocentric, polycentric or geocentric attitude toward its business in Japan?HSBC is obviously adopting an ethnocentric policy by adopting a standardized communication (English) policy, sending region headquarters staff to Japan (ethnocentric staffing policy), and centralized decision-making (for quick decision making process).

3. What obvious cultural differences between the HSBC task force and local Japanese employees do you see in this situation?

The most obvious cultural differences between the HSBC task force and local Japanese employees are language barriers, dissimilarity in employment policy, and diversity in decision-making process (centralized Vs decentralized).

4. While HSBC claims that it is the worlds local bank, can it become a local bank in Japan? The worlds local bank requires a localization strategy and HSBC cannot become a local bank in Japan unless it changes its corporate strategy by extensive localization. This will require HSBC to consider using local language (Japanese) in corporate communication in Japan, hiring local Japanese managers, and making strategic decisions by going through an extensive consultative and decentralized process with the involvement of local staff.

5. What should HSBC have done before they consider a full-scale penetration into Japans retail banking market?By performing an extensive and intensive PEST analysis (political, economic, social, technological analysis), HSBC should have discovered the following problems in Japan before they entered the market:

(1) Social problems (difficulty of English communication in Japan)

(2) Political and social problems (expatriates and local employment policy)

(3) Social and economic problems (slow and decentralized decision making in Japan)

(4) Technological problems (local standard for ATMs).

If HSBC cannot identify and formulate possible and effective solutions to these PEST problems, they should not enter the Japanese market.

ADDITIONAL CHAPTER INFORMATION

Euro notes and coins were introduced into circulation on January 1, 2002. Read about the history and current issues of the EMU on the European Commissions Web site at [http://ec.europa.eu/economy_finance/euro/our_currency_en.htm].PAGE 1Copyright 2014 Pearson Education