IBM Unit V Notes

[For Private reading - among Management Studies Students of Rajalakshmi Eng.
College, Chennai]
BA 9209 Conflict Management and Ethics in IBM

Unit V
Disadvantages of international business - Conflict in International Business -
Sources and types of conflict- Conflict resolutions - Negotiation - the role of
international agencies-Ethical issues in international business-Ethical decision
making.
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Disadvantages of International Business:
1. Delayed Payment 2.Increased costs 3. Delayed Shipment.

4. Unstable Price. 5. Restrictions 6.Involvement of RTB. 7.
Business among MFNs. 8. Less Priority to LDCs 9, Sudden
Diversification. 10. Unstable Economy 11. Political instability.
12. Devaluation of Money. 13. Frequent change of Govt.
Policies 14. More Dumping Activity. 15. Income in equalities.
16. Labour Disorder. 17. New market Opportunity 18.
Unstable Demand and Supply. 19. Ethics 20. Environment
[war,cyclone,quake,flood etc.,]
Control of MNEs: Control focus on means to verify and correct

actions that differ from established plans. Compliances need
to be secured from subordinates through different means of
coordinating specialised and interdependent parts of the
organisation. Within an organisation, control serves as an
integrating mechanism. Control are designed to reduce
uncertainty, increase predictability and ensure behaviour
originating in separate parts of the organisation are
compatible and in support of common organisational goals.
[IBM Unit V – Texts from AU referred Books – Concepts by Prof.Dr.CB.Ragothaman, DOMS – Rajalakshmi
Eng. College] Page 1
[For Private reading - among Management Studies Students of Rajalakshmi Eng. College, Chennai]
Control has three aspects establishing standards and

targets, monitoring activities and comparing actual
implementing measures to remedy deficiencies.
Types of Control
1. Internal control
From an internal control standpoint, an MNC will focus
on the things that it does best. At the same time,
management wants to ensure that there is a market for
the goods and services that it is offering. Therefore, the
company first needs to find out what the customer want
and be prepared to respond appropriately. This requires
an external control focus.
2. Direct control
It involves face-to-face or personal meeting to monitor
operation
3. Indirect control
It uses reports and other written forms of
communications to control operations. E.g. Financial
statement
4. Formalised control
The elements of a bureaucratic / formalised control
system are
 An internal budget and planning system

 The functional reporting system
 Policy manual used to direct functional
performance
5. Cultural control
Sometimes MNC emphasise corporate values and
culture, the evaluation based on the extent to which an
individual or an entity complies with the norms. Culture
controls require an extensive socialisation process to
which informal, personal interaction is central.
6. Exercising control
With in most corporation different functional areas

subjected to different guidelines because, they are
subject to different constraints. For example marketing
function.
Approaches to control
1. Control in US organisations are highly centralised

2. Control in Europe organisations are highly decentralised
3. German organisations favour vertical spans or reporting
channels from the foreign subsidiary to responsible
positions in the parent.
4. Euro system is socio emotional control system where as

Americans follow task oriented objective control system
Control Mechanisms
1. Corporate culture
Maintaining organisation culture e.g. banning the use of
cell phones
2. Coordinating mechanism
i. Strengthening the corporate staff

ii. Planning international and domestic personnel in
closer
iii. Establishing liaisons among them
iv. Establishing teams from different countries to
work in special projects
v. Placing the foreign personnel on Board of directors
vi. Giving equal importance for all individual units
vii. Job rotation
viii. Bringing different people from different countries
Control Techniques
A number of performance measures are used for control

purpose. There are three most important common types are used
by the MNCs to control them. They are
1. Financial performance
Financial performance evaluation of a foreign subsidiary us

based on profit and return on investment. Profit is the
amount remaining after all expenses are deducted from total
revenues. Return on investment through dividing profit by
assets. Some firms use ratio analysis also for measuring
financial performance.
2. Quality performance
Quality is an important technique to control the MNCs. The
quality performance can be done with the help of quality
circles, which is propounded by the Japanese. A quality circle
is a group of workers who meet on a regular basis to discuss
the ways of improving the quality of work.
3. HR performance
Besides financial techniques and the emphasis on quality
another key area of control is HR performance evaluation.
The most common approaches to personnel performance
evaluation are the periodic appraisal of work performance. In
now a days people are going for 360 Degree evaluation.
Control in special situations

