The Blackwell Encyclopedia of Management, International Management (Blackwell Encyclopaedia of Management) (Volume 6)

THE BLACKWELL ENCYCLOPEDIA OF MANAGEMENT:

INTERNATIONAL MANAGEMENT

THE BLACKWELL ENCYCLOPEDIA OF MANAGEMENT SECOND EDITION Encyclopedia Editor: Cary L. Cooper Advisory Editors: Chris Argyris and William H. Starbuck Volume I: Accounting Edited by Colin Clubb (and A. Rashad Abdel Khalik) Volume II: Business Ethics Edited by Patricia H. Werhane and R. Edward Freeman Volume III: Entrepreneurship Edited by Michael A. Hitt and R. Duane Ireland Volume IV: Finance Edited by Ian Garrett (and Dean Paxson and Douglas Wood) Volume V: Human Resource Management Edited by Susan Cartwright (and Lawrence H. Peters, Charles R. Greer, and Stuart A. Youngblood) Volume VI: International Management Edited by Jeanne McNett, Henry W. Lane, Martha L. Maznevski, Mark E. Mendenhall, and John O’Connell Volume VII: Management Information Systems Edited by Gordon B. Davis Volume VIII: Managerial Economics Edited by Robert E. McAuliffe Volume IX: Marketing Edited by Dale Littler Volume X: Operations Management Edited by Nigel Slack and Michael Lewis Volume XI: Organizational Behavior Edited by Nigel Nicholson, Pino G. Audia, and Madan M. Pillutla Volume XII: Strategic Management Edited by John McGee (and Derek F. Channon) Index

THE BLACKWELL ENCYCLOPEDIA OF MANAGEMENT SECOND EDITION

INTERNATIONAL MANAGEMENT Edited by Jeanne McNett, Henry W. Lane, Martha L. Maznevski, Mark E. Mendenhall, and John O’Connell Assumption College, Northeastern University, International Institute for Management Development (IMD), University of Tennessee at Chattanooga, Thunderbird Graduate School of International Management

# 1997, 1999, 2005 by Blackwell Publishing Ltd except for editorial material and organization # 2005 by Jeanne McNett, Henry W. Lane, Martha L. Maznevski, Mark E. Mendenhall, and John O’Connell BLACKWELL PUBLISHING 350 Main Street, Malden, MA 02148 5020, USA 108 Cowley Road, Oxford OX4 1JF, UK 550 Swanston Street, Carlton, Victoria 3053, Australia The right of Jeanne McNett, Henry W. Lane, Martha L. Maznevski, Mark E. Mendenhall, and John O’Connell to be identified as the Authors of the Editorial Material in this Work has been asserted in accordance with the UK Copyright, Designs, and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs, and Patents Act 1988, without the prior permission of the publisher. First published 1997 by Blackwell Publishers Ltd Published in paperback in 1999 by Blackwell Publishers Ltd Second edition published 2005 by Blackwell Publishing Ltd Library of Congress Cataloging in Publication Data The Blackwell encyclopedia of management. International management / edited by Jeanne McNett ... [et al.]. p. cm. (The Blackwell encyclopedia of management; v. 6) Rev. ed. of: The Blackwell encyclopedic dictionary of international management / edited by John O’Connell. 1997. Includes bibliographical references and index. ISBN 0-631-23493-4 (hardcover : alk. paper) 1. International business enterprises Management Dictionaries. 2. Industrial management Dictionaries. I. McNett, Jeanne M., 1946 . II. Blackwell Publishing Ltd. III. Blackwell encyclopedic dictionary of international management. IV. Series. HD30.15 .B455 2005 vol. 6 [HD62.4] 6580 .003 s dc22 [6580 .0490 03] 2004018073 ISBN for the 12-volume set 0-631-23317-2 A catalogue record for this title is available from the British Library. Set in 9.5 on 11pt Ehrhardt by Kolam Information Services Pvt. Ltd, Pondicherry, India Printed and bound in the United Kingdom by TJ International, Padstow, Cornwall The publisher’s policy is to use permanent paper from mills that operate a sustainable forestry policy, and which has been manufactured from pulp processed using acid-free and elementary chlorine-free practices. Furthermore, the publisher ensures that the text paper and cover board used have met acceptable environmental accreditation standards. For further information on Blackwell Publishing, visit our website: www.blackwellpublishing.com

Contents Preface

vi

About the Editors

vii

List of Contributors

viii

Dictionary Entries A–Z Index

1 351

Preface When learning about a new subject or activity, one of the barriers we need to cross is that of language: the new area inevitably uses unfamiliar terminology. We may not know the words in the new field, or if we know them already, their meaning in the new context may be markedly different and subtly nuanced. The challenge of being a novice is to learn this new language so we can use it the way those experienced in the area do, to capture precise meanings and communicate them to our colleagues. One of the primary goals of this volume is to assist in this process by providing clear, developed, applied, and cutting edge definitions of terms frequently used in international management. This goal is an important one, since it derives from the increased need in the practice of international management for clear, accurate communication. This need is driven by the increasing complexity of the process of international management as a result of globalization. This edition of the Blackwell Encyclopedia of Management: International Management has benefited from the active involvement of the International Organization Network (ION), a group of scholars and practitioners whose work in international management is concerned with the people related issues of implementation in a global context. ION contributes a cutting edge awareness of the practice of international management and its scholarly research to this volume. The Blackwell Encyclopedia of Management: International Management is designed to be a part of the international manager’s library, a support in the development from novice to expert and a handy reference at all levels. Like a tool in the toolbox, it belongs there on the shelf to be referenced as needed in our efforts to manage in an increasingly complex world. Jeanne McNett

About the Editors Editor in Chief Cary L. Cooper is based at Lancaster University as Professor of Organizational Psychology. He is the author of over 80 books, is past editor of the Journal of Organizational Behavior, and Founding President of the British Academy of Management. Advisory Editors Chris Argyris is James Bryant Conant Professor of Education and Organizational Behavior at Harvard Business School. William Haynes Starbuck is Professor of Management and Organizational Behavior at the Stern School of Business, New York University. Volume Editors Jeanne McNett is Associate Professor of Management at Assumption College in Massachusetts and is past chair of the Academy of Management’s International Division Teaching Committee. She has published international cases and articles and has lived and worked in Saudi Arabia, Japan, Korea, and the United Kingdom. Henry W. Lane is the Darla and Frederick Brodsky Trustee Professor in International Business at Northeastern University. He has written numerous books, articles, and case studies and has taught in all continents of the world. Martha L. Maznevski is Professor of Organizational Behavior and International Management at the International Institute for Management Development, Lausanne, working with senior executives from a wide range of global companies. She has contributed widely to research and practice on multicultural and virtual teams. Mark E. Mendenhall is the J. Burton Frierson Chair of Excellence in Business Leadership at the University of Tennessee, Chattanooga. He is a past president of the International Division of the Academy of Management and has written numerous books and journal articles in the field of international HRM, focusing particularly on the productivity of expatriate managers and global leadership development. John O’Connell holds the CV Starr Professorship in International Insurance and Risk Management at the American Graduate School of International Management (Thunderbird) in Arizona, USA. In his 25 years as business professor, O’Connell has presented seminars and has consulted in Asia, Central America, Europe, and throughout North America. A frequent contributor at international business meetings, he has also authored more than 30 articles in various academic and trade publications.

Contributors Max H. Bazerman Northwestern University

Terry L. Leap Clemson University

David Bennett Aston University

Jeanne McNett Assumption College

R. Ivan Blanco Barry University, Florida

Mark E. Mendenhall University of Tennessee at Chattanooga

Norman E. Bowie University of Minnesota

Michael H. Moffett Thunderbird Graduate School of International Management

Michael Brocklehurst Imperial College, London Derek F. Channon Late of Imperial College, London James A. Craft University of Pittsburgh

Allen J. Morrison Richard Ivey School of Business, University of Western Ontario Nigel Nicholson London Business School

Thomas G. Cummings University of Southern California

John O’Connell Thunderbird Graduate School of International Management

Dale L. Davison Thunderbird Graduate School of International Management

David A. Ricks Thunderbird Graduate School of International Management

Ismail Erturk Manchester Business School, University of Manchester

Caren Siehl Thunderbird Graduate School of International Management

Jayne M. Godfrey Morash University

Laura Westra University of Windsor

Llewellyn D. Howell Thunderbird Graduate School of International Management

David Yorke Manchester Business School, University of Manchester

Kent A. Jones Babson College

A acceptance

Bibliography

John O’Connell

It is very common to finance the purchase of imports or exports. This is generally accom plished through the issuance of a b i l l o f e x c h a n g e or a d r a f t . It is also common for a third party (e.g., a bank) to guarantee the pay ment of the bill or draft. When this is done the bank ‘‘accepts’’ or guarantees payment by affix ing its name to the front of the draft. The ‘‘acceptance’’ (guaranteed draft) is a negotiable instrument; that is, it may be sold or otherwise transferred by the acceptor prior to its maturity date. An acceptance must have the signature or stamp of the acceptor and the date of the accept ance placed on the face of the instrument in order to be valid. Bibliography Johnson, H. (1993). New Global Banker: What Every US Bank Must Know to Compete Internationally. Hinsdale, IL: Probus. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

Logue, D. E. (1995). The WG&L Handbook of Inter national Finance. Cincinnati, OH: South-Western. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

access control John O’Connell

Access control insures that resources are granted only to those users who are entitled to them. An access control list (ACL) is a mechanism that implements access control for a system resource by listing the identities of the system entities that are permitted to access the resource. An access control service is a security service that provides protection of system resources against unauthor ized access. The two basic mechanisms for im plementing this service are ACLs and tickets.

access management John O’Connell

acceptance financing John O’Connell

A method of financing imports and exports through a short term line of credit. The lending bank may include specific documentation to show evidence of title to the merchandise. The required documentation normally consists of either a warehouse receipt or a b i l l o f lading.

The maintenance of access information which consists of four tasks: account administration, maintenance, monitoring, and revocation.

account harvesting John O’Connell

The process of collecting all the legitimate account names on a system.

2

accountability

accountability John O’Connell

The process of making management decision makers responsible for their decisions, identify ing persons making management decisions, and developing a measurement standard to deter mine if decisions were correct. This is especially important in management where face to face contact between managers and home office personnel may be infrequent or non existent.

accounting differences John O’Connell

The differences that occur between nations with regard to accounting and reporting standards. The differences can be based upon social, cul tural, legal, political, and economic factors. Social and cultural conditions can affect the way societies view secrecy, p r i v a c y , time, fate, and business, thus having a direct effect on what is reported in accounting statements. Legal requirements can vary widely from government to government; thus, accounting regulations vary as well. Political and economic conditions influ ence accounting differences the most, as they tend to dictate what type of accounting is needed. For example, an unstable economy plagued with high inflation will need an accounting system that addresses the issue of inflation. There is a growing trend for harmonization of accounting standards and procedures in the global economy. Organizations such as the International Ac counting Standards Committee (ISAAC) and the International Coordination Committee for the Accounting Profession (ICCAP) seek to har monize accounting standards across borders. Bibliography

monetary values of accounting entries. Account ing exposure includes both t r a n s l a t i o n r i s k and t r a n s a c t i o n e x p o s u r e . As an example, translation risk occurs when a parent organization must produce consolidated balance sheets for their multinational operations. In so doing, the parent company must translate the assets, liabilities, revenues, expenses, and income of their foreign operations into domestic currency terms. Transaction risk occurs, on the other hand, when an organization is forced to pay for goods and services produced in another country. For example, a US computer manufac turer located in California would be required to pay a Japanese semiconductor manufacturer in Japanese yen, not in US dollars. The transac tion, however, will need to be reported in US dollars on the US computer manufacturer’s bal ance sheet. Changes in the value of foreign cur rency will affect the value of assets or the amount of foreign currency required to meet foreign obligations. See also translation exposure Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

accounting system

see a c c o u n t i n g d i f f e r e n c e s

acculturation John O’Connell

Arpan, J. S. and Al Hashim, D. D. (1984). International Dimensions of Accounting, Boston, MA: Kent Publishing.

accounting exposure John O’Connell

The risk of foreign exchange (currency) appre ciation or depreciation which may alter the

Acculturation is the process one goes through to become as comfortable as possible in another culture. Probably the most common method of acculturation is that of assimilating portions of the new culture to go along with those you already have (becoming dual citizens). This does not involve giving up your own culture (going native); instead, you add those features of the new culture which allow you to function

address commission more effectively. There are also those people who attempt to avoid acculturation by separating themselves as much as possible from the local culture. They associate only with those persons of their own culture (leaving their hearts at home). This approach builds walls between cul tures and is not recommended if intercultural understanding and dealings are intended.

activity monitors

Bibliography

ad valorem duty

Bird, A. and Dunbar, R. (1991). Getting the job done over there: Improving expatriate productivity. National Productivity Review, spring, 145 56. Black, J. S. and Gregersen, H. B. (1992). Serving two masters: Managing the dual allegiance of expatriate employees. Sloan Management Review, Summer, 61 71. Mendenhall, M. and Oddou, G. (1985). The dimensions of expatriate acculturation: A review. Academy of Man agement Review, 10 (1), 39 47.

