Norwegian Air Worksheet
Provide a 150- to 200-word response for each of the following. Include references where appropriate.
1. Explain the biggest challenges Norwegian Air experienced in trying to expand its airline across the globe.
1. Identify examples of ethnocentric, polycentric, or geocentric attitudes in this case. Explain why your selected examples illustrate these attitudes.
1. Explain cultural differences that are likely to arise between Norwegian employees working in Denmark and Sweden, and Thailand. How might these differences affect interpersonal interactions, and what can the company do to reduce any unintended conflict from these differences? Refer to Table 4.3.
1. Evalute the most important lessons to be learned about global management in this case.
8/25/2015 Bookshelf | Management data:text/html;charset=utf8,%3Cp%20class%3D%22mantitle%22%20style%3D%22fontsize%3A%2027.2000007629395px%3B%20textindent%3A%200px%… 1/2 Page 132 Management in Action Norwegian Air Shuttle Aspires to Become the Cheapest Global Airl in e It’s snow in g in Copenhagen as Norwegian Air Shuttle Flight DY7041 lifts off. There are nearly 30 passengers on board, most of them Norwegians, Swedes, and Danes eager to escape the gloom that engulfs their part of the world in late November. Today they will arrive in Florida faster than usual. This is the first direct flight from Scand in avia to Fort Lauderdale. And it’s a barga in : The tickets are a fr action of what larger airl in es charge. Norwegian Air Shuttle Chief Executive Officer Bjorn Kjos has come along to celebrate the occasion. . . . Norwegian is Europe’s fourthlargest discount airl in e. Until recently, it was little known outside Scand in avia. Then, in 2012, Kjos made the largest airplane order in European history, buy in g 222 jets from Boe in g and Airbus Group for $21.5 billion. Most of these are narrowbodied Boe in g 737 Max 8’s and Airbus A320neos that will beg in arriv in g in 2016. Kjos will use them to in crease Norwegian’s presence in Europe and challenge the top three discount carriers: Ireland’s Ryanair, Brita in ’s EasyJet, and Germany’s Air Berl in . Last year, Norwegian acquired its first two Dreaml in ers, which list for as much as $289 million each. Kjos is usin g these widerbodied jets to offer cheaper in ternational flights to distant places such as New York, Los Angeles, and Bangkok, undercutt in g established carriers in Europe and the U.S. Norwegian’s $180 tickets between New York and Oslo cost 10% of the equivalent ticket on British Airways. In effect, Kjos wants Norwegian to become a global version of Southwest Airl in es. Other upstart airl in es have tried this and failed. Kjos says Norwegian will succeed because it has the Dreaml in er and a new group of travelers to fly: the emerg in g middleclass citizens of Ch in a and In dia. He predicts that in the next decade there will also be 500 million new airl in e passengers, and he hopes to attract them with low fares. Kjos will have to do many th in gs right for it all to work, and he’s already run in to turbulence. He narrowly averted a strike by 600 pilots in November. They are unhappy with his plan to base Dreaml in er flights outside Norway and to staff them with lowerpaid workers from Thailand and elsewhere. The Dreaml in er still needs debugg in g. Kjos’s new jets have been grounded repeatedly by technical problems. . . . Four U.S. airl in es are try in g to keep the U.S. Department of Transportation [DOT] from allow in g Norwegian flights in to the country because they worry that their foreign competitor will launch what they describe as an unfair price war with them. Kjos, however, doesn’t th in k anyth in g will get in the way of his plan to reshape in ternational travel. “ In the future, you will travel to Asia for noth in g,” he says, “You th in k I’m jok in g. You wait and see.” Obscure outside the aviation in dustry, Kjos is a celebrity at home; he’s Norway’s Richard Branson. In the early Aughts, Kjosin troduced lowcost flights to a region that has historically been dom in ated by Scand in avian Airl in es (SAS). At the time, SAS, which is controlled by the governments of Norway, Sweden, and Denmark, had some of the highest fares in Europe. “He has changed the lives of many, many Scand in avians,” says Hans Erik Jacobsen, an analyst at First Securities ASA. . . . The company went public in December 2003 at 32 kroner a share. Then, Kjos says, SAS reduced its prices in an effort to destroy its rival. (SAS denies that this was itsin tent.) Norwegian aga in lowered its prices. Its revenue dw in dled, along with its stock price. . . . Then, they say, they learned from government in vestigators that SAS had been tapp in g in to Norwegian’s computer system and usin g data about its ticket sales to underprice it. Norwegian sued SAS for illegally usin g its trade secrets, eventually w in n in g a 160 million kroner judgment in 2010. SAS says it accepts the court judgment. 8/25/2015 Bookshelf | Management data:text/html;charset=utf8,%3Cp%20class%3D%22mantitle%22%20style%3D%22fontsize%3A%2027.2000007629395px%3B%20textindent%3A%200px%… 2/2 Kjos says the revelations ended SAS’s predatory pric in g, and Norwegian had its first profitable year in 2005. But Kjos soon had someth in g else to worry about: risin g oil prices. Oil had soared from $25 to $75 per barrel in the previous five years. Kjos and his top executives modeled what would happen if oil prices cont in ued to climb at that rate. “We found out . . . if we hit $120, we’re go in g bankrupt,” Kjos says. Norwegian’s planes were burn in g too much gas. The company needed a new fleet to survive. . . . In August 2007, Kjos reached an agreement to buy 42 new jets from Boe in g for $3 billion. Frode Foss, Norwegian’s CFO, said the company couldn’t afford it. “Frode, would you like to go bankrupt with old airplanes or with new airplanes?” Kjos swagger in gly replied. He later in creased the order to 84. Three years later in 2010, revenue and profit had more than doubled. Norwegian was fly in g twice as many passengers and routes. The new planes “really enabled them to drive down the cost level,” says Jacobsen. “It was a big step forward.” Later that same year, Kjos ordered Norwegian’s eight Dreaml in ers, but he also concluded that his newish fleet of shortrange planes was already becom in g outmoded. In 2012 he and [Norwegian Airl in es chairman of the board Bjorn] Kise took advantage of the euro crisis to get favorable terms from both Boe in g and Airbus for 100 planes. . . . Norwegian’sin ternational routes will prevail, Kjos says, because the Dreaml in er burns much less fuel than previous jets. “The Dreaml in er is the first airplane that can do it,” he says. He’s also count in g on lower personnel costs. Although the airl in e is headquartered in a country with some of the highest salaries in Europe, Kjos is try in g to get around this by basin g flights in lowersalaried countries such as Thailand. That’s why Norwegian’s pilots wanted assurances that he wouldn’t try to use geography to cut their salaries. . . . Norwegian also faces opposition in the U.S., where American Airl in es, Delta Airl in es, United Airl in es, and US Airways are urg in g the federal government to reject an application by Norwegian Air In ternational. The company is a Norwegian subsidiary that Kjos has set up in Ireland to operate its Dreaml in er flights. Norwegian’s critics say Kjos is do in g this so he can hire cheap nonunion pilots and cab in crews. “[Norwegian’s] scheme must be immediately and unequivocally rejected,” Lee Moak, president of the Air L in e Pilots Association In ternational in Wash in gton, said in a statement last month. “The DOT must not permit U.S. airl in es and their employees to face an unfair competitive advantage from this runaway shop.” A Norwegian spokesman, Lasse SandakerNielsen, says the company isn’t do in g anyth in g improper and its critics are mak in g “false and mislead in g statements.” As for the Dreaml in ers, they have been problematic. The U.S. Federal Aviation Adm in istration ordered Boe in g to stop deliver in g them last year until it fixed their lithium batteries, which had caught fire. Norwegian’s Dreaml in ers never burned, but one jet was grounded in Bangkok in September  because of pump problems, strand in g 200 passengers bound for Stockholm. In December, Stockholmbound Norwegian customers were stuck in Fort Lauderdale before Christmas because of a disabled Dreaml in er. On New Year’s Eve, 276 passengers headed for Oslo spent the night stew in g in hotels near John F. Kennedy In ternational Airport in New York because of brake problems on one of the jets. Norwegian’s SandakerNielsen says the company apologizes for the delays. . . . Kjos responded to the latest crisis by doubl in g down. He announced in December that Norwegian would lease two more Dreaml in ers. Source: Excerpted from Dev in Leonard, “Barbarian at Gate G17,”Bloomberg Busin essweek,January 13–19, 2014, pp. 58, 60– 6
Page 101 Page 100 Major Questions You Should Be Able to Answer 4.1 Globalization: The Collapse of Time & Distance Major Question: What three important developments of globalization will probably affect me? 4.2 You & International Management Major Question: Why learn about international management, and what characterizes the successful international manager? 4.3 Why & How Companies Expand Internationally Major Question: Why do companies expand internationally, and how do they do it? 4.4 The World of Free Trade: Regional Economic Cooperation Major Question: What are barriers to free trade, and what major organizations and trading blocs promote trade? 4.5 The Importance of Understanding Cultural Differences Major Question: What are the principal areas of cultural differences? the manager’s toolbox Learning to Be a Success Abroad: How Do You Become a World Citizen? Whether you travel abroad on your own or on a work assignment for your company, there are several ways to make your experience enhance your career success. Learn How Not to Be an “Ugly American” Americans “are seen throughout the world as an arrogant people, totally selfabsorbed and loud,” says Keith Reinhard, former head of advertising conglomerate DDB Worldwide, who is leading an effort to reverse that through a nonprofit group called Business for Diplomatic Action (BDA), from which many suggestions here are drawn. 1 A survey conducted by DDB in more than 100 countries found that respondents repeatedly mentioned “arrogant,” “loud,” and “uninterested in the world” when asked their perceptions of Americans. 2 Some sample advice for Americans traveling abroad is: Be patient, be quiet, listen at least as much as you talk, don’t use slang, and don’t talk about wealth and status. 3 Be Global in Your Focus, but Think Local Study up on your host country’s local customs and try to meet new people who might help you in the future. For example, Bill Roedy, President of MTV Networks International, spent time hanging out with Arab rappers and meeting the mayor of Mecca before trying to sign a contract that would launch MTV Arabia. 4 His efforts helped seal the deal. Learn What’s Appropriate Behavior Before you go, spend some time learning about patterns of interpersonal communication. In Japan, for instance, it is considered rude to look directly into the eye for more than a few seconds. In Greece the handwaving gesture commonly used in America is considered an insult. In Afghanistan, a man does not ask another man about his wife. 5 In China, people generally avoid hugs—at least until recently. 6 Learn rituals of respect, including exchange of business cards. 7 Understand that shaking hands is always permissible, but social kissing may not be. Dress professionally. For women, this means no heavy makeup, no flashy jewelry, no short skirts or sleeveless blouses (particularly in Islamic countries). In some countries, casual dressing is a sign of disrespect. Don’t use first names and nicknames with fellow employees overseas, especially in countries with strict social strata. 8 Know Your Field If you know your field and behave with courtesy and assurance, you will be well received around the world. Indra Nooyi successfully uses this advice in her role as CEO of PepsiCo. She’s cosmopolitan and well educated and is respected by people around the globe. 9 Become at Least Minimally Skilled in the Language Whatever foreign country you’re in, at the very least you should learn a few key phrases, such as “hello,” “please,” and “thank you,” in your host country’s language. Successful international managers have learned there is no adequate substitute for knowing the local language. 10 For Discussion Have you done much traveling? What tricks have you discovered to make it more satisfying? Page 102 This chapter covers the importance of globalization—the rise of the global village, of one big market, of both worldwide megafirms and minifirms. We also describe the characteristics of the successful international manager and why and how companies expand internationally. We describe the barriers to free trade and the major organizations promoting trade. Finally, we discuss some of the cultural differences you may encounter if you become an international manager. Globalization: The Collapse of Time & Distance What three important developments of globalization will probably affect me? THE BIG PICTURE Globalization, the trend of the world economy toward becoming a more interdependent system, is reflected in three developments: the rise of the “global village” and ecommerce, the trend of the world’s becoming one big market, and the rise of both megafirms and Internetenabled minifirms worldwide. Is everything for sale in the United States now made outside our borders? Not quite everything—and Roger Simmermaker, 48, an Orlando, Florida, electronics technician who drives a 1996 Michiganmade Lincoln Town Car, is seriously focused on buying U.S. In fact, Simmermaker has authored a book, How Consumers Can Buy American, which lists more than 16,000 U.S.made products. 11 “It’s important to understand that workers in China don’t pay taxes to America,” he says. 12 As it happens, the vast majority of goods and services sold in the United States are still made in this country. However, we might be forgiven for thinking otherwise. With shoes and clothing, for instance, about 36% of U.S. dollars are spent on Chinesemade products, compared with 25% on U.S.made items. 13 TABLE 4.1 Country Rankings for Competitiveness, 2013–2014 Source: World Economic Forum, The Global Competitiveness Report 2013–2014, http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_201314.pdf (accessed April 15, 2014). Competition & Globalization: Who Will Be No. 1 Tomorrow? It goes without saying that the world is a competitive place. Where does the United States stand in it? What’s our report card? Although Americans may like to think “We’re No. 1!” on most measures, other nations are in constant pursuit—and in some cases have overtaken us. (China, incidentally, was projected to overtake the United States as the world’s largest economy in 2014. 14 ) Are we the most competitive? Actually, the World Economic Forum ranks the United States as No. 5 (down from No. 2 in 2008), behind Switzerland, Singapore, Finland, and Germany. (See Table 4.1, left.) Are we the richest? On a perperson basis, the United States ranks No. 6, behind Qatar, Luxembourg, Singapore, Norway, and Brunei Darussalam. Canada is No. 9. 