Importance of International Management.

What is the implication of International

Management for Developed Countries, Developing Countries and Less Developed
Countries.

The management of business operations for an organization that conducts business in more than
one country. International management requires knowledge and skills above and beyond normal
business expertise, such as familiarity with the business regulations of the nations in which the
organization operates, understanding of local customs and laws, and the capability to conduct
transactions that may involve multiple currencies.

As trade barriers recede and businesses in developed economies increasingly pursue market
opportunities abroad, competency and effectiveness in international management are paramount
skills at many companies. The issues involved in international management span the whole
gamut of those concerning management in general, but there are several areas of special interest,
including:

international finance and currency matters

cross-cultural communication and understanding (including international

marketing implications)

foreign legal requirements and accounting practices

global strategy

international competition

THE EMERGENCE OF THE GLOBAL ECONOMY

In the 1980s, the world's leading industrialized nations began an era of cooperation in which they
capitalized on the benefits of working together to improve their individual economies. They
continued to seek individual comparative advantages, i.e., a nation's ability to produce some
products more cheaply or better than it can others, but within the confines of international
cooperation. In the 1990s these trends continued, and in many cases accelerated. Countries
negotiated trade pacts such as the North American Free Trade Agreement (NAFTA), and
the General Agreement on Tariffs and Trade (GATT), or formed economic communities such
as the European Union. These pacts and communities created new marketing opportunities in
the respective markets by decreasing trade duties and other barriers to cross-border commerce.
They opened the door through which companies of all sizes and in various aspects of business
entered the international market. The United States benefited extensively from the expanded
global economic activity.
INTERNATIONAL BUSINESS MODELS
Import/export businesses.
Independent agents, licenses, and franchises.
 Joint ventures
Buying a stake in a foreign affiliate.
Multinational corporations.

APPROACHES TO INTERNATIONAL MANAGEMENT

There are three approaches to international management: ethnocentric, polycentric, and
geocentric. Each has its advantages and disadvantages. None of these theories can be successful,
however, unless managers understand completely the nuances involved in their applications.

The ethnocentric approach is one in which management uses the same style and practices that
work in their own headquarters or home country. Such an approach may leave managers open to
devastating mistakes, because what works in the United States, for example, may not necessarily
work in Japan. There are many cases in which companies made grievous errors when they
attempted to transfer their management styles to foreign countries. For example, Procter &
Gamble Co. lost $25 million in Japan between 1973 and 1986 because its managers would not
listen to Japanese advisors. The company ran ads for its Camay soap in which a Japanese man
meeting a Japanese woman for the first time compared her skin to that of a porcelain doll.
In contrast to ethnocentric management is the polycentric management theory. In this
approach, management staffs its workforce in foreign countries with as many local people as
possible. The theory is simple: local people know best the host country's culture, language, and
work ethic. Thus, they are the ideal candidates for management. This approach works well in
some countries.
The third style of international management is the geocentric approach. This theory holds that
the best individuals, regardless country origin, should be placed in management positions. This
philosophy maintains that business problems are the same regardless of where in the world they
occur.
International management Affects Developed Countries

The phenomenon of International management began in a primitive form when humans first
settled into different areas of the world; however, it has shown a rather steady and rapid progress
in recent times and has become an international dynamic which, due to technological
advancements, has increased in speed and scale, so that countries in all five continents have been
affected and engaged.
The goal of International management is to provide organizations a superior competitive
position with lower operating costs, to gain greater numbers of products, services and consumers.
This approach to competition is gained via diversification of resources, the creation and
development of new investment opportunities by opening up additional markets, and accessing
new raw materials and resources.

Industrialized or developed nations are specific countries with a high level of economic
development and meet certain socioeconomic criteria based on economic theory, such as gross
domestic product (GDP), industrialization and human development index (HDI) as defined by
the International Monetary Fund (IMF), the United Nations (UN) and the World Trade
Organization (WTO). Using these definitions, some industrialized countries are: United
Kingdom, Belgium, Denmark, Finland, France, Germany, Japan, Luxembourg, Norway, Sweden,
Switzerland and the United States.

The Economic Impact on Developed Nations

International management compels businesses to adapt to different strategies based on new

ideological trends that try to balance rights and interests of both the individual and the
community as a whole. This change enables businesses to compete worldwide and also signifies
a dramatic change for business leaders, labor and management by legitimately accepting the
participation of workers and government in developing and implementing company policies and
strategies.

In a global economy, power is the ability of a company to command both tangible and intangible
assets that create customer loyalty, regardless of location. Independent of size or geographic
location, a company can meet global standards and tap into global networks, thrive and act as a
world class thinker, maker and trader, by using its greatest assets: its concepts, competence and
connections.