3

John O’Connell

Aim to prevent virus infection by monitoring for malicious activity on a system, and blocking that activity when possible.

John O’Connell

Ad valorem duties are taxes which are paid on imported items. The d u t y is expressed as a percentage amount of the value of goods which clear customs. Thus, if a 5 percent ad valorem duty was due on $50,000 worth of goods, the duty would amount to $2,500.

adaptability screening ACH

John O’Connell

see a u t o m a t e d c l e a r i n g h o u s e

across-the-board tariff reductions John O’Connell

Tariffs may apply to literally hundreds or thou sands of products or commodities imported and exported between countries. When countries reach a point in their international trade transac tions in which a reduction in trade b a r r i e r s is agreeable, working to reduce each individual tariff is time consuming and could be quite troublesome because of special interests in indi vidual products. Instead of reviewing each tariff by itself, countries can often agree that it is time for agreements to reduce all tariffs by a specified amount (or in some cases to do away with tariffs for specific classes of goods or commodities). When these ‘‘across the board’’ agreements are reached, each country that is a signatory to the agreement must abide by the arrangement. Across the board tariff reductions are also re ferred to as linear tariff reductions (inferring that each party moves in the same manner at the same time).

The process of determining one’s ability to deal with overseas assignments. Screening takes the form of testing the ability to deal with change (among other skills), handle stress, make deci sions without full knowledge, and be at ease in cultures which are entirely different than that of the person being tested. Screening can be an essential part of planning for the success of an expatriate. Bibliography Brown, R. (1987). How to choose the best expatriates. Personnel Management, June, 67. Naumann, E. (1993). Organizational predictors of expatriate job satisfaction. Journal of International Busi ness Studies, 61 4.

ADB

see a s i a n d e v e l o p m e n t b a n k

address commission

see c a r g o b r o k e r

4

admiralty court

admiralty court

Bibliography

John O’Connell

A court having jurisdiction over matters covered by m a r i t i m e l a w . The court deals with activ ities and breaches of law on seas or navigable waterways outside of a country’s territorial waters. Each country normally assigns admiralty questions to a section of its legal system. For example, Federal District Courts in the United States and the Admiralty Division of the High Court of Justice in England decide admiralty matters.

Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

advance import deposits John O’Connell

A refundable payment made to the appropriate government agency (commonly the central bank) to secure an i m p o r t l i c e n s e . The de posit is returned to the importer within a short period of time after the import transaction takes place.

admiralty law

see m a r i t i m e l a w advanced determination ruling (ADR) John O’Connell ADR

see a d v a n c e d d e t e r m i n a t i o n r u l i n g

aduana John O’Connell

A Spanish word referring to a tax on goods brought into a country. It refers to a custom’s duty.

advance against documents John O’Connell

This is a loan made by a bank or the buyer of goods to the seller of goods. An advance is commonly made on the basis of a sales contract or a b i l l o f l a d i n g . This allows money to be obtained by the seller prior to deliv ery of the goods. The loan is paid back (or deducted from the buyer’s amount due) upon delivery of the goods and presentation of proper documentation to allow the release of funds from the l e t t e r o f c r e d i t or other payment instrument.

An ADR allows a US company to secure an Internal Revenue Service opinion on pricing structures of goods purchased from foreign sub sidiaries. An explanation is necessary to under stand why an ADR may be a good idea. A US company may elect to form a second company in an offshore location to act as a conduit for goods and materials purchased overseas. The reason for this would be to purchase all goods through the second company (which if properly formed will be in a country with much lower corporate income taxes) and then resell the goods to the parent organization. The intent of this arrange ment is to allow the subsidiary to charge high prices (and pay low taxes on its profits) while the parent pays high prices for raw materials and deducts the high cost from parent company income. This process of establishing the price of goods is referred to as transfer pricing. An advanced determination ruling is an application filed with the Internal Revenue Service of the United States to determine if the transfer pricing method used is valid. Many companies choose to undertake a determination before putting prices into affect. If the ruling goes against the com pany, adjustments must be made. If the ruling is favorable, the pricing structure may be used. Failure to secure a ruling ahead of time may place a company in jeopardy of IRS scrutiny

aesthetics

5

along with fines and other payments associated with such scrutiny.

advisory capacity

See also reinvoicing; transfer price

When conducting international operations it is not always possible to be in every location in which a signature or delivery or other activity is required. In cases in which a person (the principal) cannot be or elects not to be present, an agent is commonly appointed to represent that person’s interests and act on his or her behalf. It is possible for an agent to have various degrees of authority to act on behalf of the prin cipal. Full authority could be granted, which allows the agent to change or otherwise abridge the terms of the contract or agreement without notifying the principal. Limited authority or ‘‘advisory capacity’’ gives the agent capacity to act on behalf of the principal but no authority to make or agree to changes without the expressed permission of the principal.

Bibliography Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin.

advised letter of credit John O’Connell

When an exporter’s bank informs the exporter of the requirements to collect payment on a l e t t e r o f c r e d i t , the exporter is said to be ‘‘advised.’’ Thus, the term ‘‘advised letter of credit.’’

John O’Connell

See also advising bank advocacy advertising John O’Connell

advising bank John O’Connell

Financing imports is more involved than finan cing the domestic purchase of goods. This is because two or more countries are involved and it is not always possible to use the importer’s bank for all transfers of money. To get around some of the problems it has become the custom to use letters of credit (or other similar payment devices) issued by the importer’s bank and trans ferred to the exporter’s bank. Once the export er’s bank receives the l e t t e r o f c r e d i t it informs (‘‘advises’’) the exporter of its receipt and the terms of payment. Thus, the exporter’s bank is sometimes referred to as the ‘‘advising’’ bank. In reality, any time a bank informs its customers of the receipt of a letter of credit or other payment document it is an advising bank. See also advised letter of credit; issuing bank Bibliography Johnson, M. (1992). Cultural Guide to Doing Business in Europe, 2nd edn. Boston, MA: ButterworthHeinemann.

Advertising which is aimed at supporting social or other causes. It has become very popular (and good business) for business organizations to sup port environmental causes, humane treatment of animals, human rights, safety, and other causes. Advocacy advertising builds goodwill among those members of the public who share the same concerns as the advertiser. Bibliography Clark, J. B. (1990). Marketing Today. Englewood Cliffs, NJ: Prentice-Hall.

aesthetics John O’Connell

A culture’s artistic views and attitudes. The views range from brightly colored artwork, dress, and design to more muted tones; from primitive to contemporary; and from real istic to impressionistic. The art of a culture tells much of that culture’s development over time. Aesthetic values and other traditions and

6

AFDB

customs will help determine the types of clothing acceptable in the workplace, the color of office de´cor, and sometimes even the location of an office.

AFDB

see a f r i c a n d e v e l o p m e n t b a n k

affective approach, to training

see e x p a t r i a t e t r a i n i n g

affiliate program John O’Connell

A marketing program, usually automated, in which a Web merchant recruits other websites to place the merchant’s banners and buttons on their sites in return for commissions on sales to customers who click on the ads.

affirmative dumping determination John O’Connell

d u m p i n g is an international trade term used to describe situations in which a country prices its exports at less than the same goods would be priced if sold domestically. Thus, the country is selling exports for less than it is offering the goods to its own people. The effect of dumping is to decrease the sales of domestic ally produced products in the importing coun try. Harm caused by dumping includes local companies losing profits or market share. In the United States, if a local company (or the government of the United States) believes that dumping is occurring, a request may be made to the International Trade Commission (ITC) for a ruling. If the ITC makes an affirmative dumping determination, or in other words agrees that dumping is occurring, duties may be assessed against the importer of the goods. Duties have the effect of increasing the price of the goods on the final market, thereby defeating the attempt to dump goods in the United States. Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

affirmative action John O’Connell

Government action intended eventually to equalize employment opportunities for all citi zens of a particular country. From time to time this may require the favoring of certain categor ies of workers over others. In the United States, affirmative action came into effect with the pas sage of the Civil Rights Act in 1964. Affirmative action required employers to favor women and minorities when hiring in order to overcome past decades of discriminatory hiring practices throughout the country. See also equal opportunity; pay equity Bibliography Hayajneh, A. H., Haile, S., and Cunningham, B. (1994). The challenge of a diverse work force in American organizations: Suggested techniques and competitive advantages. Global Business Perspectives, 1, 263 9.

affreightment

see c o n t r a c t o f a f f r e i g h t m e n t

AFIDA

see a g r i c u l t u r a l f o r e i g n i n v e s t m e n t disclosure act of 1978

African Development Bank (ADB) John O’Connell

A financial institution supported by member countries to promote economic development and trade in the region. The bank has 53 African country members and 23 members from outside

Agreement on Customs Valuation the region, all of whom are interested in the fur ther economic development of Africa. Loans are made to develop projects and industry. Since many of the African nations are in the develop ment stage, much of the bank’s low interest funding goes to expand the infrastructure of the region (communications, transportation, agricul tural base, and provision of utility services, among others). See also regional development banks Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

AG John O’Connell

AG stands for Aktiengesellschaft and is the abbre viation for the German corporate form for large enterprises and company groups. The letters AG appear after the name of the corporation.

7

has ongoing and emergency funding available for projects.

agreement corporation John O’Connell

This is a US term for an organization which is established to conduct international banking ac tivities (also formally known as Edge Corpor ations, after the Edge Act which allowed their formation). An agreement corporation is a US bank branch or subsidiary of a US based corpor ation that is used mainly for international banking purposes. Agreement corporations have been allowed to operate since 1981 by US banking authorities as an answer to competition by foreign banking centers. These special cor porations are exempt from normal banking and antitrust legislation in regards to pricing and restrictive trade practices. This allows agree ment corporations to be more creative and flex ible in their activities than regular US banks. Bibliography Johnson, H. (1993). New Global Banker: What Every US Bank Must Know to Compete Internationally. Hinsdale, IL: Probus.

against all risks John O’Connell

An insurance term describing coverage from all sources of loss except those which are specific ally excluded or restricted in the contract. The list of exclusions and/or restrictions is normally much more extensive in land based insurance contracts (e.g., buildings and personal property) than in marine insurance coverages (e.g., cargo coverage and hull policies). All risk policies do not normally cover damage from all sources of loss. The term is often misleading to insureds.

Agency for International Development (AID) John O’Connell

An agency of the US State Department. Its major function is to oversee the provision of economic assistance to foreign countries. AID

Agreement on Customs Valuation John O’Connell

Many imports are charged custom duties based upon the value of the goods imported. Under this system, the most important factor in arriv ing at the amount of d u t y is the valuation placed on the import by a country’s customs officials. The Agreement on Customs Valuation (also referred to as the Customs Valuation Code) sets forth a standardized system for determining the value of imported goods. Instead of each country having its own system for determining values, the Agreement on Customs Valuation system is used for most of the world’s imports. Standardization of this nature was the goal of the General Agreement on Tariffs and Trade (GATT) and is an ongoing goal of the w o r l d t r a d e o r g a n i z a t i o n (WTO). The valuation

8

Agricultural Foreign Investment Disclosure Act of 1978

agreement came about as a result of the t o k y o r o u n d of the GATT negotiations.

honor such practices or face labor unrest in the foreign country and top management unrest in their home office.