15 How about “most free”? Here Hong Kong, a “special administrative region” of the People’s Republic of China, is No. 1. The United States is No. 12, according to criteria embraced by the 2014 Index of Economic Freedom (by The Wall Street Journal and the Heritage Foundation). Canada, at No. 6, is considered “free” by this standard; the U.S. is “mostly free.” 16 There are many reasons why the winners on these lists achieved their enviable status, but one thing is clear: They didn’t do it all by themselves; other countries were involved. We are living in a world being rapidly changed by globalization —the trend of the world economy toward becoming a more interdependent system. Time and distance, which have been under assault for 150 years, have now virtually collapsed, as reflected in three important developments we shall discuss. 17 1. The rise of the “global village” and electronic commerce. Page 103 2. The world’s becoming one market instead of many national ones. 3. The rise of both megafirms and Internetenabled minifirms worldwide. The Rise of the “Global Village” & Electronic Commerce The hallmark of great civilizations has been their great systems of communications. In the beginning, communications was based on transportation: The Roman Empire had its network of roads, as did other ancient civilizations, such as the Incas. Later the great European powers had their farflung navies. In the 19th century, the United States and Canada unified North America by building transcontinental railroads. Later the airplane reduced travel time between continents. From Transportation to Communication Transportation began to yield to the electronic exchange of information. Beginning in 1844, the telegraph ended the short existence of the Pony Express and, beginning in 1876, found itself in competition with the telephone. The amplifying vacuum tube, invented in 1906, led to commercial radio. Television came into being in England in 1925. During the 1950s and 1960s, as television exploded throughout the world, communications philosopher Marshall McLuhan posed the notion of a “global village,” where we all share our hopes, dreams, and fears in a “worldpool” of information. The global village refers to the “shrinking” of time and space as air travel and the electronic media have made it easier for the people around the globe to communicate with one another. Then the world became even faster and smaller. Twentyfive years ago, cell phones, pagers, fax, and voicemail links barely existed. When AT&T launched the first cellular communications system in 1983, it predicted fewer than a million users by 2000. By the end of 1993, however, there were more than 16 million cellular phone subscribers in the United States. 18 And by 2014, there were nearly 7 billion mobilecellular subscriptions, with global penetration reaching almost 96%. 19 The Net, the Web, & the World Then came the Internet, the worldwide computerlinked “network of networks.” Today, of the 7.2 billion people in the world, 39% are Internet users. 20 The Net might have remained the province of academicians had it not been for the contributions of Tim BernersLee, who came up with the coding system, linkages, and addressing scheme that debuted in 1991 as the World Wide Web. “He took a powerful communications system [the Internet] that only the elite could use,” says one writer, “and turned it into a mass medium.” 21 The arrival of the web quickly led to ecommerce , or electronic commerce, the buying and selling of products and services through computer networks. U.S. retail ecommerce sales were estimated at $263.3 billion for 2013, up 16.9% over the previous year. 22 One Big World Market: The Global Economy “We are seeing the results of things started in 1988 and 1989,” said Rosabeth Moss Kantor of the Harvard Business School, referring to three historic global changes. 23 The first was in the late 1980s when the Berlin Wall came down, signaling the beginning of the end of communism in Eastern Europe. The second was when Asian countries began to open their economies to foreign investors. The third was the worldwide trend of governments deregulating their economies. These three events set up conditions by which goods, people, and money could move more freely throughout the world—a global economy. The global economy refers to the increasing tendency of the economies of the world to interact with one another as one market instead of many national markets. It’s no secret the economies of the world are increasingly tied together, connected by information arriving instantaneously through currency traders’ screens, CNN news reports, twitter feeds, text messages, and other technology. Money, represented by digital blips, changes hands globally in a matter of keystrokes. Positive Effects Is a global economy really good for the United States? “Ultimately, the medium to longterm benefits of globalization are positive for everybody,” says the CEO of Infosys Technologies in India. “Let Page 104 Page 105 me give you an example. As our industry has increased economic activity in India, it’s becoming a bigger market for American exports. . . . Today you can’t find any soft drinks in India except Coke or Pepsi.” 24 Globalization. Coke and Pepsi already dominate India’s beverage market of 1.2 billion people, and now both companies are going after the fruitjuice market among India’s increasingly healthconscious consumers. Do you see any negative effects to this? In addition, foreign firms are building plants in the United States, revitalizing parts of industrial America. 25 Indeed, foreign direct investment makes up 15% of the country’s gross domestic product (total value of all goods and services). Companies based overseas provide jobs for approximately 10% of the U.S. workforce. 26 Eventually, suggests Gregg Easterbrook, author of Sonic Boom: Globalization at Mach Speed, worldwide economic growth will create “rising prosperity and higher living standards. . . . The world will be far more interconnected, leading to better and more affordable products, as well as ever better communication among nations.” 27 Negative Effects However, global economic interdependency can also be dangerous. Financial crises throughout the world resulted in vast surplus funds from global investments flowing into the United States and being invested badly in a housingandcredit bubble that burst (the socalled subprime mortgages meltdown), leading to the 2007–2009 Great Recession that hurt so many people. 28 Another negative effect is the movement, or outsourcing, of formerly wellpaying jobs overseas as companies seek cheaper labor costs, particularly in manufacturing. Soaring new U.S. skyscrapers, for example, are more apt to have windows made in China than in Ohio, a glassmaking state. 29 The developers of apps, or software for cell phones and other mobile platforms, are more likely to be overseas, even though more and more people in the United States owe their jobs to the existence of apps. 30 Some economists fear that many jobs lost through the recession and offshoring may simply never come back. 31 (But some are, as we will see.) Indeed, while “the horizon has never been brighter,” says Easterbrook, “we may not feel particularly happy about it.” The reasons: “Job instability, economic insecurity, a sense of turmoil, the fear that even when things seem good a hammer is about to fall—these are also part of the larger trend. As world economies become ever more linked by computers, job stress will become a 24/7 affair. Frequent shakeups in industries will cause increasing uncertainty.” 32 But the global economy isn’t going to go away just because we don’t like some of its destabilizing aspects. CrossBorder Business: The Rise of Both Megamergers & Minifirms Worldwide The global market driven by electronic information “forces things to get bigger and smaller at the same time,” suggests technology philosopher Nicholas Negroponte. “There will be an increasing absence of things that aren’t either very local or very global.” 33 If Negroponte is correct, this means we will see more and more of two opposite kinds of businesses: mergers of huge companies into even larger companies, and small, fastmoving, startup companies. Megamerger. For a time after Italian automaker Fiat acquired U.S. automaker Chrysler, the corporate logos of both companies appeared independently. In 2014, the merged entity, Fiat Chrysler Automobiles, began to display its new logo, FCA. Do you think the two companies should have retained their distinct identities? Megamergers Operating Worldwide Union Pacific + Southern Pacific. Kmart + Sears. Whole Foods + Wild Oats. Bank of America + Merrill Lynch. Roche + Genentech. Ticketmaster + Live Nation. Mattel (maker of Barbie Doll) + Hit Entertainment (Bob the Builder). Signet Jewelers + Zales. Jos. A. Bank + Eddie Bauer. Comcast + Time Warner Cable. Cerberus (Albertsons) + Safeway. The last 20 years have seen a surge in mergers. 34 Certain industries—oil, telecommunications, automobiles, financial services, and pharmaceuticals, for instance—aren’t suited to being midsize, let alone small and local, so companies in these industries are trying to become bigger and crossborder. The means for doing so is to merge with other big companies. In telecommunications, for instance, Comcast targeted Time Warner Cable and in automobiles Fiat targeted Chrysler. Indeed, auto companies are among the firms expected to accelerate the trend in partnerships and mergers with rivals in order to share the cost of research and streamline their production. 35 Utilities have also turned to mergers as power demands have slowed (despite the increase in tablet computers, data centers, and electric vehicles). 36 Minifirms Operating Worldwide The Internet and the World Wide Web allow almost anyone to be global, with two important results: 1. Small companies can get started more easily. Because anyone can put goods or services on a website and sell worldwide, this wipes out the former competitive advantages of distribution and scope that large companies used to have. 2. Small companies can maneuver faster. Little companies can change direction faster, which gives them Page 106 EXAMPLE an advantage in terms of time and distance over large companies. You & International Management Why learn about international management, and what characterizes the successful international manager? THE BIG PICTURE Studying international management prepares you to work with foreign customers or suppliers, for a foreign firm in the United States or for a U.S. firm overseas. Successful international managers aren’t ethnocentric or polycentric but geocentric. Can you see yourself working overseas? It can definitely be an advantage to your career. “There are fewer borders,” says Paul McDonald, executive director of recruitment firm Robert Half Management Resources. “Anyone with international experience will have a leg up, higher salary, and be more marketable.” 37 The recent brutal U.S. job market has also spurred more Americans to hunt for jobs overseas. 38 Americans Working Overseas When Charles Wang, an industrial engineering major, completed his junior year at Georgia Institute of Technology, he joined UPS (United Parcel Service) as a project manager. His assignment: Go to Dubai for 10 months and develop a delivery system for the Arab country’s firstever network of streets and addresses. Following graduation, he said he planned to return to Dubai for a permanent job “because of . . . my inability to find good jobs in the U.S.” 39 Jacob Schickler, 25, moved to Beijing and found a job with a German company working in business development. He hoped the China experience would give him an edge over other young adults in the United States. “Many of my friends are bright, intelligent people with very expensive degrees,” he said, “but they have not been able to put them to use yet. I’m getting real work experience.” 40 Wang and Schickler aren’t just doing a little travel overseas for “exposure” to the culture (which many Americans do, frequently hauling mobile gadgets that allow them to “dwell in a snugly tailored reality of our own creation,” complains one critic in a column headed “Traveling without Seeing”). 41 These two young Americans resemble their Chinese counterparts who come to the United States or Canada to seek an edge that will pay off in career boosts at home. 42 This is the kind of experience endorsed by Bob Moritz, who leads U.S. consulting firm PricewaterhouseCoopers. Moritz says that living in Japan “taught me big lessons that I actually have developed into a leadership style.” 43 The lessons: (1) “Over there, I was the [racial] minority. . . . I was the guy discriminated against. So it gave me a different perspective on diversity.” (2) It also taught him “about diversity of thought and cultural diversity. In Japan, you respect titles. You respect age. And you don’t challenge authority.” This has allowed him to understand and practice global business “in a way so that people feel good and not threatened.” YOUR CALL How do you feel about following these intrepid travelers? How can you begin to prepare yourself for working overseas? PRACTICAL ACTION Page 107 Foreign experience demonstrates independence, resourcefulness, and entrepreneurship, according to management recruiters. “You are interested in that person who can move quickly and is nimble and has an inquiring mind,” says one. People who have worked and supported themselves overseas, she says, tend to be adaptive and inquisitive—valuable skills in today’s workplace. 44 Part of the action. If “all of the action in business is international,” as one expert says, what role do you think you might play in it? Do you think cultural bias against women in some foreign countries contributes to the low percentage of U.S. female executives working abroad? Why Learn about International Management? International management is management that oversees the conduct of operations in or with organizations in foreign countries, whether it’s through a multinational corporation or a multinational organization. Multinational Corporations A multinational corporation , or multinational enterprise, is a business firm with operations in several countries. Our publisher, McGrawHill, is one such multinational (with a presence in 17 foreign cities). In terms of sales revenue, the largest American multinational corporations in 2013 were WalMart Stores, Exxon Mobil, Chevron, Phillips 66, Apple, Berkshire Hathaway, General Motors, General Electric, and Ford. The largest foreign firms were the oil companies Royal Dutch Shell (Netherlands), SinoPec China Petroleum, BP (Britain), and PetroChina, followed by Volkswagen (Germany), and Toyota Motor (Japan). Of the world’s 2,000 largest multinational public companies, the United States has 543 members, Japan 251, and China 136. 45 Multinational Organizations A multinational organization is a nonprofit organization with operations in several countries. Examples are the World Health Organization, the International Red Cross, the Church of Latter Day Saints. Even if in the coming years you never travel to the wider world outside North America—an unlikely proposition, we think—the world will assuredly come to you. That, in a nutshell, is why you need to learn about international management. Being an Effective Road Warrior Since business travelers who fly 100,000plus miles a year are no longer a rare breed, should you prepare for the possibility of joining them? Business travel can have its rewards. Many people like getting away from their everyday workplace, with its endless meetings, coworker distractions, and work “fires” to put out. In addition, millennials in particular, for whom the line between “business” and “personal” time is becoming blurred, in one poll cited Page 108 discovering a new city as the best benefit of business travel (65%), along with experiencing new things (45%) and connecting with new people (37%). 