Beneficial Effects

Some economists have a positive outlook regarding the net effects of International management
on economic growth. These effects have been analyzed over the years by several studies
attempting to measure the impact of International management on various nations' economies
using variables such as trade, capital flows and their openness, GDP per capita, foreign direct
investment (FDI) and more.

Trade among nations via the use of comparative advantage promotes growth, which is attributed
to a strong correlation between the openness to trade flows and the affect on economic growth
and economic performance. Additionally there is a strong positive relation between capital flows
and their impact on economic growth.

Harmful Effects

Non-economists and the wide public expect the costs associated with International management
to outweigh the benefits, especially in the short-run. Less wealthy countries from those among
the industrialized nations may not have the same highly-accentuated beneficial effect from
International management as more wealthy countries, measured by GDP per capita etc.
Although free trade increases opportunities for international trade, it also increases the risk of
failure for smaller companies that cannot compete globally. Additionally, free trade may drive up
production and labor costs, including higher wages for more skilled workforce, which again can
lead to outsourcing of jobs from countries with higher wages.

Domestic industries in some countries may be endangered due to comparative or absolute

advantage of other countries in specific industries. Another possible danger and harmful effect is
the overuse and abuse of natural resources to meet new higher demands in the production of
goods.

The Economic Impact on Developing Nations

International management has also brought up new challenges such as, environmental
deteriorations, instability in commercial and financial markets, increase inequity across and
within nations. The positive and negative impact of International management on developing
nations in the following proportions;

1- Economic and Trade Processes Field

2- Education and Health Systems

3- Culture Effects

International management helps developing countries to deal with rest of the world increase their
economic growth, solving the poverty problems in their country. In the past, developing
countries were not able to tap on the world economy due to trade barriers. They cannot share the
same economic growth that developed countries had. However, with International management
the World Bank and International Management encourage developing countries to go through
market reforms and radical changes through large loans. Many developing nations began to take
steps to open their markets by removing tariffs and free up their economies. The developed
countries were able to invest in the developing nations, creating job opportunities for the poor
people.

Developing countries depend on developed countries for resource flows and technology, but
developed countries depend heavily on developing countries for raw materials, food and oil, and
as markets for industrial goods". One the most important advantages of International
management are goods and people are transported easier and faster as a result free trade between
countries has increased, and it decreased the possibility of war between countries

2- Education and Health Systems

International management contributed to develop the health and education systems in the
developing countries. We can clearly see that education has increased in recent years, because
International management has a catalyst to the jobs that require higher skills set. This demand
allowed people to gain higher education. Health and education are basic objectives to improve
any nations, and there are strong relationships between economic growth and health and
education systems. Through growth in economic, living standards and life expectancy for the
developing nations certainly get better. With more fortunes poor nations are able to supply good
health care services and sanitation to their people. In addition, the government of developing
countries can provide more money for health and education to the poor, which led to decrease the
rates of illiteracy.

3- Culture Effects
International management has many benefits and detriment to the culture in the developing
countries. Many developing countries cultures has been changed through International
management, and became imitate others cultures such as, America and European countries.
Before International management it would not have been possible to know about other countries
and their cultures. Due to important tools of International management like television, radio,
satellite and internet, it is possible today to know what is happening in any countries such as,
America, Japan and Australia. Moreover, people worldwide can know each other better through
International management.

Developing Country Studies customs and traditional have been changed. They wear and behave
like developed nations, a few people are wearing their traditional cloths that the used to.
Furthermore, International management leads to disappearing of many words and expressions
from local language because many people use English and French words.

The Economic Impact on Under Developed Nations

We are living at a time when Microeconomics has reached the same plateau as Macroeconomics.
We are dealing now with the study of individual markets... how it explores how consumers,
workers, and companies behave in specific situations. 2 What is the impact of microeconomics
on free trade? More than likely the fact that it is consumer-driven. It begins with a single
consumer, his wants, his needs, his desire to purchase goods and his ability to pay for them. The
less developed nations have the consumer base, and certainly the desire, but without free trade
that has goods flowing into these countries for sale at affordable prices, the consumers ability to
pay is minimal, What do we know about this consumer? First of all, every consumer has a set of
tastes for the commodities that he can buy in a market, and these tastes are a given in the sense
that they are not affected by a change in his income or a change in the price of any commodity