Bibliography Simmonds, K. R. and Musch, D. J. (eds.) (1992). Law and Practice Under the GATT and Other Trading Agree ments, North American Free Trade Agreements, United States Canada Free Trade Agreements: Binational Panel Reviews and Reports. Dobbs Ferry, NY: Oceana.

AID

Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA)

air waybill (AWB)

see agency development

international

John O’Connell

John O’Connell

In response to the pressures of US agricultural interests, the United States Congress passed AFIDA as a method of determining the exact nature of foreign agricultural holdings in the country. The late 1970s saw an outcry over for eign investment and ownership of what many considered to be sacred US holdings or activ ities. AFIDA provided a means of keeping track of foreign investment in the agricultural area.

for

When goods are shipped by air, the details of the shipping agreement are disclosed on what is referred to as an air waybill. The information on the air waybill includes the name of the owner of the goods, the party to whom the goods are being shipped, the departure and destination points, the specific type of goods being shipped, and the value of the goods. See also house air waybill; master air waybill Bibliography

agroterrorism John O’Connell

Terrorist attacks aimed at reducing the food supply by destroying crops using natural pests such as the potato beetle, animal diseases such as hoof and mouth disease and anthrax, molds and other plant diseases, or chemicals that de foliate vegetation, such as Agent Orange, used in Vietnam.

Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

airbill (A/B) John O’Connell

When an air carrier receives goods for shipment a receipt for goods is provided. That receipt is referred to as an airbill. See also air waybill

agunaldo John O’Connell

A bonus paid to employees of companies operat ing in Mexico. This ‘‘gift’’ is normally 2–4 weeks’ pay and is given to the employee during the Christmas holidays. Agunaldo is an example of a custom which impacts the profitability and operation of businesses in foreign countries. International managers must be aware of and

airport tax John O’Connell

When leaving some countries by air, a person is required to pay an airport tax or departure tax. This fee is generally less than $20. It can be a surprise, however, especially to those travelers

alliances who have already converted all of their money to their home currency or spent all of the host country currency in their possession in anticipa tion of getting on the airplane.

alien John O’Connell

A person who is not a citizen of the country in which he or she lives. A resident alien has been given permission by the government of the host country to take up permanent residence. A resi dent alien is not granted citizenship. An illegal alien is a person who has not been given permis sion by the host government to live there.

alien corporation John O’Connell

In the United States, an alien corporation is one that is formed in a country other than the United States. Thus, a Japanese corporation doing busi ness in the United States would be considered an alien corporation by the US. In other parts of the world, a corporation doing business in another country is referred to as a foreign corporation. Thus, the Japanese company doing business in a country other than the US would be called a foreign corporation. See also foreign corporation

alliances Jeanne McNett

These cooperative agreements between com panies (customers, suppliers, and competitors) are designed to build collaborative relationships in order to achieve shared, strategic objectives. In the global environment, alliances are often thought of as various forms of partnerships and may take the form of international joint ven tures, with equity positions taken by the part ners; cross licensing agreements; and mergers and acquisitions. They are often called global

9

alliances. Increasingly, though, global alliances are thought of as separate from relationships that involve cross ownership, yet they are committed and formal relationships. The trend is for alliances to become platforms for organizational learning, ways to access knowledge located within a partner that allows the company to leverage its strengths in global markets and mechanisms through which to achieve global efficiencies through collaborations. For example, alliances have become popular ways for airlines to share partner knowledge and availability of routes, ticketing, gates, and maintenance. Apple and Hewlett Packard have an alliance to bring Apple’s digital music player and iTunes to HP customers globally. One of the key drivers of alliances is a recog nition of the value of knowledge as a key re source. Many firms are using alliances as a way to gain rapid access to technology and other innovations they need in order to be competitive. Alliances may be partnerships with suppliers. This new way of understanding the supplier relationship suggests that the supplier provides integrated solutions to the corporation, not just products, on a worldwide basis. The result of alliances is often closer relationships and greater interdependence. Suppliers cope with these changes in their customer relationships by modifying their structures and systems. n e t w o r k e d organizations and g l o b a l a c c o u n t m a n a g e m e n t structures are indications of the alliance trend. The importance of b o u n d a r y s p a n n i n g skills in alliances is significant. An example of such an approach to alliances is the pharmaceutical company Eli Lilly, which, on the Lilly website, states: ‘‘Successful alliances are more critical than ever to our strategy. We are working hard to be recognized as the pharma ceutical industry’s premier partner by consist ently creating value for our partners and for Lilly.’’ The interdependence of alliances, whose chal lenges tend to be less with strategic fit and more with implementation, contributes to the com plexity that global managers face. Learning from alliance partners requires that people with boundary spanning skills be connected so that knowledge can be shared, understood, inter preted, and leveraged. t a c i t k n o w l e d g e , the knowledge that is unarticulated and

10

allowances

non codified, yet so important in any operation, needs to be shared through personal inter actions, ideally with c o l o c a t i o n . These interactions are easily inhibited by differences in language and culture. Bibliography Athanassiou, N. and Nigh, D. (2000). Internationalization, tacit knowledge and the top management team of MNCs. Journal of International Business Studies, 31 (3), 471 88. Beamish, P. W. (2003). The design and management of international joint ventures. In P. W. Beamish, A. Morisson, A. C. Inkpen, and P. M. Rosenzweig (eds.), International Management: Text and Cases, 5th edn. Burr Ridge, IL: Irwin McGraw-Hill. Beamish, P. W. and Banks, J. C. (1987). Equity joint ventures and the theory of the multinational enterprise. Journal of International Business Studies, 18 (2), 1 16. Inkpen, A. C. and Crossan, M. M. (1995). Believing is seeing: Joint ventures and organization learning. Jour nal of Management Studies, 32 (5), 595 618. Kostova, T., Athanassiou, N., and Berdrow, I. (2004). Managing knowledge in global organizations. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, H. W., Greenberg, D., and Berdrow, I. (2004). Barriers and bonds to knowledge transfer in global alliances and mergers. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, P. J., Salk, J. E., and Lyles, M. A. (2001). Absorptive capacity, learning and performance in international joint ventures. Strategic Management Journal, 22 (12). Morosini, P. (1999). Managing Cultural Differences: Ef fective Strategy and Execution Across Cultures in Global Corporate Alliances. Oxford: Pergamon. Mowery, D. C., Oxley, J. E., and Silverman, B. S. (1996). Strategic alliances and interfirm knowledge transfer. Strategic Management Journal, 17. Pekar, P. and Alio, R. (1994). Making alliances work: Guidelines for success. Long Range Planning, 27 (4). United Nations Conference on Trade and Development (2000). World Investment Report: Cross border Mergers and Acquisitions. New York: United Nations Conference on Trade and Development. Zack, M. H. (1996). Developing a knowledge strategy. California Management Review, 41 (3), 125 45.

allowances John O’Connell

Expatriates may receive, as part of their compen sation, additional funds for specific purposes to allow them to live more comfortably or to com pensate them for inconveniences. Allowances could include relocation costs, the expenses of home leave for themselves and their family, cost of living adjustments, educational costs for chil dren, and other costs deemed important by the expatriate and agreed to by the employer. Allow ances can add a great deal to the cost of sending an employee on an overseas assignment. See also compensation package (expatriate) Bibliography Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

all-risk clause

see a g a i n s t a l l r i s k s

alongside John O’Connell

Cargo placed so it is capable of being loaded directly upon a ship. Cargo is placed ‘‘alongside’’ when it is on an adjacent dock, barge, or other platform from which it may be transferred dir ectly to the ship by the ship’s tackle or other means (e.g., land based cranes). The term is commonly used to assist in determining cargo pricing structure, the duration of responsi bility on the part of the shipper, and delivery terms. See also free alongside ship; INCOTERMS

alternative dispute resolution (ADR) John O’Connell

International organizations often turn to alterna tive dispute resolution methods rather than

ambiguity attempt to settle disputes with a foreign entity under the laws of another country. Potential problems associated with having to take legal action in another country include local laws which favor citizens of that country; a completely different legal system which is unknown to the foreign company; and the po tential for bad public relations associated with a foreign organization taking legal action against a fellow citizen. Alternative dispute resolution methods include arbitration, conciliation, and mediation. These methods are usually quicker and less costly than litigation. ADRs also do not result in decisions which are made public or which place fault. In the United States these benefits of ADRs are especially important. The use of alternative dispute resolution methods is very often included as a binding portion of international contracts (subject, of course, to the particular resolution technique being acceptable in the country in which the contract is drawn). See also arbitration Bibliography Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

ambiguity Jeanne McNett

This term is used to describe lack of clarity and uncertainty of meaning. Ambiguity is one of the three conditions of complexity associated with globalization, the others being m u l t i p l i c i t y and i n t e r d e p e n d e n c e . With ambiguity, al though there may be much information available to the manager, its meaning and implications are not clear. Under conditions of ambiguity, the manager cannot interpret the available data to guide action effectively. Three aspects of ambi guity contribute to the complexity of globaliza tion: lack of information clarity, cause–effect relationships, and e q u i v o c a l i t y . Lack of information clarity exists when the information itself is unclear. Cause–effect rela

11

tionships create confusion around the relation ship between means and ends, inputs and outputs, actions and outcomes. Does one action actually cause what is observed as the outcome, or are both caused by something else? Equivocality is a condition in which multiple interpretations of the same facts are possible. The idea of ambiguity is also present as a trait in several of the taxonomies of c u l t u r a l d i m e n s i o n s , as a measure of a culture’s tendency to tolerate ambiguity. h o f s t e d e ’s c u l t u r a l d i m e n s i o n s uses the term u n c e r t a i n t y a v o i d a n c e to describe this trait, while k l u c k h o h n a n d s t r o d t b e c k ’s d i m e n s i o n s use Mastery/Harmony, and Trompenaars and Hampden Turner use Control over environ ment/Control by environment. Bibliography Alvesson, M. (1993). Organizations as rhetoric: Knowledge-intensive firms and the struggle with ambiguity. Journal of Management Studies, 30 (6), 97 1015. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Hampden-Turner, C. and Trompenaars, F. (2000). Building Cross Cultural Competence: How to Create Wealth from Conflicting Values. New Haven, CT: Yale University Press. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill. Kluckhohn, F. and Strodtbeck, S. F. (1961). Variations in Value Orientations. Evanston, IL: Row, Peterson. Lane, H. W., DiStefano, J., and Maznevski, M. (2000). International Management Behavior, 4th edn. Oxford: Blackwell. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Senge, P. M. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Doubleday Currency. Zack, M. H. (2000). Jazz improvisation and organizing: Once more from the top. Organization Science, 11 (2), 227 34.

12

American Accounting Association, International Section

American Accounting Association, International Section John O’Connell

The International Section of the American Accounting Association is comprised of a mem bership which is interested in making the tasks of accounting for international business trans actions a simpler process. Rather than using individual country accounting procedures and standards, the International Section seeks to standardize accounting and auditing procedures on an international basis. Through membership of persons from other countries as well as members from US accounting firms and academics, the International Section is seeking to improve communication and cooperation throughout the world accounting profession.

American Plan John O’Connell

When traveling on an American Plan, all hotel, food, and service charges are included in one package price. Generally, American Plan travel provides a meal for the traveler either from a preset menu (from which deviations are not normally allowed) or a buffet style meal. Meal times are usually set by the hotel and travelers not eating during these time periods may have to pay for their own meal elsewhere. American Plan travel is good for those who seek some regimen and will abide by schedules, but for those seeking flexibility while traveling, American Plans may be too restrictive.

American style option American depository receipt (ADR) John O’Connell

Foreign companies commonly seek to raise cap ital in the United States. The registering of their securities with the US s e c u r i t i e s a n d e x c h a n g e c o m m i s s i o n , however, is a long and detailed process. Instead of trading their securities directly, many foreign firms deposit their securities with a US bank and receive in exchange an American depository receipt. An ADR is a negotiable instrument which can then be traded as if it were a US issued stock. ADRs still have to be registered with the Securities and Exchange Commission, but the registration pro cess takes far less time than registering foreign securities.