46 Business travelers have learned the following three lessons. Lesson 1: Frequent Travel May Be Needed because Personal Encounters Are Essential. Nearly all business travelers—more than nine in 10—agree travel is important to achieving their business goals, according to one survey, with 82% of U.S. responders being the most positive about the critical value of facetoface client contacts. 47 Yes, technologies such as smartphones, email, and videoconferencing make it easier to connect with others—superficially, at least. “But,” says an investment banker, “in a global world you have to get in front of your employees, spend time with your clients, and show commitment when it comes to joint ventures, mergers, and alliances. The key is thoughtful travel—traveling when necessary.” 48 Adds another top executive, “If you are going to disagree with somebody, you certainly don’t want to do it by email, and if possible you don’t even want to do it by phone. You want to do it face to face.” 49 Lesson 2: Travel May Be Global, but Understanding Must Be Local. “In China, we had translators, but we were still used to conducting business American style, where you can get a deal done in two hours and everyone leaves happy,” says Ty Morse, whose company develops things like text messaging platforms and mobile payment processing solutions. “But in Asia, every meeting was about 10 hours long and everyone wanted to serve us food. We were so stuffed and jetlagged, it was ridiculous.” 50 Being a road warrior is all about making bets with one’s time, calculating the strategy of where to be when. Thus, worldtraveling executives must do their homework to know cultures, organizations, and holders of power. “Cull information on the individuals and companies you’re visiting,” says one expert. “Follow the news relating to the region. If possible try to read a few books about the history and culture of the lands you will visit. . . . Learn a few words too.” 51 Because in Asia and the Middle East personal relationships are crucial to getting things done, you need to engage in small talk and avoid business talk during afterhours outings. Says Ted Dale, president of international business consulting firm Aperian Global, “You need to spend outofoffice time in social settings.” In Asia, the Middle East, and Latin America, it’s important to understand organizational hierarchy, as represented by professional titles and age. 52 Lesson 3: Travel Downtime Can Be Used to Expand Business Contacts. It’s tempting at the end of a business day to head to your hotel room and the TV set. But savvy travelers know that downtime is a great opportunity to network and make new contacts. Columnist Anita Bruzzese points out that some hotels offer evening socials that businesspeople can use to meet others in a relaxed setting with food and drink at hand. Bruzzese tells of one veteran, Patricia Rossi, who contacts her regular Twitter followers and asks them to meet her if she’s in their city. “You’ve already developed those relationships online,” Rossi says. “But this is a chance to get kneecap to kneecap, which is so important.” 53 YOUR CALL As we discussed, managers must be prepared to work for organizations that operate not only countrywide but worldwide. To stay connected with colleagues, employees, clients, and suppliers, you may have to travel a lot. Does this give you cause for concern? What do you think you should do about it? More specifically, consider yourself in the following situations: You May Deal with Foreign Customers or Partners While working for a U.S. company you may have to deal with foreign customers. Or you may have to work with a foreign company in some sort of joint venture. The people you’re dealing with may be outside the United States or visitors to it. 54 Either way you would hate to blow a deal—and maybe all future deals—because you were ignorant of some cultural aspects you could have known about. Examples are legion. 55 One American executive inadvertently insulted or embarrassed Thai businessmen by Page 109 starting gatherings talking about business. “That’s a nono,” he says. “I quickly figured out that I was creating problems by talking business before eating lunch and by initiating the talks.” You May Deal with Foreign Employees or Suppliers While working for an American company you may have to purchase important components, raw materials, or services from a foreign supplier. 56 And you never know where foreign practices may diverge from what you’re accustomed to. Many software developer jobs, for instance, have been moved outside the United States—to places such as India, New Zealand, and Eastern Europe. A lot of U.S. software companies—Microsoft, IBM, Oracle, Motorola, Novell, HewlettPackard, and Texas Instruments—have opened offices in India to take advantage of highquality labor. General Electric, Caterpillar, and 3M have spent millions expanding their overseas research labs. 57 You May Work for a Foreign Firm in the United States You may sometime take a job with a foreign firm doing business in the United States, such as an electronics, pharmaceutical, or car company. And you’ll have to deal with managers above and below you whose outlook is different from yours. For instance, Japanese companies, with their emphasis on correctness and face saving, operate in significantly different ways from American companies. Sometimes it is even hard to know that an ostensibly U.S. company actually has foreign ownership. For example, among some classic American brands that are now foreign owned are Budweiser beer (introduced in St. Louis in 1876 by AnheuserBusch, which is now owned by BelgianBrazilian conglomerate InBev), and Vaseline (founded in Brooklyn in 1870, now owned by AngloDutch company Unilever), as well as Popsicle (Unilever), Purina (Nestlé of Switzerland), Frigidaire (AB Electrolux, Sweden), and 7Eleven (Seven & I Holdings, Japan). 58 Working for a foreign firm. If you thought you might work for a foreign firm, either at home or overseas, what should you be doing now to prepare for it? You May Work for an American Firm Outside the United States—or for a Foreign One You might easily find yourself working abroad in the foreign operation of a U.S. company. Most big American corporations have overseas subsidiaries or divisions. On the other hand, you might also well work for a foreign firm in a foreign country, such as a big Indian company in Bangalore or Mumbai. The Successful International Manager: Geocentric, Not Ethnocentric or Polycentric Maybe you don’t really care that you don’t have much understanding of the foreign culture you’re dealing with. “What’s the point?” you may think. “The main thing is to get the job done.” Certainly there are international firms with managers who have this perspective. They are called ethnocentric, one of three primary attitudes among international managers, the other two being polycentric and geocentric. 59 Ethnocentric Managers—“We Know Best” What do foreign executives fluent in English think when they hear Americans using an endless array of baseball, basketball, and football phrases (such as “out of left field” or “Hail Mary pass”). 60 Ethnocentric managers believe that their native country, culture, language, and behavior are superior to all others. Ethnocentric managers tend to believe that they can export Page 110 the managers and practices of their home countries to anywhere in the world and that they will be more capable and reliable. Often the ethnocentric viewpoint is less attributable to prejudice than it is to ignorance, since such managers obviously know more about their home environment than the foreign environment. Ethnocentrism might also be called parochialism —that is, a narrow view in which people see things solely through their own perspective. Is ethnocentrism bad for business? It seems so. A survey of 918 companies with home offices in the United States, Japan, and Europe found that ethnocentric policies were linked to such problems as recruiting difficulties, high turnover rates, and lawsuits over personnel policies. 61 Ethnocentric views also affect our purchasing decisions. Some people believe that we should only purchase products made in our home country. What are your views about being an ethnocentric consumer? You can find out by taking SelfAssessment 4.1. SELFASSESSMENT 4.1 Assessing Your Consumer Ethnocentrism This survey is designed to assess your consumer ethnocentrism. Go to connect.mheducation.com and take the SelfAssessment 4.1. When you’re done, answer the following questions: 1. Are you surprised by the results? What do they suggest about your purchasing decisions? What are the pros and cons of being an ethnocentric consumer? 2. How do American companies, associations, and unions encourage us to be ethnocentric consumers? Polycentric Managers—“They Know Best” Polycentric managers take the view that native managers in the foreign offices best understand native personnel and practices, and so the home office should leave them alone. Thus, the attitude of polycentric managers is nearly the opposite of that of ethnocentric managers. Geocentric Managers—“What’s Best Is What’s Effective, Regardless of Origin” Geocentric managers accept that there are differences and similarities between home and foreign personnel and practices and that they should use whatever techniques are most effective. Clearly, being an ethno or polycentric manager takes less work. But the payoff for being a geocentric manager can be far greater. The Manager’s Toolbox at the beginning of this chapter gives some tips on being geocentric, which you should review again. Why & How Companies Expand Internationally Why do companies expand internationally, and how do they do it? THE BIG PICTURE Multinationals expand to take advantage of availability of supplies, new markets, lower labor costs, access to finance capital, or avoidance of tariffs and import quotas. Five ways they do so are by global outsourcing; importing, exporting, and countertrading; licensing and franchising; joint ventures; and whollyowned subsidiaries. Who makes Apple’s iPhone? An estimated 90% of the components are manufactured overseas, by workers in Germany, Singapore, Korea, and elsewhere. The display screens, for instance, come mostly from Asia, especially South Korea and Japan; the phone itself is assembled in China. 62 Who makes the furniture sold by Ethan Allen, that most American of names, evoking Ethan Allen and the Green Mountain Boys of the American Revolution? Most of it still is made in the United States, but a lot is made by suppliers in Mexico, China, the Philippines, Indonesia, and Vietnam. 63 Where is consumerproducts giant Procter & Gamble going to seek additional consumers? Nearly twothirds of P&G’s sales and more than half its profits come from outside the United States, and the company is aggressively pursing business in developing markets like Africa and parts of Latin America and Asia. 64 (In Mexico, for example, it sells to poor consumers at small, rudimentary markets who will buy a singleuse P&G shampoo packet.) 65 There are many reasons why American companies are going global. Let us consider why and how they are expanding beyond U.S. borders. U.S. export. Popular entertainment is a major U.S. export, as was the 2014 film The Amazing SpiderMan 2, which took top spot in Chinese theaters. Are there any negatives to sending American popular culture overseas? Why Companies Expand Internationally Many a company has made the deliberate decision to restrict selling its product or service to just its own country. Is anything wrong with that? The answer is: It depends. It would probably have been a serious mistake for NEC, Sony, or Hitachi to have limited their markets solely to Japan during the 1990s, a time when the country was in an economic slump and Japanese consumers weren’t consuming. During that same period, however, some American banks might have been better off not making loans abroad, when the U.S. economy was booming but foreign economies were not. Going international or not going international—it can be risky either way. Why, then, do companies expand internationally? There are at least five reasons, all of which have to do with making or saving money. 1. Availability of Supplies Antique and art dealers, mining companies, banana growers, sellers of hard Page 111 woods—all have to go where their basic supplies or raw materials are located. For years oil companies, for example, have expanded their activities outside the United States in seeking cheaper or more plentiful sources of oil. 2. New Markets Sometimes a company will find, as cigarette makers have, that the demand for their product has declined domestically but that they can still make money overseas. Or sometimes a company will steal a march on its competitors by aggressively expanding into foreign markets, as did CocaCola over PepsiCo under the leadership of legendary CEO Robert Goizueta. From 2000 to 2010, exports of American goods jumped 66%; the export of services increased even more—84%. 66 3. Lower Labor Costs The decline in manufacturing jobs in the United States is directly attributable to the fact that American companies have found it cheaper to do their manufacturing outside the States. For example, the rationale for using maquiladoras —manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens—is that they provide less expensive labor for assembling everything from appliances to cars. Even professional or service kinds of jobs, such as computer programming, may be shipped overseas. (However, a countertrend, called “deglobalization,” is that some companies are moving production back home, because long supply chains can be easily affected by the whims of geopolitics and energy prices and the United States remains a manufacturing power for highervalue products.) 67 4. Access to Finance Capital Companies may be enticed into going abroad by the prospects of capital being put up by foreign companies or sudsidies from foreign governments. For example, Woody Allen’s 2013 film Blue Jasmine, in which Cate Blanchett plays a woman whose husband is revealed to be a Bernie Madoff– like con man, received most of its financing from overseas investors, as do many other American movies. 68 5. Avoidance of Tariffs & Import Quotas Countries place tariffs (fees) on imported goods or impose import quotas—limitations on the numbers of products allowed in—for the purpose of protecting their own domestic industries. For example, Japan imposes tariffs on agricultural products, such as rice, imported from the United States. To avoid these penalties, a company might create a subsidiary to produce the product in the foreign country. General Electric and Whirlpool, for example, have foreign subsidiaries to produce appliances overseas. How Companies Expand Internationally Most companies don’t start out to be multinationals. Generally, they edge their way into international business, at first making minimal investments and taking minimal risks, as shown in the drawing below. (See Figure 4.1.) FIGURE 4.1 Five Ways of Expanding Internationally These range from lowest risk and investment (left) to highest risk and investment (right). Let’s consider the five ways of expanding internationally shown in the figure. 