What this view, however, fails to distinguish is that a consumer in a developing countrys desires
may be for a new automobile, but the prices and his income prevent such a purchase. His desires,
then, must be reduced to the affordable goodsclothes, food, furnishings and appliances for the
home, perhaps farm machinery and tools. Of course, the original assumption of microeconomics
is that the consumer has a certain priority for his commodity preferences: milk before bread,
bread before eggs, eggs before bacon, etc. But, a fair question may well be- why introduce the
subject of microeconomics in a discussion of free trade. The simple answer is that free trade can
only be successfully managed when the needs of the consumer and his ability to satisfy those
needs with purchases are taken into consideration. It is the old marketing clich of selling
refrigerators to Eskimos. If Free Trade is to be successful with, and among, the less developed
countries that trade has to include goods that can be easily purchased, rather than stored in some
massive inventory for future use. Nigeria, for example, has oil to export. It needs no fuel to
import. But, it does need tools and materials to improve its infrastructure. So, a trade for paving
materials, additional cement factories, buses and/or railroads to transport goods and workers, and
appliances for those Nigerians in the labor force who need an incentive to remain on the job and
not mobile, moving from place to place to seek other work. We need to pause in the aspect of
examining Free Trade and how it affects the less developed countries to realize that the whole
notion of less developed4 stands for a lack of a trained and effective labor force. We have none
other than Adam Smith to look to, for the assumption that labor is the most important means of
judging the riches of a nation. Smith sees two circumstances

Another positive view of free trade states: To minimize conflicts in the future, we should aim to
create a world in which people are free to buy what they want, live and work where they choose,
and invest and produce where conditions seem the most propitious.Would-be traders should
encounter no restrictions or barriers to trade within and across national borders There are
opposing viewpoints to Free Trade. Needless to say, we are all familiar with the anti-NAFTA
diatribes of Ross Perot. But there are many who feel that free trade, as it is now constituted, is
harmful. The world has never had a genuinely free and fair trading system. Ever since people
argued whether trade follows the flag or the flag follows trade, trade has been based on
domination and dependency, and has been an instrument of them.

The Asian nations, for example, have an option. In East Asia, intra-Asian trade is now on the
same level as trade across the Pacific and is likely to grow much faster as Asian nations reduce
their trade barriers and take advantage of one anothers prosperity.19 The Asian nations are also
now willing and able to spend more on research and development. There is significant untapped
technological promiseMeasured as a percentage of GDP, for example, Taiwan and South
Korea spend as much on research and development as do most European countries. For other
ASEAN nations like Thailand and Singapore, the rate of growth of investment in R & D
surpasses that of virtually all industrial countries

The red flag of capital flight might well be hoisted when and if there is the sort of Rwanda-
Burundi conflagration where capital is so severely at risk that leaving it there for the possibility
that matters will be settled is ludicrous and certainly indefensible fiscally. Figures during the
decade of the late 1970s to the early 1980s when there were so many problems in African
developing countries, show that well over $100 billion fled the area. However, on the positive
side, money managers, investing companies and international corporations are more willing to
take some risks now. In fact, it might be considered that these managers are now working in a
different environment

1. Capital invested in an LDC requires patience. This means that any investment, grant, or
cession should not be consider a quick turn-around opportunity, a getrich-quick scheme which
would rob the LDC of any incentive to continue on uneven terms.

2. The Investment cannot be done on a national or dominant theme. In other words, if it is EU

money, the dominance should not necessarily favor ONLY the EU or its member nations, but
should be primarily concerned with the building of a stable and growing economy in that LDC.
This may be an extremely difficult item to control, since the purpose of the investment is to gain
an economic advantage. Capital flow is not philanthropy any more. Governments will no longer
shield corporations from a conflict with the rules and regulations covering foreign aid, for
example.

3. Fraud, bribery, kick-backs, private enrichment of government officials must be avoided. There
has to be an ethical and moral standard for capital investment. If the WTO or the UN cannot
provide such safeguards, then the entire international system of building LDCs is lost. We cannot
continue - in the 21st Century to see LDCs as banana republics, those feeble moral and ethical
characters reminiscent of Graham Greene. We cannot continue to cause South East Asian nations
to see U.S. involvement as the intrusive Ugly American.

4. While there are still the old boys club investors and risk takers who see the LDCs as a
playground for dollars or pounds sterling or francs, these nations must be treated in a way that
the investment and capital flow goal is to permit the investment to be returned, and the LDC able
to stand on its own two economic feet. Capital investment is not an allowance for doing good
things for the investor. It is like moving from walker to crutch, from crutch to cane, from cane
to an orthopedic shoe, and then complete freedom to walk or run.

5. The motivation for investment must be a objective one, not based on traditional or ethnic
preferences. It can be a case of the wolf lying down with the sheep and reaching an entente. All
too often, the LDCs are seen as being different from the Western world because of the religion,
habits, customs, history, ethnic and moral standards which may well differ from Western outlook
on things. In short, we cannot bind LDCs with our own moral and traditional precepts. As has
been said several times now, these nations do not want to be bullied. On the other hand, investors
from the West do not want to transfer funds in eight and nine-digit amounts and, at the same
time, wink at what they might consider the amorality of the deal.