John O’Connell

An agreement which allows the holder to buy or sell currency at a specified price any time prior to the expiration date of the option. See also European style option; options

AMF

see a r a b m o n e t a r y f u n d

AMU

see a r a b m a g h r e b u n i o n

Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

ANCOM

see a n d e a n c o m m o n m a r k e t / a n d e a n pact American depository share John O’Connell

Similar to an a m e r i c a n d e p o s i t o r y r e c e i p t issued by a US bank, except that the ‘‘share’’ is issued by a securities firm.

ANDEAN

see a n d e a n c o m m o n m a r k e t / a n d e a n pact

anti-dumping law Andean Common Market/Andean Pact (ANCOM) John O’Connell

An economic agreement was forged in 1969 be tween some South American countries (Bolivia, Chile, Columbia, Equador, and Venezuela) to assist in reducing trade b a r r i e r s and fostering the economic development of the members. (Chile dropped out of the pact a few years after its adoption.) The members eventu ally established the Andean Common Market in which trade restrictions between members have been reduced. The group continues in its efforts to reduce trade barriers, standardize rules regarding trade, and to support the economic development of the region. ANCOM members are also members of the Latin American Integra tion Association (LAIA), a larger group of coun tries seeking economic development and free trade in the entire region. See also Latin American Integration Association

Andean Pact

see a n d e a n c o m m o n m a r k e t / a n d e a n pact

13

products will display official wording that the export license of the exporter is not valid except for specified receivers of the goods. The official wording on the b i l l o f l a d i n g or other tran sit documents is referred to as a d e s t i n a t i o n control statement. Bibliography Bowker, R. R. (1994). Report on US Trade and Investment Barriers (1993): Problems of Doing Business with the US. Chester, PA: Diane Publishing.

anti-dumping duty John O’Connell

From time to time, products imported into a country have sales prices that are far below the exporter’s local market price for such goods. This means the goods are sold for less in other coun tries than their market price in the exporter’s home country. When this occurs production and distribution of similar domestic products of the importing country may be harmed. In order to protect local industry, taxes may be imposed on specific imports to drive their prices up, thereby allowing local industry to compete. This tax is sometimes referred to as an anti dumping duty. See also dumping; duty

antiboycott regulations John O’Connell

It is against United States law for US firms to participate in or give support to boycotts of foreign organizations. It is illegal for US firms to participate directly or to refuse to deal with firms who do not comply with a b o y c o t t .

Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

anti-dumping law John O’Connell anti-diversion clause John O’Connell

Sometimes the United States government issues restrictions on US exports to certain countries. When this occurs certain categories of goods are identified as being those most likely to be il legally diverted to the restricted country. The bills of lading or other transit documents of such

d u m p i n g , the sale of goods in foreign markets at lower prices than in domestic markets, occurs for a number of reasons. For example, producers of goods in one country may find themselves with an excess supply of products which cannot be absorbed into their domestic markets. Producers may attempt to sell these items in overseas markets at lower than they charge in home markets to reduce their

14

APO

inventories. An organization may also ‘‘dump’’ products on a foreign market in an attempt to quickly obtain new or increase an existing market share in a country. Regardless of the reasoning behind the practice of dumping, local competitors in the importing country are harmed by the practice. In response to past cases of dumping, governments of many coun tries have passed anti dumping laws and become signatories to the General Agreement on Tariffs and Trade’s anti dumping code. Additional taxes may be assessed on goods suspected of being dumped and other sanctions applied to countries participating in dumping activities. Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

APO

see a s i a n p r o d u c t i v i t y o r g a n i z a t i o n

application service provider John O’Connell

A company that provides third party services and software over the Internet.

Bibliography Miletello, F. C. and Davis, H. A. (1994). Foreign Exchange Management. Morristown, NJ: Financial Executives Research Foundation.

appropriate technology John O’Connell

The term used to describe which type of technol ogy is suitable for a country. One of the major concerns of international organizations today is whether current technological advances – methods of doing business, up to date communi cations systems, robotics production, and others – can be used in developing nations. The use of advanced technologies requires an infrastructure which many nations do not possess. Also troub ling is the cultural impact technological advance ment sometimes carries with it. For example, will agribusiness approaches destroy the self worth of farmers in developing nations, leading to problems in the society? Is the appropriate tech nology for some countries one of a past era? If so, is that older technology still compatible with the technology presently used by multinationals? Answers to questions involving appropriate tech nology have implications (both economic and social) for developing nations as well as the com panies introducing the technology. Bibliography

appreciation (foreign currency) John O’Connell

Appreciation of currency and the potential profits for those who purchased currency before it in creased in value have attracted a large number of investors and speculators who buy and sell vari ous currencies throughout the world. Appreci ation describes the increase in the value of a currency relative to other currencies. Increases in value can occur for a number of reasons related to a country’s internal economic performance or government activity (e.g., increasing interest rates, or monetary authority action to increase currency value), or from the poor performance of another country’s economy (low interest rates, low demand for the country’s currency).

Dawson, L. M. (1987). Transferring industrial technologies to less developed countries. Industrial Marketing and Management, 16, 265 71. Deans, P. C. and Kane, M. J. (1992). International Dimen sions of Information Systems and Technology, 2nd edn. Boston, MA: PWS-Kent Publishing.

Arab Bank for Economic Development in Africa (ABEDA) John O’Connell

This is a regional development bank estab lished by the a r a b l e a g u e to help meet the economic development needs of member coun tries. Member countries submit development projects to the bank for low cost funding.

arbitration Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

15

Arab dinar as its unit of account. The Arab dinar is equal to one Special Drawing Right (SDR) of the i n t e r n a t i o n a l m o n e t a r y f u n d .

arbitrage

Arab League

John O’Connell

John O’Connell

The League of Arab States (its official name) was established in 1945 as an association of Arab countries seeking cooperation in defending one another from outside forces and supporting the region’s economic and social goals. Arab League membership includes Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, United Arab Emirates, and Yemen. The Arab League established and still supports the Arab Bank for Economic Development in Africa (ABEDA) and the Arab Monetary Fund (AMF).

Arab Maghreb Union (AMU) John O’Connell

Founded in Marrakesh, Morrocco in 1989, the Arab Maghreb Union (also referred to as the Maghreb Common Market) was formed to develop standardization of regulations regarding trade among its members and to begin to inte grate the monetary systems, thereby facilitating trade and commerce between member countries. Membership in the AMU includes Algeria, Libya, Mauritania, Morocco, and Tunisia. The major goal of the AMU was to develop an inte grated system of economies in North Africa. A direct result of the AMU was the development of the Maghreb Economic Community.

Arbitrage is essentially following the old adage ‘‘buy low, sell high,’’ only in the case of arbitrage you buy low in one market and simultaneously sell high in another. For example, currency is traded in a number of markets throughout the world. Although the price of currency trades is generally very similar in all markets, sometimes a situation occurs in which the ask price (willingness to sell) in one market is less than the bid price (willing ness to buy) in another market. Successful arbi trage could occur by purchasing in one market and simultaneously selling in the other market. (Technically, this is referred to as ‘‘two point’’ or ‘‘locational’’ arbitrage. ‘‘Three point’’ or ‘‘tri angular’’ arbitrage occurs where three currencies are traded against one another to arrive at a profit.) Arbitrage also takes place in the trading of other financial instruments or commodities. In the world’s financial markets there are persons who specialize in profiting from arbitrage trans actions. They are referred to as arbitrageurs. Bibliography Houthakker, H. S. and Williamson, P. J. (1994). The Economics of Financial Markets. New York: Oxford University Press. Kenyon, A. (1990). Currency Risk and Business Manage ment. Cambridge, MA: Blackwell.

arbitration John O’Connell

Arab Monetary Fund (AMF) John O’Connell

Established in 1976 by the a r a b l e a g u e , the AMF provides financing for economic develop ment in the region as well as fostering cooper ation among its members. The AMF uses the

Arbitration is one of the most common methods of alternate dispute resolution. Alternate dispute resolution is a method of settling legal questions without having to file lawsuits or otherwise use the litigation system of any given country. Arbi tration is commonly called for in international contracts to avoid the cost and time commitment which is demanded by litigation. Litigation in a

16

arbitration agreements

foreign country exposes an organization to a legal system which may favor local citizens. The legal system may also be totally unfamiliar to a foreign business person, thereby placing this person at a distinct disadvantage when compared to local business people who have grown up with the system. Arbitration involves a hearing before an im partial arbitrator. The arbitrator may be selected by the parties at odds or may have been agreed to in the original contract bringing the parties together. Depending upon the system under which the proceedings are heard, the arbitrator may be allowed to impose a compromise settle ment or select between the positions presented by the parties in dispute. Decisions of the arbi trator are confidential and do not set precedent. Thus, a business desiring to settle a dispute in private and quickly would probably desire to use an alternate dispute resolution method such as arbitration. The United Nations Convention on Arbitration established a number of rules and procedures which apply to the arbitration of international matters.

area division structure

see g e o g r a p h i c s t r u c t u r e

arm’s-length pricing John O’Connell

Arm’s length pricing refers to situations in which market forces establish the price of goods (i.e., no special relationship exists between buyer and seller). Thus, an organization purchasing under arm’s length pricing would receive the best price negotiable. The price would tend to be similar for all buyers of a similar nature. Arm’s length concepts become a bit more im portant when one is dealing with ‘‘transfer prices’’ or r e i n v o i c i n g activities. Transfer pricing or reinvoicing involve the buying and selling of goods between a parent company and its subsidiary. Such transactions many times come under the scrutiny of tax authorities. If other than arm’s length pricing is used between parent and subsidiary it could have serious future income tax implications.

Bibliography Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

See also transfer price Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

arbitration agreements John O’Connell

An arbitration agreement specifies that if parties to a contract are in conflict, the a r b i t r a t i o n process will be used to settle the dispute. Such agreements are common in international business contracts in order to avoid many of the problems associated with litigation. It is important that arbitration agreements specify the exact nature of the process to be used, the number of arbitra tors, the country whose rules of arbitration are to be followed, and the language of the proceed ing. If details of the arbitration process are not included in the contract then an arbitra tion organization should be specified. The international chamber of commerce has such a facility, as do many individual countries.

ASEAN

see a s s o c i a t i o n o f s o u t h e a s t a s i a n nations

Asia currency market John O’Connell

A major world currency market with activity centered in Singapore. The market began in 1968 when Singapore allowed foreign banks to offer dollar denominated deposits while at the same time becoming active in the Eurocurrency market. This provided a chance for Asian holders of dollars to keep them in Southeast

assembly operations Asia. The attraction to banks participating in the market was the large amount of dollars being held in the region, Singapore’s low bank tax rate, and a regulatory climate which favored foreign branch bank operations. The market is open 24 hours a day with transactions taking place between the market and other markets and financial institutions throughout the world. Bibliography Miletello, F. C. and Davis, H. A. (1994). Foreign Exchange Management. Morristown, NJ: Financial Executives Research Foundation.

17

development strategies of the United Nations Development Program (UNDP). The Asian De velopment Bank has 45 members (14 from out side the region) and is located in Manila. Like other development banks, the ADB attempts to foster economic growth through funding of industrial, commercial, agricultural, and infra structure projects of member countries. The bank is owned by its member governments and is supported by government subscriptions as well as funds raised in international market transactions. See also International Bank for Reconstruction and Development

Asia dollar

Bibliography

John O’Connell

Dollar denominated deposits which are held by Asian banks. Singapore is probably the most common place to find Asia dollar deposits. See also Asia currency market

Asia Pacific Federation of Personnel Management Associations (APFPMA)

Ludlow, N. H. (1988). A Practical Guide to the Develop ment Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates. Scharf, T. and Shetty, M. C. (1973). Dictionary of Devel opment Banking: A Compilation of Terms in English, French, and German with Definitions in English. New York: Elsevier Science.

Asian Productivity Organization (APO)

John O’Connell

John O’Connell

The Asia Federation is part of the larger World Federation of Personnel Management Associations. This group and the parent organization hold meetings and distribute publi cations of interest to persons having responsi bilities in the area of human resources management. Membership places one in contact with many other parties having similar interests in the Asia/Pacific region.