1. Shared ownership
2. Change in strategies
3. Legal structure
4. Types of subsidiaries
Designing an International Control System
1. Establishing objectives
2. Selecting control method
3. Setting standards 4. Locate responsibility

4. Establishing communication system
5. Measuring actual performance
6. Comparison of actual and desired performance
7. Evaluating deviations 8. Taking corrective
actions
Factors influencing control
Internal factors
1. Corporate philosophy
2. Mode of operation
3. Nature of firm’s foreign business
4. Location of the foreign operation
5. Nature of technology
6. Nature of functions
7. Size and maturity of firms
External factors
1. Nature of commercial environment 2. Political

environment
Significance of control
 It provides an insight into the efficacy and

effectiveness of the over all plan
 It also enables the management to judge the
suitability of the ongoing strategies
 It influences the behaviours of events and ensures
programmes are confined to plans.
 It avoids inefficient intra – company conflicts ranging
from corporate divisions
 It ensures harmonization and coordination between
corporate and subsidiary’s objectives, strategies etc.
 It serves as a potent instrument for the purpose of
achieving stability and continuity on one hand and
adaptation and adjustment on the other
 It helps the management in making effective use of
source and valuable resources of the organisation
Problems of the control
 Language differences can distort communication

between the head office and subsidiaries
 Local cultural factors may cause the failure in some
countries of motivational incentive systems that were
enormously at the expenses of the company
 Host country Government might force the management
of a local subsidiary to act in the interests of the host
country
 Managers in the local subsidiaries might have difficulty

in understanding the control information requirement
imposed by head office
 The cost of implementing control mechanisms are
much higher than for a domestic firm
 Physical distance separating countries and
management
 Non availability of adequate and accurate information
may be a problem
 Appointment of local nationals in the highest posts will
be a problem
Conflict
Conflict occurs whenever:
• Disagreements exist in a social situation over issues of

substance
• Emotional antagonisms cause frictions between individuals
or groups
Types of conflict
1. Conflict within the individuals

2. Conflict between the individuals
3. Conflict between an individual and a group
4. Conflict between groups
5. Conflict within organisation
6. Conflict between organisations
Conflict resolution
A situation in which the underlying reasons for a given
destructive conflict is eliminated. Effective solution begins with a
diagnosis of the stage to which conflict has developed and
recognition of the causes of conflict.
Managing conflict successfully

• Compromise
• Competition and authoritative command
• Collaboration and problem solving
Negotiation
Bargaining with one or more parties for the purpose of arriving at
a solution acceptable to all
Role of Negotiation
1. Rising joint ventures
2. In getting the operation of the firm
3. Different financial investment
4. Hiring practices
5. Taxes
6. Ownership control
7. Expansion of facilities
8. Additional imports and exports
9. Recapture of profit
Process
1. Planning and determination of objectives
2. Impersonal relationship building

3. Exchanging task related information
4. Persuasion
5. Agreement
Negotiation Tactics
1. Selection of location
2. Time constraints
3. Buyer seller relations
4. Bargaining style
5. Promises, threats and other behaviours
6. Non –verbal behaviour
Behavioural characteristics affecting Negotiations
Cultural factors
1. Ethnocentrism
Giving importance to the culture of home country and
discouraging host country’s culture
2. Polycentrism
Giving more importance for the culture of the host country.
3. Geo-centrism Giving equal importance for the cultures of both
the countries
Language Factors
It may be difficult for negotiations to find words to express
their exact meaning in another language, which may result in
occasional pause while translator resort to dictionaries.
The pauses cause negotiation to take longer than if they were

among people from the same country. More over negotiation stop
while an interpreter translator process takes more time.
Arbitration
Arbitration is the process by which parties voluntarily agree
to refer a future or a present dispute to an individual or
individuals who after hearing submissions from the parties will
issue a legally binding decision (“an award”) determining the
issues between the parties liability and quantum of damages or
giving other specific remedies. If fact both Exporters and
Importers, approaches WTO for arbitration in case of any
disputes.
Key elements of Arbitration

o Enforcement of awards
o Party control
o Party – nominated Arbitrators
o Neutrality
o Privacy and confidentiality
o Cost –effectiveness and speed
International Arbitration Agencies
1. London court of International Arbitration