1. Global Outsourcing A common practice of many companies, outsourcing is defined as using suppliers outside the company to provide goods and services. For example, airlines farm out a lot of aircraft maintenance to other companies. Management philosopher Peter Drucker believed that in the near future organizations might be outsourcing all work that is “support”—such as information systems—rather than revenue producing. Global outsourcing extends this technique outside the United States. Global outsourcing, or offshoring, is Page 112 PRACTICAL ACTION defined as using suppliers outside the United States to provide labor, goods, or services. The reason may be that the foreign supplier has resources not available in the United States, such as Italian marble. Or the supplier may have special expertise, as do Pakistani weavers. Or—more likely these days —the supplier’s labor is cheaper than American labor. As a manager, your first business trip outside the United States might be to inspect the production lines of one of your outsourcing suppliers. 2. Importing, Exporting, & Countertrading When importing, a company buys goods outside the country and resells them domestically. Nothing might seem to be more American than Caterpillar tractors, but they are made not only in the United States but also in Canada, from which they are imported and made available for sale in the United States. 69 Many of the products we use are imported, ranging from Heineken beer (Netherlands) to Texaco gasoline (Saudi Arabia) to Honda snowblowers (Japan). Global Outsourcing: Which Jobs Are Likely to Fall Victim to Offshoring? Will there be any good jobs left for new college graduates? Americans are rightly concerned about the changing jobs picture, brought about not only by the dismal aftermath of the 2007–2009 Great Recession but also earlier in part by offshoring of work to lowwage countries such as China, India, and the Philippines. Few of the millions of factory jobs that have been lost during the last 10 years have been replaced, and today just 9% of American workers are employed in manufacturing. This has forced many workers—when they were able to work at all—to accept lowerpaying alternatives, such as jobs in retail and health care, which pay far less than manufacturing jobs. 70 More recently, the same trend—global outsourcing—has been happening with whitecollar jobs. Forrester Research estimates that 3.4 million service jobs will have moved offshore between 2000 and 2015. 71 Among them are jobs in office support, computer, business operations, architecture, legal, sales, and art and design. 72 How Can You Prepare for an Offshored World? “I believe [companies] should outsource everything for which there is no career track that could lead into senior management,” said management philosopher Peter Drucker. An example, he said, is the job of totalqualitycontrol specialist, work that can be done overseas. 73 “As soon as a job becomes routine enough to describe in a spec sheet, it becomes vulnerable to outsourcing,” says another writer. “Jobs like data entry, which are routine by nature, were the first among obvious candidates for outsourcing.” But even “design and financialanalysis skills can, with time, become wellenough understood to be spelled out in a contract and signed away.” 74 Says Fred Levy, a Massachusetts Institute of Technology economist, “If you can describe a job precisely, or write rules for doing it, it’s unlikely to survive. Either we’ll program a computer to do it, or we’ll teach a foreigner to do it.” 75 Which Jobs Will Remain in the United States? It is difficult to predict which jobs will remain at home, since even the Bureau of Labor Statistics often can’t get it right. However, jobs that endure may share certain traits, listed below, regardless of the industry they serve: 76 • Facetoface. Some involve facetoface contact, such as being a salesperson with a specific territory or an emergency room doctor. • Physical contact. Other jobs involve physical contact, such as those of dentists, nurses, massage therapists, gardeners, and nursinghome aides. • Making highend products. Highend products that require intensive research, precision assembly, and complex technology requiring skilled workers are good candidates for the U.S. labor market, says Eric Page 113 Spiegel, CEO of the Siemens Corp. Lowend, lowtechnology products, such as textiles and furniture, will doubtless continue to be offshored. 77 • Recognizing complex patterns. Others involve the human ability to recognize complex patterns, which are hard to computerize, such as a physician’s ability to diagnose an unusual disease (even if the Xrays are read by a radiologist in India). This also describes such jobs as teaching first grade or selling a mansion to a millionaire or jobs that demand an intimate knowledge of the United States, such as marketing to American teenagers or lobbying Congress. Survival Rules For you, as a prospective manager, there are perhaps three ideas to take away from all this: • Teamwork and creativity. “Jobs that persist are dynamic and creative and require the ability to team with others,” says Jim Spohrer of the IBM Almaden Research Center in San Jose, California, which studies the business operations of IBM’s corporate clients. “At its heart, a company is simply a group of teams that come together to create” products and services. 78 • Flexibility. “Jobs used to change very little or not at all over the course of several generations,” says Spohrer. “Now, they might change three or four times in a single lifetime.” Flexibility—as in being willing to undergo retraining—thus becomes important. Fortunately, as Drucker pointed out, the United States is “the only country that has a very significant continuing education system. This doesn’t exist anywhere else.” The United States is also the only country, he said, in which it is easy for younger people to move from one area at work to another. 79 • Education. The more education one has, the more one is apt to prevail during times of economic change. Men and women with four years of college, for instance, earn nearly 45% more on average than those with only a high school diploma. 80 YOUR CALL What kind of job or jobs are you interested in that would seem to provide you with some hopes of prevailing in a fastchanging world? When exporting, a company produces goods domestically and sells them outside the country. One of the greatest U.S. exports is American pop culture, in the form of movies, music, and fashion. The United States is also a leader in exporting computers and other information technology. The U.S. was ranked the number 3 exporter in the world in 2013, down from number 1 a few years earlier. (See Table 4.2.) TABLE 4.2 Top 10 exporting countries, 1999 and 2013 Source: “Country Comparison: Exports, Top Ten,” Index Mundi and CIA Fact Book, www.indexmundi.com/g/r.aspx?v=85&t=10 (accessed April 15, 2014). Exports are measured in U.S. dollars. Page 114 Sometimes other countries may wish to import American goods but lack the currency to pay for them. In that case, the exporting U.S. company may resort to countertrading —that is, bartering goods for goods. When the Russian ruble plunged in value in 1998, some goods became a better medium of exchange than currency. 3. Licensing & Franchising Licensing and franchising are two aspects of the same thing, although licensing is used by manufacturing companies and franchising is used more frequently by service companies. In licensing, a company allows a foreign company to pay it a fee to make or distribute the first company’s product or service. For example, the Du Pont chemical company might license a company in Brazil to make Teflon, the nonstick substance that is found on some frying pans. Thus, Du Pont, the licensor, can make money without having to invest large sums to conduct business directly in a foreign company. Moreover, the Brazilian firm, the licensee, knows the local market better than Du Pont probably would. Franchising is a form of licensing in which a company allows a foreign company to pay it a fee and a share of the profit in return for using the first company’s brand name and a package of materials and services. For example, Burger King, Hertz, and Hilton Hotels, which are all wellknown brands, might provide the use of their names plus their operating knowhow (facility design, equipment, recipes, management systems) to companies in the Philippines in return for an upfront fee plus a percentage of the profits. By now Americans traveling throughout the world have become accustomed to seeing socalled U.S. stores everywhere. Some recently active companies: Toys R Us opened a store in Poland. Gap opened an Old Navy store in Japan and a Banana Republic store in Paris. Tiffany’s opened a jewelry store in Russia. Starbucks opened a store in Colombia. 81 Page 115 Volvo. Who owns what car brand these days? Formerly British brands Jaguar and Land Rover now belong to Tata of India. Volkswagen owns the formerly British Bentley and Italian Lamborghini. Volvo, whose cars and trucks are still made in Sweden, is owned by Chinese automaker Geely. Do you think the American companies General Motors and Ford could ever wind up under foreign ownership, as Chrysler has (owned by Fiat)? 4. Joint Ventures Strategic allies (described in Chapter 3) are two organizations that have joined forces to realize strategic advantages that neither would have if operating alone. A U.S. firm may form a joint venture, also known as a strategic alliance, with a foreign company to share the risks and rewards of starting a new enterprise together in a foreign country. For instance, General Motors operates a joint venture with Shanghai Automotive Industry Group to build Buicks in China. 82 Ford also has a joint venture in China with Changan Ford. 83 Sometimes a joint venture is the only way an American company can have a presence in a certain country, whose laws may forbid foreigners from ownership. Indeed, in China, this is the only way foreign cars may be sold in that country. 5. WhollyOwned Subsidiaries A whollyowned subsidiary is a foreign subsidiary that is totally owned and controlled by an organization. The foreign subsidiary may be an existing company that is purchased outright. A greenfield venture is a foreign subsidiary that the owning organization has built from scratch. General Motors owns majority stakes in Adam Opel AG in Germany and Vauxhall Motor Cars Ltd. in the United Kingdom. The World of Free Trade: Regional Economic Cooperation What are barriers to free trade, and what major organizations and trading blocs promote trade? THE BIG PICTURE Barriers to free trade are tariffs, import quotas, and embargoes. Organizations promoting international trade are the World Trade Organization, the World Bank, and the International Monetary Fund. Major trading blocs are NAFTA, the EU, APEC, ASEAN, Mercosur, and CAFTA. If you live in the United States, you see foreign products on a daily basis—cars, appliances, clothes, foods, beers, wines, and so on. Based on what you see every day, which countries would you think are our most important trading partners? China? Japan? Germany? United Kingdom? South Korea? These five countries do indeed appear among the top leading U.S. trading partners. Interestingly, however, our foremost trading partners are our immediate neighbors—Canada and Mexico—whose products may not be quite so visible. (See Table 4.3, right.) Let’s begin to consider free trade, the movement of goods and services among nations without political or economic obstruction. TABLE 4.3 Top 10 U.S. trading partners in goods, February 2014 Source: U.S. Census Bureau, “Top Trading Partners—February 2014,” April 3, 2014, www.census.gov/foreigntrade/statistics/highlights/top/top1402cm.html (accessed April 15, 2014). Barriers to International Trade Countries often use trade protectionism —the use of government regulations to limit the import of goods and services—to protect their domestic industries against foreign competition. The justification they often use is that this saves jobs. Actually, protectionism is not considered beneficial, mainly because of what it does to the overall trading atmosphere. The devices by which countries try to exert protectionism consist of tarif s, import quotas, and embargoes. Page 116 1. Tariffs A tariff is a trade barrier in the form of a customs duty, or tax, levied mainly on imports. At one time, for instance, to protect the American shoe industry, the United States imposed a tariff on Italian shoes. Actually, there are two types of tariffs: One, called a revenue tarif , is designed simply to raise money for the government, such as a tax on all oil imported into the United States. The other, which concerns us more, is a protective tarif , which is intended to raise the price of imported goods to make the prices of domestic products more competitive. Beginning in late 2011, in a dispute that was still ongoing three years later, seven U.S. makers of solar panels sought trade tariffs from the U.S. Commerce Department of more than 100% on solar panels made in China, on the grounds that it used billions of dollars in government subsidies to help gain sales in the American market. 84 A couple of months later, four U.S. makers of steel towers for wind turbines also filed a trade complaint against China and Vietnam seeking tariffs of 60% for the same reasons. 85 For its part, China raised tariffs on foreign auto brands, presumably to protect its own domestic car industry. 86 (Today a fully loaded Mini Cooper costing $52,500 in the United States goes for $85,000 in China, which has a 25% import tax plus a 17% valueadded and consumption tax. 87 ) Playing by the rules? Four of the five top solar cell producers are based in China, where the government has subsidized the development of this technology, to the detriment of American and European solar industries. What do you think the United States should do to equalize the situation? Impose tariffs (special taxes) on some Chinese imports? Subsidize our own solar industry? 2. Import Quotas An import quota is a trade barrier in the form of a limit on the numbers of a product that can be imported. Its intent is to protect domestic industry by restricting the availability of foreign products. As a condition of being allowed into the World Trade Organization, China agreed, starting in 2005, to cancel car import quotas, which it had used to protect its domestic car manufacturing industry against imported vehicles from the United States, Japan, and Germany. 88 However, it has not done the same with export quotas, where it has been found to have broken international trade law by imposing quotas on the export from China of rare earth elements (17 minerals with names like indium, gallium, and tellurium), which are crucial to making hightechnology products, including mobile phones, hybrid cars, and 3D TV screens. 89 Quotas are designed to prevent dumping, the practice of a foreign company’s exporting products abroad at a lower price than the price in the home market—or even below the costs of production—in order to drive down the price of the domestic product. In 2009, the U.S. International Trade Commission imposed antidumping duties of 10%–16% more on Chinese government–subsidized steel imported into the United States that damaged the American steel industry. 