This organization specializes in providing tech nical and managerial assistance to member nations in order to promote increased product ivity and economic development of the region. The APO is located in Tokyo and has 14 members. Founded in 1971, the APO is geared toward regional economic development. The APO promotes sharing of management and technical assistance among member states.

Asian Development Bank (ADB)

assembly operations

John O’Connell

John O’Connell

This is one of the five r e g i o n a l d e v e l o p m e n t b a n k s (also referred to as multilateral development banks), which are charged with responsibility for carrying out the economic

A market entry strategy in which an organization sends parts for products to a foreign plant for final assembly. The products are then sold in the foreign market or exported to other countries.

18

assignment (foreign)

Assembly plants may allow a company to take advantage of low cost labor in the most labor intensive portion of production. There may also be lower duties and other taxes because unfinished products are imported instead of fin ished products. Assembly plants also allow a foreign manufacturer to meet host country re quests for more domestic production while at the same time allowing the manufacturer to continue control over production by using its own sub products as supplies and materials for the for eign assembly plant. A potential problem, especially with plants located to meet foreign government needs for domestic production, is that the foreign government may institute re quirements on the amount of foreign parts which may be used in the host country. These requirements are referred to as d o m e s t i c c o n t e n t r e q u i r e m e n t s (DCRs). See also market entry strategies

assignment (foreign) John O’Connell

A foreign assignment is when an employee of an organization is sent to a country outside their home country. The duration of assignments varies with the tasks the organization requires to be completed. Short term assignments (less than six months) are probably trouble shooting or specific task assignments requiring special expertise in an area of operations. Long term assignments can run as long as five to seven years, whereas a two to three year assignment is more common. Regardless of the duration, the person to be sent overseas must be properly trained. The degree and type of training usually depend upon the tasks to be completed and the duration of stay. The more complicated the task (thus, probable involvement of other employees) and the longer the duration, the more need for specialized language and cultural training. See also expatriate; expatriate training Bibliography Mendenhall, M. E., Dunbar, E., and Oddou, G. (1987). Expatriate selection, training, and career pathing: A

review and critique. Human Resource Management, 26, 331 45.

assignment completion (foreign) John O’Connell

Assignment completion occurs either when an expatriate’s designated task or project is com pleted or the time period of the assignment ex pires. When an e x p a t r i a t e completes an a s s i g n m e n t it generally means another move is in order. If the move is back to the home country there is a possibility that the employee and/or family members may suffer from r e v e r s e c u l t u r e s h o c k . The employee has been out of contact with their own country’s ways of doing things, current fads, educational changes, political changes, and probably also what has been going on in the company which sent the expatriate overseas in the first place. The expatriate has also probably assimilated some of the host country culture (which may not fit into the home country culture). It is extremely important to anticipate the return of an expatriate upon assignment completion (or sooner, considering how often expatriates fail in overseas assignments) and to provide guidance for the employee and any family members who were also overseas. Failure to plan may result in problems for the returnee which could likely hamper their continued suc cess with the company. Bibliography Harris, J. E. (1989). Moving managers internationally: The care and feeding of expatriates. Human Resources Planning, 12, 49 53. Howard, C. G. (1991). Expatriate managers. Proceedings of the International Academy of Management and Marketing. Washington, DC: Howard Publication International Academy of Management.

assignment status (foreign) John O’Connell

The status of an e x p a t r i a t e on an overseas a s s i g n m e n t refers to whether the expat’s

at-post education spouse or dependants travel overseas as well. There are really only two classes of status: (1) Single status refers to an employee who is unaccompanied during the assignment. It does not matter if the expatriate is married or has children; if he or she goes on assignment alone it is considered single status. (2) Married status refers to an employee who is accompanied on the assignment by his or her spouse or children. This is sometimes also referred to as family status. Assignment status is important because it determines in many companies the amount of compensation and other benefits one receives while on assignment. For example, if an em ployee had family status, provision for children’s education is common; similarly, larger and dif ferent types of housing would be available for family status employees.

19

See also compensation package

assured John O’Connell

This is the same as an ‘‘insured.’’ This is the person or entity for whom the insurance contract provides coverage. It is extremely important to understand who is insured by a contract or money may be wasted in insuring parties who don’t need to be, or coverage overlooked for a person or entity for which insurance was meant to provide coverage. This advice is especially important when securing coverage in foreign countries. Many times the types of coverage or the amounts an insured is used to are not avail able in all countries. British insurers often use the term assured. US insurers normally use the term insured.

Association of Southeast Asian Nations (ASEAN) John O’Connell

This association’s goals are to promote the eco nomic and political well being of its member nations. Membership in ASEAN is held by Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. The original intent of the association was to develop member relation ships so that all could act as a unified group, but because of the diversity between its members, the association has never fully attained its goals. The association is still active, however, in attempting to further develop the region.

assurex John O’Connell

The same as insurance company. British in surers also use this term. US insurers normally use the term insurance company or insurer. Most countries require an insured to purchase insurance locally unless coverage is not available on the local market. It is important to check laws outlining insurance requirements prior to securing coverage. Improperly placed insurance may be illegal and subject to fines or inability to collect insurance proceeds if a loss occurs.

assumed shelter cost John O’Connell

Shelter cost is the amount of money it takes to secure appropriate housing in a foreign country. Assumed shelter cost is an estimated amount which is used to determine the em ployee’s housing allowance while on a s s i g n m e n t . The employee is free to secure other housing if desired, but the housing allow ance is normally all that is available from the company.

at-post education John O’Connell

There are two definitions for this term: (1) Many families accompany employees sent on overseas a s s i g n m e n t s . One of the problems associated with taking children abroad is their education. At post education means that educational facil ities are available at the assignment location. Parents must carefully review the educational

20

ATA carnet

opportunities which exist at assignment locations to be certain their children are exposed to the appropriate level of educational opportun ity. (2) Very few organizations offer an e x p a t r i a t e opportunities for continuing their cross cultural training once overseas. At post education is very important and should be offered by more organizations. At post educa tion allows the employee and family members to try out the new information related to the cul ture of the host country immediately. Prompt feedback adds greatly to a person’s success and allows the expatriate to truly see if the new infor mation actually assists in getting along in the new country. At post education could also in clude additional language skills or other areas of interest.

attache´ John O’Connell

A government official acting as an assistant to an ambassador or minister of a country. Attache´s are stationed overseas (usually at embassies) and serve specific functions (e.g., commercial at tache´s deal with business interests of the home country; military attache´s attend to military matters). Attache´s can be of great assistance to home commercial interests seeking to expand operations to other countries. See also consul

authentication

Bibliography Reynolds, C. (1986). Compensation of overseas personnel. In Handbook of Human Resource Administration, 2nd edn. New York: McGraw-Hill.

ATA carnet

John O’Connell

The process of confirming the correctness of a claimed identity.

automated broker interface (ABI) John O’Connell

ATA stands for admission temporaire or tem porary admission. An ATA carnet allows certain types of property to be imported into and temporarily held in a country without payment of import duties. Property allowable under the ATA carnet includes product samples, advertising materials, professional equipment (for presentations, etc.), and promo tional literature and items. An ATA carnet is valid for a one year period. If property brought into a country under an ATA carnet is still in the country after a year, it becomes subject to d u t y payment.

John O’Connell

ABI, a part of Customs Automated Commercial System, permits transmission of data pertaining to merchandise being imported into the US. Qualified participants include brokers, import ers, carriers, port authorities, and independent data processing companies referred to as service centers.

automated clearinghouse (ACH) John O’Connell

See also carnet

ATLAS

see a u t o m a t e d t r a d e l o c a t o r a s s i s t ance network

ACH is a feature of the a u t o m a t e d b r o k e r i n t e r f a c e , which is part of Customs Auto mated Commercial System. The ACH combines elements of bank lock box arrangements with electronic funds transfer services to replace cash or check for payment of estimated duties, taxes, and fees on imported merchandise.

away-from-post education automated trade locator assistance network (ATLAS) John O’Connell

A Small Business Administration sponsored, contractor operated automated system which provides market research information and statis tics on world markets by SIC code. Indirect access is available for businesses, with arrange ment through the local SBA district office. ATLAS, which became operational in spring 1993, replaced SBA’s export information system.

autonomous duty John O’Connell

Autonomous duties are levied as penalties against persons who attempt to circumvent customs restrictions or quotas. It is also applied to protect domestic industry against an unexpected increase in imports of specific types of products. See also duty

21

avoidance strategies John O’Connell

Avoidance is a risk management strategy which eliminates political risks for companies. Avoid ance requires a company to stay out of those countries having p o l i t i c a l r i s k exposures which are above an acceptable level. The deci sion to avoid a country implicitly involves the company’s willingness to give up any benefits which would have been derived from entering the country in the first place. Thus, political risk avoidance is essentially a cost benefit analysis performed as part of the international manage ment process. If a company is willing to give up potential profits, market share, and other bene fits associated with operating in a foreign coun try in order to reduce its political risk position, then avoidance may be in order. To entirely avoid political risks with respect to a given country, an organization cannot have any transactions or dependency upon any other companies within that same country (e.g., raw materials suppliers). Government interference with a supplier could delay delivery of raw ma terials, increase prices, or make securing of ma terials impossible. Each government action affects the operations of all other companies which are dependent upon the supply of those raw materials.

availability John O’Connell

Availability is the need to insure that the busi ness purpose of the system can be met and that it is accessible to those who need to use it.

Bibliography Coplin, W. D. and O’Leary, M. K. (1994). The Handbook of Country and Political Risk Analysis. New York: Political Risk Services. Yaprak, A. and Sheldon, K. T. (1984). Political risk management in multinational firms: An interrogative approach. Management Decisions, 53 67.

average John O’Connell

This is an ocean marine insurance term describ ing a partial loss to a ship or its cargo. Depending upon the nature of coverage purchased partial losses may or may not be covered by the ocean marine insurance contract. See also general average

away-from-post education John O’Connell

Many parts of the world do not have formal educational facilities. If an e x p a t r i a t e is assigned to one of these locations, alternative arrangements to meet the educational needs of that employee’s children must be found. One

22

away-from-post education

of the alternatives is to arrange for education away from the a s s i g n m e n t location. Educa tion facilities may be found in the nearest large city or there is an option of children attending boarding schools in yet another country. Chil dren’s education is important. Employers must seek out and inform employees of educa tional opportunities and alternatives whenever available.

Bibliography Toyne, B. and Kuhne, R. J. (1983). The management of the international executive compensation and benefits process. Journal of International Business Studies, 14 (32), 37 50.

B on the validity of the initial translation, the Jap anese contract should be ‘‘back translated’’ to English before being sent for signature. Prob lems associated with changed meanings or mis interpretation of intent will be minimized by such actions.

B2B

Business to business marketing.