The LCIA is the largest and modern and forward-looking
arbitration agency. It is based at London and provides
settlement on a genuine basis
2. Singapore International Agencies

The SIAC an independent, non-profit organisation was
established in 1991 to meet the demands of the
international business community for neutral, efficient
and reliable dispute resolution in Asia. It is funded by
Singapore.
3. International Centre for Settlement of Investment Disputes -
Ethical Issues in International Business:
1. Every Nation has its own values, history, customs and

traditions, thus it has developed own ethical principles.
2. .There is not International Ethical code of conduct, accepted
and followed by all the countries.
3. There is lack of Govt’s initiatives to create ethical
cooperation framework and thus to enhance ethical
behaviour in International Business..
4. On the basis of their respective GDP Vs Corruption rankings,
Piracy Vs Fair trade movement on transfer pricing. Dumping
is often seen as an ethical issue.
5. Globalization, cultural imperialism, child labour, out sourcing
production, exploiting low wage countries, employment
Practices, Human rights and Environmental regulations..
Ethical Decision Making:
1. Management face dilemma in decision making on a course
of action.
2. Management confront a distinction between facts and values
when making ethical decision making.
3. Good and bad exist simultaneously and interlocked, bad
should be minimized, but can’t be eliminated.
4. Knowledge about the consequences of an action is limited,
but in uncertain business environment, consequences can’t
be easily predicted.
5. Antagonistic interests frequently use incompatible ethical
arguments to justify their intentions.
6. Some ethical standards vary with the passage of time. Now
our Govt. accepts Donation to Political party.
7. Ethical behaviors are molded from the clay of human
imperfection.
8. Organizational loyalty Vs Loyalty to the public interest – CSR

Corporate Social Responsibility.
9. Moral idealism: Focus on good and bad; distinguish it – it
has definite answers to ethical issues.
10. Intuition: It leaves it to the Individual Management or
group or concerned to sense the moral gravity of the
situation.
11. Utilitarianism: Establishes the moral focus – consider some
decision tactics that illuminate moral choices-predict pros
and cons of situational balance sheet – sort out ethical
priorities before problem arises-commitment in public – but
ethical perfections are illusory. No method of decision
making ends conflicts, no principle penetrates unerringly to
the good, no management achieves an ethical idea.
12. Corporate Social Responsibility, Cultural Effects and
Universalism in Ethics should be self realized.
*
“Road signs are generally point in the same
directions as it should be, but some time does not”
** *

IBM Unit V Notes

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IBM Unit V Notes

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[For Private reading - among Management Studies Students of Rajalakshmi Eng.

BA 9209 Conflict Management and Ethics in IBM

Disadvantages of International Business:

1. Delayed Payment 2.Increased costs 3. Delayed Shipment.

Control of MNEs: Control focus on means to verify and correct

Control has three aspects establishing standards and

 An internal budget and planning system

With in most corporation different functional areas

1. Control in US organisations are highly centralised

4. Euro system is socio emotional control system where as

i. Strengthening the corporate staff

A number of performance measures are used for control

Financial performance evaluation of a foreign subsidiary us

Control in special situations

Designing an International Control System

3. Setting standards 4. Locate responsibility

1. Nature of commercial environment 2. Political

 It provides an insight into the efficacy and

 Language differences can distort communication

 Managers in the local subsidiaries might have difficulty

Conflict occurs whenever:

• Disagreements exist in a social situation over issues of

1. Conflict within the individuals

Managing conflict successfully

2. Impersonal relationship building

The pauses cause negotiation to take longer than if they were

Key elements of Arbitration

1. London court of International Arbitration

2. Singapore International Agencies

3. International Centre for Settlement of Investment Disputes -

Ethical Issues in International Business:

1. Every Nation has its own values, history, customs and

8. Organizational loyalty Vs Loyalty to the public interest – CSR

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