90 3. Embargoes Ever seen a real Cuban cigar? They’re difficult for Americans to get, since they’re embargoed. An embargo is a complete ban on the import or export of certain products. It has been years since anyone was allowed to import Cuban cigars and sugar into the United States or for an American firm to do business in Cuba. 91 (Even so, the United States reportedly exported more than $350 million in goods, such as food and medicine, to the island in 2013, mainly through cash remittances that Cuban Americans sent relatives.) 92 In early 2012, European countries agreed to embargo—refuse to import—any oil from Iran, amounting to about a fifth of Iran’s total exports, if that country did not agree to allow continued sea traffic Page 117 through the Gulf of Hormuz; the United States is also embargoing Iran. 93 Organizations Promoting International Trade In the 1920s, the institution of tariff barriers did not so much protect jobs as depress the demand for goods and services, thereby leading to the loss of jobs anyway—and the massive unemployment of the Great Depression of the 1930s. 94 As a result of this lesson, after World War II the advanced nations of the world began to realize that if all countries could freely exchange the products that each could produce most efficiently, this would lead to lower prices all around. Thus began the removal of barriers to free trade. The three principal organizations designed to facilitate international trade are the World Trade Organization, the World Bank, and the International Monetary Fund. 1. The World Trade Organization (WTO) Consisting of 159 member countries, the World Trade Organization (WTO) is designed to monitor and enforce trade agreements. The agreements are based on the General Agreement on Tarif s and Trade (GATT), an international accord first signed by 23 nations in 1947, which helped to reduce worldwide tariffs and other barriers. Out of GATT came a series of “rounds,” or negotiations, that resulted in the lowering of barriers; for instance, the Uruguay Round, implemented in 1996, cut tariffs by onethird. The current round of negotiations, the Doha Round, which began in Doha, Qatar, is aimed at helping the world’s poor by, among other things, reducing trade barriers, including improving customs rules and procedures. 95 Founded in 1995 and headquartered in Geneva, Switzerland, WTO succeeded GATT as the world forum for trade negotiations and has the formal legal structure for deciding trade disputes. WTO also encompasses areas not previously covered by GATT, such as services and intellectual property rights. A particularly interesting area of responsibility covers telecommunications—cell phones, pagers, data transmission, satellite communications, and the like—with half of the WTO’s 159 members agreeing to open their markets to foreign telecommunications companies. 96 2. The World Bank The World Bank was founded after World War II to help European countries rebuild. Today the purpose of the World Bank is to provide lowinterest loans to developing nations for improving transportation, education, health, and telecommunications. The bank has 188 member nations, with most contributions coming from Britain, the United States, Japan, and Germany. In recent times, protesters have complained the World Bank has financed projects that could damage the ecosystem, such as the Three Gorges Dam on China’s Yangtze River, or supported countries that permit lowpaying sweatshops or that suppress religious freedom. Others think it has dragged its feet on getting affordable AIDS drugs to lessdeveloped countries in Africa and lent millions to a palm oil company in Honduras accused of links to assassinations and forced evictions. 97 In 2014 the World Bank underwent a sweeping reorganization to encourage better collaboration and a quicker response. 98 It also announced it was nearly doubling its potential lending to developing countries such as China, India, and Brazil. 99 3. The International Monetary Fund Founded in 1945 and now affiliated with the United Nations, the International Monetary Fund is the second pillar supporting the international financial community. Consisting of 188 member nations, the International Monetary Fund (IMF) is designed to assist in smoothing the flow of money between nations. The IMF operates as a lastresort lender that makes shortterm loans to countries suffering from unfavorable balance of payments (roughly the difference between money coming into a country and money leaving the country, because of imports, exports, and other matters). In recent times, the IMF has become more high profile because of its role in trying to shore up some weaker European economies, including making loans to Greece, Portugal, and Ireland and considering how to assist Italy and Spain. 100 Lately it has been more concerned with addressing income inequality, which has worsened in most countries in the past three decades. 101 Page 118 Major Trading Blocs: NAFTA, EU, APEC, ASEAN, Mercosur, & CAFTA A trading bloc, also known as an economic community, is a group of nations within a geographical region that have agreed to remove trade barriers with one another. The six major trading blocs are the NAFTA nations, the European Union, the APEC countries, the ASEAN countries, the Mercosur, and CAFTA. 1. NAFTA—the Three Countries of the North American Free Trade Agreement Formed in 1994, the North American Free Trade Agreement (NAFTA) is a trading bloc consisting of the United States, Canada, and Mexico, encompassing 444 million people. The agreement is supposed to eliminate 99% of the tariffs and quotas among these countries, allowing for freer flow of goods, services, and capital in North America. Trade with Canada and Mexico in 2010 accounted for onethird of the U.S. total, up from onequarter in 1989, and trade among the three nations has gone from $290 billion in 1993 to $1 trillion, according to government data. 102 Still, as one reporter points out, “the treaty never met many of its sweeping promises to close Mexico’s wage gap with the United States, boost job growth, fight poverty, and protect the environment.” 103 Is NAFTA a job killer, as some have complained? In Mexico, it has failed to generate substantial job growth and has hurt hundreds of thousands of subsistence farmers, leading to a surge in illegal immigration across the U.S. southern border. As for the United States, around 845,000 jobs have been lost because of increased imports from Canada and Mexico and the relocation of factories in the past two decades, according to government watchdog group Public Citizen. 104 However, some experts suggest that many jobs lost to Mexico during this period would probably have gone to China or elsewhere. 105 It also spurred a U.S. trade deficit—$177 billion in 2013, a nearly sevenfold increase above the preNAFTA level. 106 However, supporters insist NAFTA ultimately will result in more jobs and a higher standard of living among all trading partners. 2. The EU—the 28 Countries of the European Union Formed in 1957, the European Union (EU) consists of 28 trading partners in Europe, covering nearly 500 million consumers. Nearly all internal trade barriers have been eliminated (including movement of labor between countries), making the EU a union of borderless neighbors and the world’s largest free market, with a gross domestic product of $15.83 trillion in 2013, second only to that of the United States ($16.72 trillion). 107 By 2002, such national symbols as the franc, the mark, the lira, the peseta, and the guilder had been replaced with the EU currency, the euro, which has been adopted by 18 European countries. There was even speculation that someday the euro could replace the U.S. dollar as the dominant world currency. 108 However, in 2010 and Page 119 2011, the shaky finances and massive government debts of Portugal, Ireland, Italy, Greece, and Spain (socalled PIIGS) revealed an inherent weakness of the union—that both weak and strong economies were expected to coexist. 3. APEC—21 Countries of the Pacific Rim Founded in 1989, the AsiaPacific Economic Cooperation (APEC) is a group of 21 Pacific Rim countries whose purpose is to improve economic and political ties. Most countries with a coastline on the Pacific Ocean are members of the organization, as highlighted below, although there are a number of exceptions. APEC members, which include the United States, Canada, and China, work to reduce tariffs and other trade barriers across the AsiaPacific region. 4. ASEAN—10 Countries of the Association of Southeast Asian Nations The Association of Southeast Asian Nations (ASEAN) is a trading bloc consisting of 10 countries in Asia: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand, and Vietnam. Like other trading blocs, ASEAN is working on reducing trade barriers among member countries. ASEAN nations comprise a market of 610 million people; in January 2010, a ChinaASEAN Free Trade Area was established, the largest free trade area in the world in terms of population. 109 5. Mercosur—12 Countries of Latin America The Mercosur is the largest trade bloc in Latin America and has five core members—Argentina, Brazil, Paraguay, Uruguay, and Venezuela—and seven associate members: Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname. Besides reducing tariffs by 75%, Mercosur nations are striving for full economic integration, and the alliance is also negotiating trade agreements with NAFTA, the EU, and Japan. 110 Page 120 EXAMPLE 6. CAFTADR—Seven Countries of Central America The Central America Free Trade Agreement (CAFTADR), which involves the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua, is intended to reduce tariffs and other barriers to free trade. Most Favored Nation Trading Status Besides joining together in trade blocs, countries will also extend special, “most favored nation” trading privileges to one another. Most favored nation trading status describes a condition in which a country grants other countries favorable trading treatment such as the reduction of import duties. The purpose is to promote stronger and more stable ties between companies in the two countries. Exchange Rates The exchange rate is the rate at which the currency of one area or country can be exchanged for the currency of another’s. Americans deal in dollars with each other, but beyond the U.S. border we have to deal with pounds in England, euros in Europe, pesos in Mexico, and yuan in China. Because of changing economic conditions, the values of currencies fluctuate in relation to each other, so that sometimes a U.S. dollar, for example, will buy more goods and sometimes it will buy less. An American in London Dealing with Currency Exchange—How Much Are Those Jeans, Really? Let’s pretend $1 trades equal to 1 British pound, symbolized by £1. Thus, an item that costs 3 pounds (£3) can be bought for $3. If the exchange rate changes so that $1 buys £1½, then an item that costs £3 can be bought for $2 (the dollar is said to be “stronger” against the pound). If the rate changes so that $1 buys only ½ a pound (£0.5), an item that costs £6 can be purchased for $9 (the dollar is “weaker”). 111 In mid2014, the dollar was weaker, buying only .59 of a pound, whereas back in 2010 it had reached a high, averaging .67 of a pound. (Stated another way, £1 bought $1.56 in 2010 and $1.68 in April 2014.) How the Exchange Rate Matters. As this is written, the dollar is weaker again, and will buy only .59 of a pound. Thus, staying in London became more expensive for Americans. A hotel room that rents for £100 cost an American only $156 in 2010, but cost $168 in 2014. Indeed, if during those years, 2010 to 2014, you were an American living in England working for a U.S. company and paid in dollars, your standard of living went down. The Varying Cost of Living for Different Cities. Prices also vary among countries and cities throughout the world, with the standard of living of Chicago, say, being 40% less than that of London (the most expensive city in the world). To give you a sense of what an American’s purchasing power is worth in London when $1 equals .59 British pound (or £1 equals $1.68)—the exchange rate in April 2014—consider these prices for various goods in Chicago versus London (estimated in U.S. dollars, computed on www.expatistan.com): CHICAGO LONDON 2liter Coke $1.74 $3.20 (£1.90) Big Mac meal $6 $9 (£5.60) Levi’s 501 jeans $57 $108 (£64) Nike sports shoes $88 $107 (£63) Volkswagen Golf 2.0 TDI $22,526 $38,315 (£22,797) With this example you can see why it’s important to understand how exchange rates work and what value your U.S. dollars actually have. Of course, if you’re a Londoner looking at this kind of currency exchange rate and price differentials, it’s a terrific time to visit Chicago. 112 YOUR CALL Planning to visit Mexico, Canada, or one of those European countries (Germany, France) that uses the euro? Go online to www.xrates.com and figure out the exchange rate of the U.S. dollar and that country’s currency. Then go to www.expatistan.com and figure out what things cost in that country’s principal city versus a U.S. city near you. Could you afford to go? Get out much? Over onethird of Americans (110 million) have passports, more than double the number of U.S. passports (48 million) in circulation in 2000 and 15 times those in 1989 (7 million). At the same time, more visitors Page 121 from foreign countries are coming to the United States, with four countries expected to account for 59% of the projected growth in the near future: Canada (23%), China (18%), Mexico (11%), and Brazil (7%). How does the travel boom figure in your career plans? The Importance of Understanding Cultural Differences What are the principal areas of cultural differences? THE BIG PICTURE Managers trying to understand other cultures need to understand the importance of national culture and cultural dimensions and basic cultural perceptions embodied in language, interpersonal space, communication, time orientation, religion, and law and political stability. In 2007, while hooking up his laptop to a projector to make a video presentation to a roomful of Chinese executives in Shanghai, American management consultant Scott Margolis put up on the screen a desktop photo of his three children for a few seconds—and, he says, “the room got very quiet.” The reason, a Chinese colleague explained later: Displaying multiple children in a country that allowed only one child per family was potentially insulting. 113 Today China is loosening its singlechild rule, but Margolis’s story shows the potential cultural pitfalls of doing business in other countries. “Whether a multinational or a startup business out of a garage, everybody is global these days,” says international consultant Dean Foster. “In today’s economy, there is no room for failure. Companies have to understand the culture they are working in from Day 1.” 114 There are a lot of cultural differences American managers are going to have to get used to. In China, for instance, people draw different lines between personal and work spaces, so that, for example, it is permissible for office colleagues to inquire about the size of your apartment and your salary and to give assessments of your wardrobe and your muscle tone, matters considered personal in the United States. In South Korea, if you want to give a gift that’s considered classy and glamorous, you might present a can or two of Spam—yes, Spam, viewed as a thrifty tinnedmeat staple in the United States but in Korea still thought of as a symbol of luxury descending from a time of deprivation during the Korean war when only Americans had the product. 