B2C

Business to consumer marketing. back-to-back letter of credit John O’Connell

bachelor status John O’Connell

When an employee goes to an international a s s i g n m e n t location without being accompanied by his or her spouse the status of the employee is sometimes referred to as bachelor status. This may be important to an employee because bach elor status (now frequently referred to as single status) is normally accompanied by a different set of compensation allowances than those pro vided to expatriates having family status. See also assignment status

back translation John O’Connell

When a document or communication is trans lated into another language, a back translation is often a good idea to insure that the original translation was correct. For example, a British manager was instructed to write a contract for a foreign partner’s signature, but the contract had to be in Japanese. The manager would normally write the contract in English and then have it translated into Japanese. In order to check

A back to back letter of credit is a method of financing the export/import transaction. When an exporter requires some payment (to pay the exporter’s suppliers, labor costs, etc.) prior to making goods for sale, a back to back letter of credit may be required. An irrevocable letter of credit from the foreign buyer guarantees pay ment to the exporter, normally after delivery of the goods. If, however, the exporter causes a second irrevocable letter of credit to be issued in favor of his raw materials supplier (with the original letter acting as collateral) both the ex porter and the supplier are guaranteed payment. When delivery of goods is made to the buyer, the bank honors both letters of credit, paying off the supplier and remitting the remainder to the exporter. Without such financing, many export transactions would be impossible to complete. See also letter of credit Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

24

back-to-back loan

back-to-back loan

backdoor John O’Connell

John O’Connell

A back to back loan involves two parties in two different countries cooperating to reduce their overall cost of loans. In many instances, domes tic borrowers receive favorable treatment over foreign borrowers with respect to interest rates. This is because local financial institutions gen erally have more knowledge of domestic com panies than foreign companies and believe the risks are lower. A back to back loan takes ad vantage of each country’s favoritism toward its domestic industries. For example, companies A and B are located in different countries. Company A’s home currency is the yen and company B’s home currency is the dollar. Both need to acquire the home currency of the other to conduct their international oper ations in each other’s country. This is a situ ation in which a back to back loan may be beneficial to both companies. Company A can borrow its own currency (yen) at home for a 7 percent annual rate and can borrow the foreign currency (dollar) at 8 percent. Company B can borrow its home currency (dollar) at 6 percent annual rate and the foreign currency (yen) at 8 percent annually. If company A borrows yen at 7 percent and company B borrows dollars at 6 percent and then loan the funds to each other, both companies end up paying the lowest rates available. Company A pays 6 percent for dollars (instead of the 7 percent it was able to arrange itself) and company B pays 7 percent for yen (instead of the 8 percent it was able to arrange itself). This is an example of a successful back to back loan. This sounds very simple and mathematically it is. The problem arises in finding other organ izations who are willing to conduct such transac tions. Many times back to back loans are arranged between parent companies and subsid iaries in order to insure (virtually) no added risk of loan repayment.

A backdoor is a tool installed after a compromise to give an attacker easier access to the comprom ised system around any security mechanisms that are in place.

Bibliography

This term has two general meanings when viewed from an international standpoint: (1) When managing foreign exchange rates, it is the magnitude of change which is allowed before

Logue, D. E. (1995). The WG&L Handbook of International Finance. Cincinnati, OH: SouthWestern.

balance sheet approach John O’Connell

When considering a compensation package for an e x p a t r i a t e , human resources managers often use a balance sheet approach. This ap proach first ascertains the employee’s current position with respect to income, benefits, taxes, and other compensation and expenses (that is, a balance sheet of income and expenses is con structed). The current situation is then com pared with the income, expenses, and taxes associated with the a s s i g n m e n t location. Lower costs are credited and higher costs debited in an effort to make the compensation package for the home country and the host coun try relatively equal. That is, it may take more money or less in the host country to equal the employee’s current standard of living. The bal ance sheet approach provides a reasonable method of determining if imbalances exist. Bibliography Pinney, D. L. (1982). Structuring an expatriate tax reimbursement program. Personnel Administrator, 27, 19 25. Reynolds, C. (1986). Compensation of overseas personnel. In Handbook of Human Resource Administration, 2nd edn. New York: McGraw-Hill.

band John O’Connell

bareboat charter intervening measures are taken. (2) When viewing the Bank of England’s measures to manage currency, the term ‘‘band’’ refers to the maturity dates of bills of exchange acquired by the bank. The higher the number of the band the longer the maturity date. When reviewing the definition of any term it is very important to determine the context in which it is used. Context from an international standpoint includes the country in which the term is used or the nationality of the person communicating. The term ‘‘band’’ is a good example of contextual meanings.

Bank for International Settlements (BIS) John O’Connell

The BIS was founded in 1930 by an agreement signed by representatives from Belgium, France, Germany, Italy, and the United Kingdom. The purpose of the bank is to coordinate the activities of the central banks of the most highly industri alized nations. The i n t e r n a t i o n a l m o n e t a r y f u n d uses the bank to transfer its funds to other insti tutions. In addition to the original members, Canada, Japan, and the United States have become associated with the BIS.

25

banker’s acceptance John O’Connell

Banker’s acceptance is when a bank guarantees the payment of a b i l l o f e x c h a n g e or d r a f t . It is very common to finance the pur chase of imports or exports. This is generally accomplished through the issuance of a bill of exchange or a draft. It is also common for a third party (e.g., a bank) to guarantee the payment of the bill or draft. When this is done the bank ‘‘accepts’’ or guarantees payment by affixing its name to the front of the draft. The acceptance or banker’s acceptance (guaranteed draft) is a nego tiable instrument; that is, it may be sold or otherwise transferred by the acceptor prior to its maturity date. An acceptance must have the signature or stamp of the acceptor and the date of the acceptance placed on the face of the in strument in order to be valid. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

banner

Bibliography Humphreys, N. K. (1993). Historical Dictionary of the International Monetary Fund. Lanham, MD: Scarecrow Press.

John O’Connell

The primary form of advertisements on the w o r l d w i d e w e b . Links to a target page.

Bank of Central African States (BCAS) John O’Connell

The BCAS was formed in 1955 by agreement between a number of central African nations. In its position as the central bank for members of the Central African Economic Community, the bank is the sole issuing body of currency and coins used by member countries. Member coun tries include Cameroon, the Central African Republic, Chad, Congo, and Gabon.

bareboat charter John O’Connell

The chartering (renting/leasing) of a vessel in which the person or organization chartering the vessel pays a charter fee and all other costs of operating and maintaining the ship during the period of the charter. A bareboat charter can be used as a method of purchasing a ship under what is essentially a lease/purchase contract. If

26

bargaining

the intent of the vessel owner is to eventually transfer ownership of the vessel to the charterer, the rental/lease fee is sufficiently high that when the charter period is over, the vessel has been paid for.

bargaining John O’Connell

The practice of negotiating the price of goods with shop owners. Generally, this custom is carried out in small retail stores and is quite common in many countries. The intent of bar gaining is to obtain a lower purchase price than is offered by the seller. Many shops in Mexico and India accept bargaining as a way of life. Be care ful, however, because not all store owners may accept bargaining even if the practice is common in their country.

barriers John O’Connell

Barriers are limitations on free trade which are usually imposed by governments. Barriers may also take the form of consumer demands or the nature of the economic development of a par ticular country. The nature of the barrier and its impact on a particular importer or exporter must be considered when selecting countries in which to conduct business operations. The following is a list of common types of barriers to free trade or other international business activities. The list is not exhaustive but does provide a feel for the types of barriers which exist. 1

Buy local campaigns. Many governments or other interest groups within a country at tempt to use the patriotic feelings of con sumers to encourage them to buy local items instead of imports. In some cases, re bates or tax incentives may be offered for local products which are not available to imports. Buy local campaigns by unions or others have been very successful in increas ing the demand for domestically produced goods.

2

Customs requirements. Time delays for customs inspections, detailed paperwork, strict adherence to detailed standards for foreign products, quarantine requirements for certain goods or property, slow adminis trative processing, and other problems dis courage exporters and importers. Delays and other requirements also add costs to the trade transaction, which is probably the most significant barrier to trade. 3 Discriminatory taxation. Foreign products may be taxed at higher rates than domestic products. The effect is to drive the price of imports higher than those of local products. 4 Domestic content requirements (DCR). One method of increasing the domestic presence of foreign manufacturers is to require that goods produced in a country have a certain percentage of their value provided domestic ally. For example, assume a country or common market required at least 60 percent of the value of autos sold within its borders to be produced locally. Manufacturers would have to prove that for every $20,000 auto, local labor and locally produced parts made up at least $12,000 of that value. DCRs ef fectively prohibit a foreign auto manufac turer from establishing an assembly facility in another country and then importing all of the parts to construct an auto. 5 Duties. Taxes assessed against the value or numbers of products being imported into a country. (A duty could also apply to exports in some cases.) A duty raises the selling price of the products in the host country. Higher prices means fewer buyers and protection for local industry which may produce the same or similar products. There are a number of types of duties which may be used to achieve different outcomes. 6 Export quotas. Restrictions on the amount of specific goods which may be exported are common. If a country believes a specific product should remain in the domestic market (e.g., energy resources), quotas on export may be established. 7 Infrastructure limitations. Lack of financial, transportation, or communication facilities is a barrier to modern trade activities. Al though insufficient infrastructure levels are probably not a result of a government

barriers and bonds to communication and knowledge transfer

8

9

10

11

12

13

determined to discourage trade, insufficient infrastructure development may make effi cient foreign operations impossible. Import quotas. Restrictions on the amount of specific goods which can be imported into a country. In order to protect local industry, government may institute controls to limit the numbers or values of goods imported. This allows local industry to develop and compete with imported items. Labor laws. Labor laws which provide for large payments to employees upon dis missal or make it difficult to dismiss em ployees are also a barrier to the entry of a foreign company. Strict labor laws gener ally favor the employee and increase the costs to the employer. Licensing requirements. In order to conduct import/export activities an import/export license must be secured from the appropri ate governmental authority. Some coun tries make the task of securing a license quite simple, while others have more ardu ous procedures to follow. Any additional paperwork, and regulations for special per mits for special products or countries of origin, makes trade more difficult. Local ownership requirements. These require a foreign company to be partially owned by local interests (many times a controlling interest of more than 50 percent). It dis courages many investors because of the loss of control over the company’s operations. Past political risks. Prior government expro priation or confiscation of foreign company assets acts to increase the risk for investors, thereby forming a barrier to their entering local markets. Staffing restrictions. Foreign organizations may be required to limit the number of non host country employees. The inability to bring expatriates into a country may affect the ability to properly manage a firm or to achieve the necessary level of skills to effectively operate the organization.

Barriers to free trade or other international busi ness activity must be taken into consideration before the decision is made to enter a particular country. Barriers are not only those produced by government but also by unions, consumers, and

27

the general level of economic development of a country. See also duty Bibliography Ashegian, P. and Ebrahimi, B. (1990). International Busi ness. Philadelphia, PA: HarperCollins. Ball, D. A. and McCulloch, Jr., W. H. (1990). Inter national Business: Introduction and Essentials. Homewood, IL: Irwin. Bowker, R. R. (1994). Report on US Trade and Investment Barriers (1993): Problems of Doing Business with the US. Chester, PA: Diane Publishing. Buchholz, R. A. (1991). Corporate responsibility and the good society: From economics to ecology. Business Horizons, 34, 19 31. Czinkota, M. R., Rivoli, P., and Ronkainen, I. A. (1989). International Business. Chicago, IL: Dryden Press. Korth, C. (1985). Barriers to International Business. Englewood Cliffs, NJ: Prentice-Hall. Vernon, R. and Well, L. T. (1981). Economic Environment of International Business, 3rd edn. Englewood Cliffs, NJ: Prentice-Hall.

barriers and bonds to communication and knowledge transfer Jeanne McNett

Successful mergers and acquisitions and global alliances, including international joint ventures, depend on the successful transfer of knowledge so that learning can occur, ideally on both sides of the partnership. The barriers that inhibit and the bonds that increase communication and knowledge transfer across organizational bound aries can critically affect the exchanges across them. These barriers and bonds should be iden tified and consciously managed to avoid the chasms across which information cannot flow and to build on the bonds, where information flow is unimpeded. There are four areas in which barriers or bonds to communication and knowledge transfer can either hinder or support knowledge flow: language, space, culture, and organizational architecture. The language barrier exists when there is no common language, the bond when there is a common language. There are two issues related to language differences: how an idea is

28

barter

communicated and specialized language bar riers. A German person speaking English may use different words to communicate an idea in English than would an American person speak ing English. The idea may be misunderstood. Specialized language to describe the specific value creation potential of the planned venture may also be a barrier to communication because it may not be understood accurately, especially during the due diligence process. Such problems include over emphasis on legal and financial in formation and lack of emphasis on the critical factors of human resources, operational strat egies, infrastructure, and relationships with customers and suppliers. Physical space can function as a barrier to com munication if people are not co located. With c o l o c a t i o n , relationships develop faster with greater trust and more information is shared. The influence of the culture on motivation often deters learning from taking place during an acquisition process. This may occur both at the organizational culture level in the form of territorial reaction to uncertainty and change; and at the national culture level, in the form of us versus them. Teamwork is a way to address some of these barriers. Organizational architecture functions as a bar rier to communication when there is a lack of fit between the organizational structure (how em ployees are organized to get work done, the man agement hierarchy and the linking mechanisms) of the target and the acquirer. Management thought and processes may be culture bound. Bibliography Athanassiou, N., and Nigh, D. (2000). Internationalization, tacit knowledge and the top management team of MNCs. Journal of International Business Studies, 31 (3), 471 88. Gluesing, J. C. and Gibson, C. B. (2004). Designing and forming global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gonzales, M. (2001). Strategic alliances: The right way to compete in the twenty-first century. Ivey Business Journal, Sept. Oct., 47 51. Hitt, M. A., Hoskisson, R. E., Ireland, R. D., and Harrison, J. S. (1991). Are acquisitions a poison pill for innovation? Academy of Management Executive, 5 (4), 22 34.