115 In the Arab world, which has historically been segregated by sex, men spend a lot of time together, and so holding hands, kissing cheeks, and long handshakes are meant to express devotion and equality in status. We considered some other cultural differences in the Manager’s Toolbox that opened this chapter. Page 122 Tipping point. The culture of tipping in restaurants varies from country to country. Whereas in the U.S. and Canada 15%–20% of the total bill is considered a standard tip (and 10% insulting), in Japan and China tips are not expected and are even considered inappropriate. In Hong Kong and Singapore, it’s up to the diner’s discretion (a 10% service charge is already added to the bill). In Europe, hotels and restaurants add a 10% charge and tipping is expected only for exceptional service. In Latin America, a tip of 10% is customary in most restaurants, and you’re expected to hand it to the person directly, not just leave it on the table. All clear? The Importance of National Culture A nation’s culture is the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people. We begin learning our culture starting at an early age through everyday interaction with people around us. This is why, from the outside looking in, a nation’s culture can seem so intangible and perplexing. As cultural anthropologist Edward T. Hall puts it, “Since much of culture operates outside our awareness, frequently we don’t even know what we know. . . . We unconsciously learn what to notice and what not to notice, how to divide time and space, how to walk and talk and use our bodies, how to behave as men or women, how to relate to other people, how to handle responsibility. . . .” 116 Indeed, says Hall, what we think of as “mind” is really internalized culture. And because a culture is made up of so many nuances, this is why visitors to another culture may experience culture shock—the feelings of discomfort and disorientation associated with being in an unfamiliar culture. According to anthropologists, culture shock involves anxiety and doubt caused by an overload of unfamiliar expectations and social cues. 117 Cultural Dimensions: The GLOBE Project Misunderstandings and miscommunications often arise in international business relationships because people don’t understand the expectations of the other side. A person from North America, Great Britain, Scandinavia, Germany, or Switzerland, for example, comes from a lowcontext culture in which shared meanings are primarily derived from written and spoken words. Someone from China, Korea, Japan, Vietnam, Mexico, or many Arab cultures, on the other hand, comes from a highcontext culture in which people rely heavily on situational cues for meaning when communicating with others, relying on nonverbal cues as to another person’s official position, status, or family connections. One way to avoid cultural collisions is to have an understanding of various cultural dimensions, as expressed in the GLOBE project. Page 123 The GLOBE Project’s Nine Cultural Dimensions Started in 1993 by University of Pennsylvania professor Robert J. House, the GLOBE project is a massive and ongoing crosscultural investigation of nine cultural dimensions involved in leadership and organizational processes. 118 (GLOBE stands for Global Leadership and Organizational Behavior Effectiveness.) GLOBE has evolved into a network of more than 150 scholars from 62 societies, and most of the researchers are native to the particular cultures they study. The nine cultural dimensions are as follows: Power distance—how much unequal distribution of power should there be in organizations and society? Power distance expresses the degree to which a society’s members expect power to be unequally shared. Uncertainty avoidance—how much should people rely on social norms and rules to avoid uncertainty? Uncertainty avoidance expresses the extent to which a society relies on social norms and procedures to alleviate the unpredictability of future events. Institutional collectivism—how much should leaders encourage and reward loyalty to the social unit? Institutional collectivism expresses the extent to which individuals are encouraged and rewarded for loyalty to the group as opposed to pursuing individual goals. Ingroup collectivism—how much pride and loyalty should people have for their family or organization? In contrast to individualism, ingroup collectivism expresses the extent to which people should take pride in being members of their family, circle of close friends, and their work organization. 119 Gender egalitarianism—how much should society maximize gender role differences? Gender egalitarianism expresses the extent to which a society should minimize gender discrimination and role inequalities. Assertiveness—how confrontational and dominant should individuals be in social relationships? Assertiveness represents the extent to which a society expects people to be confrontational and competitive as opposed to tender and modest. Future orientation—how much should people delay gratification by planning and saving for the future? Future orientation expresses the extent to which a society encourages investment in the future, as by planning and saving. Performance orientation—how much should individuals be rewarded for improvement and excellence? Performance orientation expresses the extent to which society encourages and rewards its members for performance improvement and excellence. Humane orientation—how much should society encourage and reward people for being kind, fair, friendly, and generous? Humane orientation represents the degree to which individuals are encouraged to be altruistic, caring, kind, generous, and fair. Data from 18,000 managers yielded the country profiles shown below. (See Table 4.4.) TABLE 4.4 Countries Ranking Highest and Lowest on the Globe Cultural Dimensions Page 124 Source: Adapted from M. Javidan and R. J. House, “Cultural Acumen for the Global Manager: Lessons from Project GLOBE,” Organizational Dynamics, Spring 2001, pp. 289–305. Have you thought about how you stand in relation to various norms—in both your society and others? Would your views affect your success in taking an international job? The following selfassessment was created to provide feedback regarding these questions and to aid your awareness about your views of the GLOBE dimensions. SELFASSESSMENT 4.2 Assessing Your Standing on the GLOBE Dimensions This survey is designed to assess your values in terms of the GLOBE dimensions. Go to connect.mheducation.com and take SelfAssessment 4.2. When you’re done, answer the following questions: 1. What are your three highest and lowest rated dimensions? How might these beliefs affect your ability to work with people from Europe, Asia, and South America? 2. How do your dimensional scores compare to the norms for Americans shown in Table 4.4? Recognizing Cultural Tendencies to Gain Competitive Advantage The GLOBE dimensions show a great deal of cultural diversity around the world, but they also show how cultural patterns vary. For example, the U.S. managerial sample scored high on assertiveness and performance orientation—which is why Americans are widely perceived as being pushy and hardworking. Switzerland’s high scores on uncertainty avoidance and future orientation help explain its centuries of political neutrality and worldrenowned banking industry. Singapore is known as a great place to do business because it is clean and safe and its people are well Page 125 educated and hardworking—no surprise, considering the country’s high scores on social collectivism, future orientation, and performance orientation. By contrast, Russia’s low scores on future orientation and performance orientation could foreshadow a slowerthanhopedfor transition from a centrally planned economy to freeenterprise capitalism. The practical lesson to draw from all this: Knowing the cultural tendencies of foreign business partners and competitors can give you a strategic competitive advantage. 120 GLOBE researchers also set out to find which, if any, attributes of leadership were universally liked or disliked. Throughout the world, visionary and inspirational leaders who are good team builders generally do the best; selfcentered leaders seen as loners or facesavers received a poor reception. Other Cultural Variations: Language, Interpersonal Space, Communication, Time Orientation, Religion, & Law & Political Stability How do you go about bridging crosscultural gaps? It begins with understanding. Let’s consider variations in six basic culture areas: (1) language, (2) interpersonal space, (3) communication, (4) time orientation, (5) religion, and (6) law and political stability. Note, however, that such cultural differences are to be viewed as tendencies rather than absolutes. We all need to be aware that the individuals we are dealing with may be exceptions to the cultural rules. After all, there are talkative and aggressive Japanese, just as there are quiet and deferential Americans, stereotypes notwithstanding. 121 1. Language More than 3,000 different languages are spoken throughout the world, and it’s indeed true that global business speaks English. 122 However, even if you are operating in English, there are nuances between cultures that can lead to misperceptions. For instance, in Asia, a “yes” answer to a question “simply means the question is understood,” says one welltraveled writer. “It’s the beginning of negotiations.” 123 In communicating across cultures you have four options: (a) You can speak your own language. (The average American believes that about half the world can speak English, when actually it’s close to 18%.) 124 (b) You can use a translator. (Try to get one who will be loyal to you rather than to your overseas host.) (c) You can try using a translation app, such as Google Translate, that turns a smartphone into an interpreter, although this can be cumbersome. 125 (d) You can learn the local language—by far the best option. In 2011, Gallup pollsters surveyed 2,007 U.S. citizens and 250 opinion leaders and asked them, “If you were given a chance to learn a new foreign language, which language would you rather learn?” Spanish led the way (58%), followed by Chinese (15%), Arabic (11%), and Japanese (10%). 126 2. Interpersonal Space Men holding hands may raise eyebrows among most Americans, but it is common in the Middle East and does not carry any sexual connotation. “Holding hands is the warmest expression of affection between men,” says one Lebanese sociologist. “It’s a sign of solidarity and friendship.” 127 People of different cultures have different ideas about what is acceptable interpersonal space—that is, how close or far away one should be when communicating with another person. For instance, the people of North America and northern Europe tend to conduct business conversations at a range of 3–4 feet. For people in Latin American and Asian cultures, the range is about 1 foot. For Arabs, it is even closer. This can lead to crosscultural misunderstandings. “Arabs tend to get very close and breathe on you,” says anthropologist Hall. “The American on the receiving end can’t identify all the sources of his discomfort but feels that the Arab is pushy. The Arab comes close, the American backs up. The Arab follows, because he can only interact at certain distances.” 128 However, once the American understands that Arabs handle interpersonal space differently and that “breathing on people is a form of communication,” says Hall, the situation can sometimes be redefined so that the American feels more comfortable. 3. Communication For small companies doing business abroad, “the important thing to remember is that you don’t know what you don’t know,” says the head of a U.S. firm that advises clients on crosscultural Page 126 EXAMPLE matters. 129 For instance, an American who had lived in Brazil and was fluent in Portuguese was angling to make a deal in São Paulo and thought his pitch was going well. “It was pictureperfect until my client suggested I stay for the weekend to go to a soccer game” and enjoy the local food with him. The American diplomatically declined the invitation, but the next day found the prospective clients not as receptive, saying they liked the program but would need more time to decide. On the plane home, he analyzed what had gone wrong and realized he had given them a “task” reason instead of a “relationship” reason for declining the invitation. “It’s a relationship culture, and I could just as easily and more successfully [have said], ‘There are people back home who are expecting me to be with them.’ ” But the reason he gave “sent the message that I was not as Brazilian as they initially thought—and it came out of my profit.” 130 Even single words and sounds can pose difficulties: Promoters of Apple’s “iPad,” it’s been pointed out, might encounter difficulties in Ireland, where the sound is indistinguishable from “iPod,” or in Japan, where the language doesn’t even have a sound for the “a” in iPad. 131 If you, like a growing number of young Americans, head to China for employment, you need to recall that you were brought up in a commercial environment, but younger Chinese were raised at a time when China was evolving from a governmentregulated economy to a more freemarket system, and so they may have less understanding of business concepts and client services. “In the West, there is such a premium on getting things done quickly,” says an American manager, “but when you come to work in China, you need to work on listening and being more patient and understanding of local ways of doing business.” 132 In particular, Americans have to be careful about giving criticism directly, which the Chinese consider rude and inconsiderate. We consider communication matters in more detail in Chapter 15. 4. Time Orientation Time orientation is different in many cultures. For example, Americans are accustomed to calling ahead for appointments, but South Koreans believe in spontaneity. Thus, when Seoul erupted in protests over tainted American beef, Korean legislators simply hopped on a plane to the United States, saying they would negotiate with the U.S. government. “But since they failed to inform the Americans ahead of time,” says one report, “they were unable to meet with anyone of importance.” 133 Anthropologist Hall makes a useful distinction between monochronic time and polychronic time: Monochronic time. This kind of time is standard American business practice—at least until recently. That is, monochronic time is a preference for doing one thing at a time. In this perception, time is viewed as being limited, precisely segmented, and schedule driven. This perception of time prevails, for example, when you schedule a meeting with someone and then give the visitor your undivided attention during the allotted time. 134 Indeed, you probably practice monochronic time when you’re in a job interview. You work hard at listening to what the interviewer says. You may well take careful notes. You certainly don’t answer your cell phone or gaze repeatedly out the window. Polychronic time. This outlook on time is the kind that prevails in Mediterranean, Latin American, and especially Arab cultures. Polychronic time is a preference for doing more than one thing at a time. Here time is viewed as being flexible and multidimensional. This perception of time prevails when you visit a Latin American client, find yourself sitting in the waiting room for 45 minutes, and then learn in the meeting that the client is dealing with three other people at the same time. Dinner at 10? Spain’s Cultural Differences in Time Spaniard Miguel Carbayo, 26, who once interned in the Netherlands, where work started at 8 and ended at 5, with a half hour for lunch, is appalled at the notion of Spain doing away with its customary two or threehour midday meal. “Reduce lunchtime?” he said. “No, I’m completely against that. It is one thing to eat. It Page 127 is another thing to nourish oneself.” 135 Out of Whack. Spain operates on its own clock and rhythms, different from the rest of Europe. But the country’s apportionment of time, say critics, is out of whack, “dictating notoriously late hours that sap the country of efficiency and make it hard for anyone with a regular job to have time for much else,” says one report. 136 Spaniards generally start work at 9, pause for a latemorning snack (which cuts into work productivity), then quit for lunch around 2 or 2:30 to take a siesta break—although fewer and fewer people actually take naps. They then return to work around 4 or so and work well into the evening. Most workplaces close at 9. Thus, at a time when people in other countries are getting ready for bed, that is the point in the day when Spaniards are sitting down to dinner. Primetime television shows start at 10 p.m. and don’t end until after 1 a.m. Night life goes on into the wee hours. Longer on the Job & Sleepier. What’s the effect of this? “Everything is late in Spain, and this has a detrimental effect on everyone,” says a business school professor. “We live in a permanent jet lag.” 137 She points out that, compared to other Europeans, Spaniards sleep nearly an hour less per night and frequently doze in school and at work. Spanish workers are also on the job longer than German workers but complete only 59% of their daily tasks, says the president of the Association for the Rationalization of Spanish Working Hours, which advocates revising the country’s business hours. 138 Finally, for 70 years, the entire country has been one hour out of step with the countries around it. Varying Tempos. Every culture has its own “tempo,” or sense of time, points out psychologist Robert Levine, with different definitions of “what constitutes early and late, waiting and rushing, the past, the present, and the future.” 139 Cultures that work on “clock time” (such as the United States and most of Europe), where a timepiece governs the start and end of activities, tend to value punctuality. In cultures that work on “event time” (such as Mexico, Brazil, and Indonesia), schedules are spontaneous and events happen when participants “feel” the time is right. 140 YOUR CALL Where does Spain fit in here in terms of tempo? If you were starting a business in Spain that depended on close interaction with nearby European countries observing different business times, how would you ask your Spanish staff to adjust? 5. Religion Trying to get wealthy Muslim investors in Dubai to buy some of your bank’s financial products? Then you need to know that any investment vehicle needs to “conform to the spirit of the Koran, which forbids any investments that pay interest,” as one writer puts it. “No mortgages. No bonds.” 141 Are you a Protestant doing business in a predominantly Catholic country? Or a Muslim in a Buddhist country? What are the most popular world religions, and how does religion influence the workrelated values of the people we’re dealing with? (See Table 4.5.) A study of 484 international students at a midwestern university uncovered wide variations in the workrelated values for different religious affiliations. 142 For example, among Catholics, the primary workrelated value was found to be consideration. For Protestants, it was employer effectiveness; for Buddhists, social responsibility; for Muslims, continuity. There was, in fact, virtually no agreement among religions as to what is the most important workrelated value. This led the researchers to conclude: “Employers might be wise to consider the impact that religious differences (and more broadly, cultural factors) appear to have on the values of employee groups.” TABLE 4.5 Current Followers of the Major World Religions All population counts are estimated. Adherents.com actually puts “Secular/nonreligious/agnostic/atheist” in third place, with a population of 1.1 billion. Judaism is estimated to have 14 million followers. Source: Adapted from Adherents.com, “Major Religions of the World Ranked by Major Adherents,” last modified August 9, 2007, www.adherents.com/Religions_By_Adherents.html (accessed April 15. 2014). 6. Law & Political Stability Every firm contemplating establishing itself abroad must deal with other countries’ laws and business practices, which frequently involves making calculations about political risk that might cause loss of a company’s assets or impair its foreign operations. Among the risks an organization might anticipate abroad are instability, expropriation, corruption, and labor abuses. Prayer. The term “Muslim culture” covers many diverse groups—Middle Eastern, African, Asian Muslim, and European and American Muslims—each with its own customs. Muslims are required to pray five times a day, prostrating themselves on a prayer mat. Some American Muslims keep a prayer mat in their cars. Instability. Even in a developed country a company may be victimized by political instability, such as riots or civil disorders, as happened in 2014 among Russianspeaking populations in Ukraine. In some developed nations, their very existence is threatened by separatist movements, with large sections clamoring to split off and become independent states—Quebec from Canada, Scotland from the United Kingdom, and Catalonia from Spain, for example—which could result in changes to the currency in use. (Would an independent Scotland stay with the British pound or switch to the euro, for example?) Expropriation. Expropriation is defined as a government’s seizure of a domestic or foreign company’s assets. After socialist Hugo Chavez became president of Venezuela, his government stepped up a campaign to seize land and businesses, such as a rice plant owned by Cargill, one of the United States’ largest privately owned companies. The government has also taken over oil, electricity, steel, cement, and telecommunications companies. 143 Page 128 Corruption. Whether it’s called mordida (Mexico), huilu (China), or vzyatka (Russia), it means the same thing: a bribe. Although the United States is relatively free of such corruption, it is an acceptable practice in other countries. In African, Latin American, and newly independent states, frequent bribe paying is the norm; in Asia and the Pacific and southeast Europe, it is moderate; and in North America and the European Union, bribes are seldom paid for services. 144 American businesspeople are prevented from participating in overseas bribes under the 1978 Foreign Corrupt Practices Act, which makes it illegal for employees of U.S. companies to make “questionable” or “dubious” contributions to political decision makers in foreign nations. While this creates a competitive disadvantage for Americans working in foreign countries in which government bribery may be the only way to obtain business, the United Nations Global Compact is attempting to level the playing field by promoting anticorruption standards for business. Labor abuses. Overseas suppliers may offer low prices, but working conditions can be harsh, as has been the case with garment makers in Bangladesh, Cambodia, the Dominican Republic, Haiti, Mexico, Pakistan, and Vietnam. Among the problems: “padlocked fire exits, buildings at risk of collapse, falsified wage records, and repeated hand punctures from sewing needles when workers were pushed to hurry up,” according to one report. 145 Some suppliers have been accused of using underage workers, and some (such as Apple iPhone suppliers) of pushing their workers to the point of suicide. 146 U.S. Managers on Foreign Assignments: Why Do They Fail? Somewhere between 2.2 million and 6.8 million Americans live outside American borders, in at least 100 countries—a class of people known as expatriates —people living or working in a foreign country. 147 Many of them, perhaps 300,000, are managers, and supporting them and their families overseas is not cheap. A partner at one human resources consulting firm estimates that it costs twice an executive’s $300,000 salary to send him or her from the United States to Shanghai for a year. 148 Are the employers getting their money’s worth? Probably not. One study of about 750 companies (U.S., European, and Japanese) asked expatriates and their managers to evaluate their experiences. They found that 10%–20% of all U.S. managers sent abroad returned early because of job dissatisfaction or adjustment difficulties. Of those who stayed for the length of their assignments, about onethird did not perform to their superiors’ expectations and onefourth left the company, often to join a competitor —a turnover rate double that of managers who did not go abroad. 149 Unfortunately, problems continue when expatriates return home. “Studies suggest between 8% to 25% of managers may leave a company after returning to the U.S.,” says one report. 150 Another study indicated that 25% of repatriated employees quit their jobs within one year. Organizations can help reduce this turnover by communicating with employees throughout the international assignment and by providing at least 6 months’ notice of when employees will return home. 151 If you were to go abroad as a manager, what are the survival skills or outlook you would need? Perhaps the bottom line is revealed in a study of 72 human resource managers who were asked to identify the most important success factors in a foreign assignment. Nearly 35% said the secret was cultural adaptability: patience, flexibility, and tolerance for others’ beliefs. 152 Do you think you have what it takes to be an effective global manager? The following selfassessment can provide input to answering this question. It assesses your potential to be a successful global manager. SELFASSESSMENT 4.3 Assessing Your Global Manager Potential This survey is designed to assess how well suited you are to becoming a global manager. Go to connect.mheducation.com and take SelfAssessment 4.3. When you’re done, answer the following questions: Page 129 1. What is your reaction to the results? 2. Based on considering your five lowestrated survey items, what can you do to improve your global manager potential? Key Terms Used in This Chapter AsiaPacific Economic Cooperation (APEC) Association of Southeast Asian Nations (ASEAN) Central America Free Trade Agreement (CAFTA) countertrading culture dumping ecommerce embargo ethnocentric managers European Union (EU) exchange rate expatriates exporting expropriation Foreign Corrupt Practices Act franchising free trade geocentric managers global economy global outsourcing global village globalization GLOBE project greenfield venture highcontext culture import quota importing International Monetary Fund (IMF) joint venture licensing lowcontext culture maquiladoras Mercosur monochronic time most favored nation multinational corporation multinational organization North American Free Trade Agreement (NAFTA) offshoring outsourcing Page 130 parochialism polycentric managers polychronic time tariff trade protectionism trading bloc whollyowned subsidiary World Bank World Trade Organization (WTO) Key Points 4.1 Globalization: The Collapse of Time & Distance • Globalization is the trend of the world economy toward becoming more interdependent. Globalization is reflected in three developments: (1) the rise of the global village and ecommerce; (2) the trend of the world’s becoming one big market; and (3) the rise of both megafirms and Internetenabled minifirms. • The rise of the “global village” refers to the “shrinking” of time and space as air travel and the electronic media have made global communication easier. The Internet and the web have led to ecommerce, the buying and selling of products through computer networks. • The global economy is the increasing tendency of the economies of nations to interact with one another as one market. • The rise of crossborder business has led to megamergers, as giant firms have joined forces, and minifirms, small companies in which managers can use the Internet and other technologies to get enterprises started more easily and to maneuver faster. 4.2 You & International Management • Studying international management prepares you to work with foreign customers or partners, with foreign suppliers, for a foreign firm in the United States, or for a U.S. firm overseas. International management is management that oversees the conduct of operations in or with organizations in foreign countries. • The successful international manager is not ethnocentric or polycentric but geocentric. Ethnocentric managers believe that their native country, culture, language, and behavior are superior to all others. Polycentric managers take the view that native managers in the foreign offices best understand native personnel and practices. Geocentric managers accept that there are differences and similarities between home and foreign personnel and practices, and they should use whatever techniques are most effective. 4.3 Why & How Companies Expand Internationally • Companies expand internationally for at least five reasons. They seek (1) cheaper or more plentiful supplies, (2) new markets, (3) lower labor costs, (4) access to finance capital, and (5) avoidance of tariffs on imported goods or import quotas. • There are five ways in which companies expand internationally. (1) They engage in global outsourcing, using suppliers outside the company and the United States to provide goods and services. (2) They engage in importing, exporting, and countertrading (bartering for goods). (3) They engage in licensing (allow a foreign company to pay a fee to make or distribute the company’s product) and franchising (allow a foreign company to pay a fee and a share of the profit in return for using the first company’s brand name). (4) They engage in joint ventures, a strategic alliance to share the risks and rewards of starting a new enterprise together in a foreign country. (5) They become whollyowned subsidiaries, or foreign subsidiaries that are totally owned and controlled by an organization. 4.4 The World of Free Trade: Regional Economic Cooperation • Free trade is the movement of goods and services among nations without political or economic obstructions. • Countries often use trade protectionism—the use of government regulations to limit the import of goods and services—to protect their domestic industries against foreign competition. Three barriers to free trade are tariffs, import quotas, and embargoes. (1) A tariff is a trade barrier in the form of a customs duty, or tax, levied mainly on imports. (2) An import quota is a trade barrier in the form of a limit on the numbers of a product that can be imported. (3) An embargo is a complete ban on the import or export of certain products. • Three principal organizations exist that are designed to facilitate international trade. (1) The World Trade Organization is designed to monitor and enforce trade agreements. (2) The World Bank is designed to provide lowinterest loans to developing nations for improving transportation, education, health, and telecommunications. (3) The International Monetary Fund is designed to assist in smoothing the flow of money between nations. • A trading bloc is a group of nations within a geographical region that have agreed to remove trade barriers. There are six major trading blocs: (1) North American Free Trade Agreement (NAFTA: U.S., Canada, and Mexico); (2) European Union (EU: 28 trading partners in Europe); (3) the Association of Southeast Asian Nations (ASEAN, 10 countries); (4) AsiaPacific Economic Cooperation (APEC, 21 Pacific Rim countries); (5) Mercosur (Argentina, Brazil, Paraguay, and Uruguay); and (6) the Central America Free Trade Agreement (CAFTA: United States and six Central American countries). • Besides joining together in trade blocs, countries also extend special, “most favored nation” trading privileges—that is, grant other countries favorable trading treatment such as the reduction of import duties. • When doing overseas trading, managers must consider exchange rates, the rate at which the currency of one area or country can be exchanged for the currency of another’s, such as American dollars in relation to Mexican pesos or European euros. 