Kostova, T., Athanassiou, N., and Berdrow, I. (2004). Managing knowledge in global organizations. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, H. W., Greenberg, D., and Berdrow, I. (2004). Barriers and bonds to knowledge transfer. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, P. J., Salk, J. E., and Lyles, M. A. (2001). Absorptive capacity, learning and performance in international joint ventures. Strategic Management Journal, 22 (12). Morosini, P. (1999). Managing Cultural Differences: Ef fective Strategy and Execution Across Cultures in Global Corporate Alliances. Oxford: Pergamon. Pekar, P., and Alio, R. (1994). Making alliances work: Guidelines for success. Long Range Planning, 27 (4). Zack, M. H. (1996). Developing a knowledge strategy. California Management Review, 41 (3), 125 45.

barter John O’Connell

Bartering or the exchange of goods for other goods or services (instead of money) has been taking place for centuries in all parts of the world. Many believe that bartering is a process which takes place between local merchants and their customers. However, today’s world of international trade has taken bartering from a simple transaction to an intricate method of ar ranging the transfer of goods from one multi national company to another or between governments without full payment being made with currency. Barter agreements can overcome problems associated with currency inconvert ibility as well as short term deficiencies in a company’s cash account. See also countertrade

base currency John O’Connell

This is the currency in which a currency ex change rate is quoted. For example, if the US

benchmarking dollar is trading at 0.56 British pounds, the Brit ish pound is the base currency.

base salary John O’Connell

An expatriate’s base salary is the comparable salary for the same work and position as would be paid in the expatriate’s home country. Adjustments are made to the base salary for expenses, inconveniences, and hardships en countered in the host country. See also compensation package (expatriate)

base workweek John O’Connell

The base workweek is the number of days and hours an employee is expected to work in any given week. People who have worked in only one country may not realize the differences in what is expected of employees in different countries. A six day workweek is common in many nations. The 40 hour workweek during five days is accepted in the United States (where four 9–10 hour days are also common, depending upon the employer). Many companies in Japan still adhere to an extremely long workday and workweek. It is important that an expatriate manager know of local workweek customs in order to effectively schedule his or her time, as well as that of em ployees. Bibliography

29

basket of currencies John O’Connell

A group of currencies used as the basis for valuing a single monetary unit. Groups of coun tries in many parts of the world are cooperating to promote their mutual economic interests. In some cases this results in the harmonizing and/ or centralizing of monetary transactions between the countries. A standardized monetary unit is essential in order to achieve true economic inte gration. One of the problems associated with a centralized monetary system is: ‘‘Which of the countries’ currency should be used as the stand ard for the group?’’ In order to avoid problems associated with nationalist sentiment toward one currency or another, some country groups have opted to develop a new currency unit. For example, the European Union developed the European Currency Unit (ECU), which was ex changed for the Euro on January 1, 1999, at a 1 ECU ¼ 1 Euro rate. The ECU is valued by combining the weighted average of each member country’s existing currency value. The members’ currencies are referred to as a basket of currencies. The basket of currencies which established the value of the ECU is comprised of the national currency of each European Union member.

BCP

see b u s i n e s s c o n t i n u i t y p l a n

benchmarking

Howard, C. G. (1982). How best to integrate expatriate managers into the domestic organization. Personnel Administrator, July, 27 33.

basic authentication John O’Connell

This is the simplest Web based authentication scheme that works by sending the username and password with each request.

Nigel Nicholson

This has become a highly fashionable buzzword in business, especially in the areas of operations management and strategic management. It de notes the identification of best practice in an other organizational unit, followed by its analysis and adoption. An early example of the method being taken to an extreme was the Xerox Cor poration’s fightback against surgent Japanese competition in the copier market, where a wide range of business and operational processes was

30

beneficiary

improved as a result of systematic benchmarking (for a case study report of the Xerox experience, see Jick, 1993). The car industry also contains numerous examples. From an organizational behavior perspective it can be seen as a substitute for innovation, practised by ‘‘Analyzer’’ companies who seek to minimize first mover risks while reaping the benefits of excellence and competitiveness. Companies can benchmark their own best practice as well as that of others, and increasingly do so in the ‘‘soft’’ areas of human resources management through the use of employee atti tude surveys and the like. Usually, companies benchmark the practices of their best performing competitors, though commentators have pointed out the dangers of this, since bad practice or conservatism may predominate in a sector. It is said that companies should benchmark activities not other companies, and may accrue the benefits of benchmarking most dramatically where the focus is on organizations quite dissimilar to themselves in type. This is more likely to lead to adoption and diffusion of new forms in a business (see i n n o v a t i o n ), though inevit ably raises issues of whether benchmarked practices are transferable and implementable. Other recommendations for effective bench marking are that it should be creatively applied, rather than an exercise in mere imitation, and that it should be a continuous monitored activity, rather than a one off effort at improve ment. Bibliography Jick, T. D. (1993). Managing Change: Concepts and Cases. Homewood, IL: Irwin.

beneficiary John O’Connell

A beneficiary is a party who receives the pro ceeds of an agreement to pay a stated sum. In international trade the agreement may be a letter of credit, a bill of exchange, or d r a f t . In these trade documents the benefi ciary is commonly an exporter waiting to be paid in return for delivery of goods. In insurance

transactions the agreement is probably an insurance policy which states a beneficiary (as in a life insurance policy). In most life insurance policies the beneficiary can be almost anyone or anything (as allowed by law) listed by the policy owner.

benefit allowance John O’Connell

An employee may receive additional payments from the employer with which to purchase in surance or other types of benefits. Expatriates also receive such payment although the benefits purchased may be different from those normally purchased in the home country. For example, education expenses for private schooling for children may seem an appropriate benefit over seas, but left unfunded by the employer while in the home country. See also compensation package (expatriate)

Berne Convention for the Protection of Literary and Artistic Works (1886) John O’Connell

The Berne Convention is one of the oldest agree ments dealing with copyright protection. Under the Berne Convention member countries offer each other the same protections as they would provide for their own citizens’ copyrights. This is referred to as national treatment. Copyrights protected by this agreement include those for the written word, music, and visual arts. Copyrights are afforded protection for the life of the author plus fifty years. Although the United States is not a signatory to the Berne Convention, US copyright laws also allow protection for the author’s life plus fifty years. Bibliography Schultz, J. S. and Windsor, S. (1994). International Intel lectual Property Protection for Computer Software: A Research Guide and Annotated Bibliography. Littleton, CO: Fred B. Rothman.

bill of exchange Seminsky, M. and Bryer, L. G. (eds.) (1994). The New Role of Intellectual Property in Commercial Transactions. New York: John Wiley and Sons.

31

ments between the two countries. However, if both countries are also members of other associ ations of countries (EU, NAFTA, etc.) trade between the two would be governed by the asso ciation rules as well.

Berne Union

see w o r l d i n t e l l e c t u a l organization

property bilateral treaty John O’Connell

The bid price is what a buyer of a security is will ing to pay. If there are parties willing to sell at that rate the bid price becomes the purchase price.

A treaty which has been officially accepted by the governments of two countries. The treaty binds only the signatories to the agreement. Co operative treaties related to trade, movement of people, military concerns, and many other areas, are in effect between countries throughout the world.

bilateral tax agreement

bill of entry

bid price John O’Connell

John O’Connell

John O’Connell

When two countries (e.g., the United States and Great Britain) agree on a system to deal with a specific tax problem or question the agreement is referred to as a bilateral tax agreement. For example, when employees are sent overseas they are generally subject to the income taxation laws of both the home and the host country. In an attempt to settle problems associated with double taxation, nations often enter into agreements out lining the procedures for handling taxation of income earned by a citizen of a foreign nation.

A written statement specifying the type of goods being shipped and their values. The shipper of the goods is responsible for the provision of this statement. Many countries require the filing of a bill of entry prior to allowing goods to clear customs.

Bibliography Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell. Reynolds, C. (1986). Compensation of overseas personnel. In Handbook of Human Resource Administration, 2nd edn. New York: McGraw-Hill.

bilateral trade John O’Connell

Any interchange of goods or services between two nations is referred to as bilateral trade. Bi lateral trade is normally controlled by agree

bill of exchange John O’Connell

Documents which instruct a specific party (usually a bank) to pay the holder a certain amount of money upon presentation. A bill of exchange is a common method of providing for payment in international trade transactions. The bill of exchange may also specify that other documents be present (e.g., b i l l o f l a d i n g ) in order to complete payment. In the United States a bill of exchange is referred to as a draft. Bibliography Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin.

32

bill of lading

bill of lading John O’Connell

A transportation document which provides the following: evidence that a contract has been entered into to transport goods; a statement es tablishing title to goods being shipped; and a receipt for the carriage of goods. A bill of lading is usually a negotiable document. This means that title to goods being shipped may be transferred during shipment. Title is transferred by assigning the bill of lading to another party. There are a number of different kinds of bills of lading. The following lists those encountered the most often. 1

2

3

4

5

6

Air waybill (AWB). The name given to a bill of lading when goods are shipped by air. The bill provides details of the shipping agree ment. The information on the air waybill includes the name of the owner of goods, the party to whom the goods are being shipped, the departure and destination points, the specific type of goods being shipped, and the value of the goods. Clean bill of lading. A bill of lading issued by a carrier for goods which were received in good condition. A clean bill of lading pro vides proof that up until the time goods were transferred to the carrier, no damage had oc curred. This assists in placing responsibility if in fact goods are eventually delivered in other than undamaged condition. Combined transport bill of lading. A combined transport bill of lading allows goods to be shipped over more than one method of trans portation (ship, rail, truck) without the need for separate bills of lading. Dirty bill of lading. When goods are received in damaged condition for shipment on a vessel, the master of the ship will note the damage on the bill of lading. A bill of lading with such a notation is referred to as a dirty bill of lading. If goods were received in good condition the bill of lading would be a clean bill of lading. Foul bill of lading. A bill of lading for goods which were received by the carrier in dam aged condition. A notation on the bill indi cates the existence of damage. Inland bill of lading. The name given to a bill of lading when goods are shipped overland by

truck or rail. Many times several bills will have to be prepared when goods are trans ported by different types of carriers (inland, ocean, etc.). 7 Negotiable bill of lading. A negotiable bill of lading allows transfer of ownership of goods while the goods are in transit. The holder of the bill must then pay for the goods upon arrival at the final destination as well as pro vide all other documentation specified in the bill of lading. 8 Ocean bill of lading. A bill of lading used when goods are consigned to an inter national transportation company for ship ment to a foreign country. The ocean bill provides details of the shipping transaction as well as of the goods, buyers, sellers, etc. 9 On board bill of lading. When cargo is placed on board a ship for transportation, an on board bill of lading is given to the exporter when the ship leaves port. The bill provides a list of goods loaded by the carrier. An on board bill is used as proof of shipment and is many times part of the documentation re quired for the exporter to be paid. 10 On deck bill of lading. When cargo is placed on the deck of a ship for delivery, an on deck bill of lading is given to the exporter when the ship leaves port. The bill provides a list of goods loaded on the deck of the ship. An on deck bill is used as proof of shipment and is many times part of the documentation re quired for the exporter to be paid. On deck transit is more dangerous than if cargo is carried in the hold of a ship. Insurance and financing for such transit may be more diffi cult to obtain or may be more costly. 11 Order bill of lading. This type of bill of lading is a negotiable instrument. That is, it may be used to transfer title to goods being shipped to another party. The transfer may occur at any time during the transit process simply by conveying the order bill to another party. This form of bill of lading was previously referred to as a uniform bill of lading. 12 Straight bill of lading. This type of bill of lading is a non negotiable instrument (meaning that it cannot be used to automat ically transfer title to goods by simply trans ferring the bill to another party) used to establish the details of shipment of goods.