4.5 The Importance of Understanding Cultural Differences • Misunderstandings and miscommunications often arise because one person doesn’t understand the expectations of a person from another culture. In lowcontext cultures, shared meanings are primarily derived from written and spoken words. In highcontext cultures, people rely heavily on situational cues for meaning when communicating with others. • Robert House and others created the GLOBE (for Global Leadership and Organizational Behavior Effectiveness) Project, a massive and ongoing crosscultural investigation of nine cultural dimensions involved in leadership and organizational processes: (1) power distance, (2) uncertainty avoidance, (3) institutional collectivism, (4) ingroup collectivism, (5) gender egalitarianism, (6) assertiveness, (7) future orientation, (8) performance orientation, and (9) humane orientation. • A nation’s culture is the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people. Visitors to another culture may experience culture shock—feelings of discomfort and disorientation. Managers trying to understand other cultures need to understand six basic cultural perceptions embodied in (1) language, (2) interpersonal space, (3) communication, (4) time orientation, (5) religion, and (6) law and political stability. • Regarding language, when you are trying to communicate across cultures you have three options: Speak your own language (if others can understand you), use a translator, or learn the local language. • Interpersonal space involves how close or far away one should be when communicating with another person, with Americans being comfortable at 3–4 feet but people in other countries often wanting to be closer. • Communication involves not only differences in understanding about words and sounds and their meanings but also in expectations about relationships and business concepts. • Time orientation of a culture may be either monochronic (preference for doing one thing at a time) or Page 131 polychronic (preference for doing more than one thing at a time). • Managers need to consider the effect of religious differences. In order of size (population), the major world religions are Christianity, Islam, Hinduism, Buddhism, Chinese traditional religions, primalindigenous, and African traditional and diasporic religions. • Every company must deal with other countries’ laws and business practices, which means weighing the risks of political instability; expropriation, or government seizure of a domestic or foreign company’s assets; political corruption, including bribery; and labor abuses. Understanding the Chapter: What Do I Know? 1. What are three important developments in globalization? 2. What are some positives and negatives of globalization? 3. What are the principal reasons for learning about international management? 4. How do ethnocentric, polycentric, and geocentric managers differ? 5. What are five reasons companies expand internationally, and what are five ways they go about doing this expansion? 6. What are some barriers to international trade? 7. Name the three principal organizations designed to facilitate international trade and describe what they do. 8. What are the principal major trading blocs? 9. Define what’s meant by “culture” and describe some of the cultural dimensions studied by the GLOBE project. 10. Describe the six important cultural areas that international managers have to deal with in doing crossborder business. Management in Action Norwegian Air Shuttle Aspires to Become the Cheapest Global Airline It’s snowing in Copenhagen as Norwegian Air Shuttle Flight DY7041 lifts off. There are nearly 30 passengers on board, most of them Norwegians, Swedes, and Danes eager to escape the gloom that engulfs their part of the world in late November. Today they will arrive in Florida faster than usual. This is the first direct flight from Scandinavia to Fort Lauderdale. And it’s a bargain: The tickets are a fraction of what larger airlines charge. Norwegian Air Shuttle Chief Executive Officer Bjorn Kjos has come along to celebrate the occasion. . . . Norwegian is Europe’s fourthlargest discount airline. Until recently, it was little known outside Scandinavia. Then, in 2012, Kjos made the largest airplane order in European history, buying 222 jets from Boeing and Airbus Group for $21.5 billion. Most of these are narrowbodied Boeing 737 Max 8’s and Airbus A320neos that will begin arriving in 2016. Kjos will use them to increase Norwegian’s presence in Europe and challenge the top three discount carriers: Ireland’s Ryanair, Britain’s EasyJet, and Germany’s Air Berlin. Last year, Norwegian acquired its first two Dreamliners, which list for as much as $289 million each. Kjos is using these widerbodied jets to offer cheaper international flights to distant places such as New York, Los Angeles, and Bangkok, undercutting established carriers in Europe and the U.S. Norwegian’s $180 tickets between New York and Oslo cost 10% of the equivalent ticket on British Airways. In effect, Kjos wants Norwegian to become a global version of Southwest Airlines. Other upstart airlines have tried this and failed. Kjos says Norwegian will succeed because it has the Dreamliner and a new group of travelers to fly: the emerging middleclass citizens of China and India. He predicts that in the next decade there will also be 500 million new airline passengers, and he hopes to attract them with low fares. Kjos will have to do many things right for it all to work, and he’s already run into turbulence. He Page 132 narrowly averted a strike by 600 pilots in November. They are unhappy with his plan to base Dreamliner flights outside Norway and to staff them with lowerpaid workers from Thailand and elsewhere. The Dreamliner still needs debugging. Kjos’s new jets have been grounded repeatedly by technical problems. . . . Four U.S. airlines are trying to keep the U.S. Department of Transportation [DOT] from allowing Norwegian flights into the country because they worry that their foreign competitor will launch what they describe as an unfair price war with them. Kjos, however, doesn’t think anything will get in the way of his plan to reshape international travel. “In the future, you will travel to Asia for nothing,” he says, “You think I’m joking. You wait and see.” Obscure outside the aviation industry, Kjos is a celebrity at home; he’s Norway’s Richard Branson. In the early Aughts, Kjos introduced lowcost flights to a region that has historically been dominated by Scandinavian Airlines (SAS). At the time, SAS, which is controlled by the governments of Norway, Sweden, and Denmark, had some of the highest fares in Europe. “He has changed the lives of many, many Scandinavians,” says Hans Erik Jacobsen, an analyst at First Securities ASA. . . . The company went public in December 2003 at 32 kroner a share. Then, Kjos says, SAS reduced its prices in an effort to destroy its rival. (SAS denies that this was its intent.) Norwegian again lowered its prices. Its revenue dwindled, along with its stock price. . . . Then, they say, they learned from government investigators that SAS had been tapping into Norwegian’s computer system and using data about its ticket sales to underprice it. Norwegian sued SAS for illegally using its trade secrets, eventually winning a 160 million kroner judgment in 2010. SAS says it accepts the court judgment. Kjos says the revelations ended SAS’s predatory pricing, and Norwegian had its first profitable year in 2005. But Kjos soon had something else to worry about: rising oil prices. Oil had soared from $25 to $75 per barrel in the previous five years. Kjos and his top executives modeled what would happen if oil prices continued to climb at that rate. “We found out . . . if we hit $120, we’re going bankrupt,” Kjos says. Norwegian’s planes were burning too much gas. The company needed a new fleet to survive. . . . In August 2007, Kjos reached an agreement to buy 42 new jets from Boeing for $3 billion. Frode Foss, Norwegian’s CFO, said the company couldn’t afford it. “Frode, would you like to go bankrupt with old airplanes or with new airplanes?” Kjos swaggeringly replied. He later increased the order to 84. Three years later in 2010, revenue and profit had more than doubled. Norwegian was flying twice as many passengers and routes. The new planes “really enabled them to drive down the cost level,” says Jacobsen. “It was a big step forward.” Later that same year, Kjos ordered Norwegian’s eight Dreamliners, but he also concluded that his newish fleet of shortrange planes was already becoming outmoded. In 2012 he and [Norwegian Airlines chairman of the board Bjorn] Kise took advantage of the euro crisis to get favorable terms from both Boeing and Airbus for 100 planes. . . . Norwegian’s international routes will prevail, Kjos says, because the Dreamliner burns much less fuel than previous jets. “The Dreamliner is the first airplane that can do it,” he says. He’s also counting on lower personnel costs. Although the airline is headquartered in a country with some of the highest salaries in Europe, Kjos is trying to get around this by basing flights in lowersalaried countries such as Thailand. That’s why Norwegian’s pilots wanted assurances that he wouldn’t try to use geography to cut their salaries. . . . Norwegian also faces opposition in the U.S., where American Airlines, Delta Airlines, United Airlines, and US Airways are urging the federal government to reject an application by Norwegian Air International. The company is a Norwegian subsidiary that Kjos has set up in Ireland to operate its Dreamliner flights. Norwegian’s critics say Kjos is doing this so he can hire cheap nonunion pilots and cabin crews. “[Norwegian’s] scheme must be immediately and unequivocally rejected,” Lee Moak, president of the Air Line Pilots Association International in Washington, said in a statement last month. “The DOT must not permit U.S. airlines and their employees to face an unfair competitive advantage from this runaway shop.” A Norwegian spokesman, Lasse SandakerNielsen, says the company isn’t doing anything improper and its critics are making “false and misleading statements.” As for the Dreamliners, they have been problematic. The U.S. Federal Aviation Administration ordered Boeing to stop delivering them last year until it fixed their lithium batteries, which had caught fire. Norwegian’s Dreamliners never burned, but one jet was grounded in Bangkok in September  because of pump problems, stranding 200 passengers bound for Stockholm. In December, Stockholmbound Norwegian customers were stuck in Fort Lauderdale before Christmas because of a disabled Dreamliner. On Page 133 New Year’s Eve, 276 passengers headed for Oslo spent the night stewing in hotels near John F. Kennedy International Airport in New York because of brake problems on one of the jets. Norwegian’s SandakerNielsen says the company apologizes for the delays. . . . Kjos responded to the latest crisis by doubling down. He announced in December that Norwegian would lease two more Dreamliners. Source: Excerpted from Devin Leonard, “Barbarian at Gate G17,” Bloomberg Businessweek, January 13–19, 2014, pp. 58, 60–61. FOR DISCUSSION 1. What are the biggest challenges Norweigan experienced in trying to expand its airline across the globe? 2. To what extent did you observe examples of ethnocentric, polycentric, or geocentric attitudes in this case? Provide examples to support your conclusions. 3. Use Table 4.3 to identify cultural differences that are likely to arise between Norwegian employees working in Denmark and Sweden and Thailand. How might these differences affect interpersonal interactions, and what can the company do to reduce any unintended conflict from these differences? 4. What are the most important lessons to be learned about global management from this case? Discuss. Legal/Ethical Challenge Should Families of Passengers on Malaysia Flight 370 Be Allowed to Sue for Damages in the U.S.? This challenge revolves around the mysterious crash of Malaysia Flight 370 en route from Kuala Lumpur, Malaysia, to Beijing: To date, no remains of the plane have been found. Twothirds of the passengers on this flight were Chinese. There were three Americans on the plane. Lawyers from multiple countries have been meeting with families of missing passengers discussing the possibility of filing lawsuits. “If Chinese families sued the Malaysian carrier in China, they could get around 1.5 million yuan ($250,000) per passenger, depending on their age, job income and other factors” said Beijingbased lawyer Zhang Quhuai. In contrast, a suit in Malaysia would problably result in the court’s decision to “not stray too far from the $175,000 compensation limit set by the Montreal convention,” according to Jeremy Joseph, a lawyer from Malaysia. Some lawyers are encouraging families to file suit against Boeing in the U.S.: Boeing is the maker of the missing plane. Lawyers are doing this because “America is the land of liability opportunity,” said Professor Steve Dedmono, an aviation law expert. Wang Guanhua, a Chinesebased lawyer, commented that “as long as the possibility that the Boeing plane is related to the incident is not eliminated, there are no limitations on seeking compensation from Boeing.” Wang believes that he can get $6 million in damages for each passenger. Other lawyers believe that this approach is misleading to families and that they would be better served by trying to reach a settlement with Malaysia Airlines insurers. SOLVING THE CHALLENGE Do you think lawyers should encourage families to sue Boeing in the U.S.? 1. No. There is no evidence that Boeing was responsible for the crash, and people should get what they can from Malaysian Airlines. 2. No. Such suits should be filed in the country in which the accident occurred. 3. Yes. This is a tragedy and families should get all they can. 4. No. Malaysia Airlines has agreed to pay at least $5,000 to each family. Also, large settlements might bankrupt Malaysia Airlines and the Montreal Convention provides damages for passengers on international flights. Source: Materials drawn from Gillain Wong, “Malaysia Airlines Lawsuits Unlikely to Be Heard in U.S.,” Claims Journal, April 17, 2014, www.claimsjournal.com/news/national/2014/04/17/247610.htm (accessed April 20, 2014); and W. J. Hennigan, Ralph Vartabedian, and Don Lee, “Missing Malaysia Plane: Relatives Protest and Legal Action Begins,” Los Angeles Times, March 25, 2014, www.latimes.com/world/asia/lafgmalaysiaplane20140326,0,6450323 (accessed April 20, 2014).