bloc The bill specifies the party to whom the goods are to be delivered as well as other information. Presentation of the bill will release cargo to the holder. 13 Through bill of lading. When shipment of cargo must stop at a port enroute special documents are necessary to avoid duties and other costs. A through bill of lading is used to designate cargo which is passing through a port to its final destination. 14 Uniform bill of lading. A bill of lading which meets the requirements of the United States Federal Bill of Lading Act of 1915. See also house air waybill; master air waybill Bibliography Ashegian, P. and Ebrahimi, B. (1990). International Busi ness. Philadelphia, PA: HarperCollins. Ball, D. A. and McCulloch, Jr., W. H. (1990). Inter national Business: Introduction and Essentials. Homewood, IL: Irwin. Czinkota, M. R., Rivoli, P., and Ronkainen, I. A. (1989). International Business. Chicago, IL: Dryden Press. Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley. Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

33

BIS

see b a n k f o r i n t e r n a t i o n a l s e t t l e ments

black market John O’Connell

A black market is a market in which illegal goods and services are bought and sold. If a person wants to buy or sell a good or service which is barred or made illegal by the government, the transaction would take place in an illegal or black market. Black market sales of goods occur quite often in countries suffering shortages of goods or where govern ment action restricts the types or sources of goods which can be sold domestically. If a demand exists for such goods, a black market will probably develop. Black market transactions are generally discouraged by governments, which institute criminal sanctions against those who buy or sell black market goods or services. See also gray market

black money John O’Connell

bioterrorism John O’Connell

The use of biological agents such as bacteria and viruses in a terrorist operation. The most likely biological toxins terrorists might adopt are an thrax, salmonella, e. coli, hoof and mouth dis ease, smallpox, botulism, and tularemia.

Black money is money obtained through illegal means. Black money is normally subject to confiscation under the laws of most nations. Many countries also make assets purchased with illegally obtained money (homes, cars, real estate, etc.) subject to confiscation. A common example of black money is funds generated from illegal activities of international crime syn dicates. See also dirty money

birdyback John O’Connell

An informal term describing containerized cargo shipped by air.

bloc

see t r a d i n g b l o c

34

blocked account

blocked account John O’Connell

A blocked account is an account in a financial institution from which funds cannot be with drawn without the permission of appropriate governmental authorities. Accounts may be blocked by law enforcement departments in cases of illegal activity by the account holder; by governments in cases of war or political problems with other countries (the US blocked – ‘‘froze’’ – the accounts of Iraq after Iraq’s invasion of Kuwait in the early 1990s); or by the courts as a source of funds to settle disputes or in cases of bankruptcy of the account holder.

blocked currency

is sometimes interpreted by Westerners as a sign of hiding something or disrespect. Training in non verbal communication is extremely import ant for managers who deal with people from other cultures or employees who may become expatriates for a company. See also cross cultural training Bibliography Kuroda, Y. and Suzuki, T. (1991). A comparative analysis of the Arab culture: Arabic, English, and Japanese language and values. International Association of Middle Eastern Studies. Landis, D. and Brislin, R. (1983). Handbook on Intercul tural Training. New York: Pergamon.

bonded storage John O’Connell

The government of a country blocks a currency by restricting its flow out of the country. Cur rency flow may be restricted for a number of reasons. Some reasons are to insure at least some of the profits from foreign ventures remain in the country; to reduce the drain of hard currencies from the country; to punish another country by restricting the rights of its citizens or industries from having local operations. Blocking may apply to all transfers of a currency or selectively (e.g., for a certain percentage of a foreign company’s local profits or dividend payments).

body language

John O’Connell

Bonded storage is used for the temporary storage of goods. While goods are stored in bonded ware house facilities, duties and other taxes are not normally payable. When the merchandise is released from the warehouse, taxes are due. Imported goods may be temporarily stored in such facilities while packaging takes place or while awaiting payment of import duties. Bonded storage is also used for the warehousing of items which must age or cure prior to being sold (e.g., alcoholic beverages). Some alcoholic beverages may remain in storage for years in the aging process. Taxes payable (which often make up a large part of the sales price) are deferred until goods are released from the bonded warehouse.

John O’Connell

One of the types of communication which must be mastered by international managers is that of body language. Body language is non verbal communication, which in some cultures ‘‘speaks much more loudly than words.’’ Body language includes eye movements, expressions, gestures, folding of arms, head movements, tone of voice (not what is said, but how), and other motions or movements made by a person. Few Western managers know that the culture of Japan teaches that one should bow one’s head out of humility or as a sign of respect. Lack of eye to eye contact

bonded warehouse

see b o n d e d s t o r a g e

bonus system John O’Connell

A bonus system involves a payment by a govern ment to domestic producers of goods to encour age the increased production of those goods. The

boundary spanning General Agreement on Tariffs and Trade (GATT) forbids governments from subsidizing products to make their prices lower than those of foreign competitors. Such subsidies are referred to as illegal bounties. A bonus system is very similar to an illegal bounty in that the govern ment offers home producers incentives (lower taxes, etc.) to produce more goods. A bonus payment is legal if used to offset increased local production costs due to high cost raw materials which must be imported to make the product. In reality, any bonus gives local producers an ad vantage because local products can be sold at lower prices, thereby discouraging the import ation of goods.

bots John O’Connell

Software programs developed to help the user search the Web to identify and compare prod ucts for purchase. They are also referred to as intelligent agents.

boundary spanning Jeanne McNett

This skill is traditionally understood to be the creation of linkages that integrate and coordinate across organizational boundaries. The people who establish and maintain such linkages are known as go betweens, interfacers, or boundary

Table 1

spanners. Until recently, this skill has been ad dressed at the organizational level; it is now understood to be an individual skill as well. Managers face four types of boundaries: vertical, horizontal, external, and geographic (Ashkenas et al., 2002). The boundary spanner cuts across functional, geographic, and external boundaries to move ideas, information, talent, and resources where they are needed. This complex skill facili tates the process of managing the complexity that is at the core of globalization. Effective global boundary spanners must be able to conduct four types of quite different activities: 1 Gather potentially relevant information; in terpret and communicate that information to units and individuals within the organiza tion. 2 Represent the firm to external clients and sources of influence. 3 Gain influence over the external environ ment. 4 Enable the firm to respond more rapidly to changes in environmental demands. As organizational boundaries become increas ingly permeable, as their number increases dra matically, and as technology has developed quicker and more accessible means of communi cation, boundary spanning has become increas ingly important for organizations. k n o w l e d g e m a n a g e m e n t and networking have expanded the traditional notion of boundary spanning. Global organizations can no longer rely on rigid, traditional organizational boundaries that

Boundary spanning

Traditional, structure based concept

New, process based concept

Linkages as in a chain; connections Structural aspects received focus Static Straddling boundaries Gateway and gatekeepers

Conduit, flows Container, content, and flow are the focus Dynamic Joining knowledge flows Knowledge flows among people, flow rates; information brokers Use of relationships

Relationships

35

36

bounty

separate employees, tasks, processes, and places. More flexible structures and processes are needed so that there is greater fluidity of infor mation flow throughout the organization and between the organization and its environment (Beechler et al., 2004). As Rosen et al. (2000) observe: Walls are crumbling among markets, organizations, and nations. People, information, labor, and capital move freely as never before. Global media, international travel, and communications have eroded distance and borders, linking us instantly to one another from Prague to Shanghai, from Lima to London. A tightly woven fabric of distant encounters and instant connections knits our diverse world together.

The traditional approach to the complex phe nomenon of boundary spanning draws on some what static imagery, that of links in a chain. A focus on the flow of information and know ledge, on process rather than structure, suggests that organizations need to look to boundary spanning as a way to deal with the dynamic complexity they increasingly encounter. With such complexity, formalized linkages may even impede the flow of information (table 1). When organizational members span boundar ies through their interpersonal contacts, they share knowledge and information whose value is significant in the achievement of strategic goals. Through boundary spanning activities, effective global managers create conduits for intensive exchange of codified knowledge and exposure to tacit knowledge, among members of the organization and between them and key external stakeholders. Golf in Japanese busi ness practice, for example, creates opportunities for boundary spanning. As a result of such activities, boundary spanners develop net works of contacts: social capital. Social capital yields three major benefits: access, timing, and referrals. At the individual level, boundary spanners are described as having three broad competencies: ability to think analytically, ability to think lat erally, and ability to hold and maintain a big picture, holistic point of view. Boundary spanners need to be able to build and maintain friendships with many different people who have many differences. These capabilities rest

solidly on the cognitive complexity of the global mindset. Bibliography Ashkenas, R., Ulrich, D., Jick, T., and Kerr, S. (2002). The Boundaryless Organization: Breaking the Chains of Organizational Structure. San Francisco: Jossey-Bass. Beechler, S., Sondergaard, M., Miller, E., and Bird, A. (2004). Boundary spanning. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Burt, R. (1992). The social structure of competition. In N. Nohria and R. G. Eccles (eds.), Networks and Organiza tions: Structure, Form, and Action. Boston, MA: Harvard Business School Press, 57 91. Cross, R., and Parker, A. (2004). The Hidden Power of Social Networks: Understanding How Work Really Gets Done in Organizations. Boston, MA: Harvard Business School Press. Cross, R., and Prusak, L. (2002). The people who make organizations go or stop. Harvard Business Review, 80 (6), 104 12. Nohria, N., and Ghoshal, S. (1997). The Differentiated Network. San Francisco: Jossey-Bass. Nonaka, I., and Takeuchi, H. (1995). The Knowledge Creating Company: How Japanese Companies Create the Dynamics of Innovation. New York: Oxford University Press. Rosen, R., Dingh, P., Singer, M., and Philips, C. (2000). Global Literacies: Lessons on Business Leadership and National Cultures. New York: Simon and Schuster. Stahl, G., Miller, E., and Tung, R. (2002). Toward a boundaryless career. Journal of World Business, 37, 216 27. Tushman, M. L., and Scanlan, T. J. (1981). Boundary spanning individuals: Their role in information transfer and their antecedents. Academy of Management Journal, 24 (1), 286 305. Williams, P. (2002). The competent boundary spanner. Public Administration, 80 (1), 103 24.

bounty John O’Connell

One of the ways a government can build its export markets is to subsidize local producers to allow the offering of exports at a lower cost than competitor countries. Subsidies can take many forms (outright grants or payments, tax holidays, etc.), but regardless of the form, such

brand piracy payments are treated as bounties and are an illegal part of international trade. Although de veloping countries may find some exemptions to illegal bounty regulations (in order to speed the development process), other nations are forbid den from making such payments under WTO rules. Bibliography Simmonds, K. R. and Musch, D. J. (eds.) (1992). Law and Practice Under the GATT and Other Trading Agreements, North American Free Trade Agreements, United States Canada Free Trade Agreements: Bi national Panel Reviews and Reports. Dobbs Ferry, NY: Oceana.

boycott John O’Connell

A boycott is a concerted effort to reduce pur chases of particular products. Boycotts may apply to purchases from specific manufacturers, or all purchases from a specific country. Boycotts have been implemented by one country against another because of human rights violations, en vironmental concerns, or for many other reasons. Boycotts have been implemented by special interest groups against manufacturers because the labeling or name of the product was inter preted as being against a religious belief, or because the company was from another coun try, or even because a product logo or trade mark was thought by some to represent a satanic symbol. Whatever the reason, a well organized boycott of a product or country’s goods can have a devastating impact on sales. Efforts should be made to determine if the wording, symbols, or references in ad vertising or packaging have any special cultural meaning. Failure to identify people, causes, or cultures who might be offended by one’s product, its packaging, or advertising ma terials may lead to a totally unexpected boycott of goods. Bibliography Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin.

37

brand extension John O’Connell

Brand extension means using the name of a well known parent company or a successful product line to introduce additional products. Brand extension is normally a good marketing plan. However, in international business it could lead to unexpected results. An organiza tion cannot take for granted that its name and advertising programs will be as effective in foreign countries as they are at home. Differ ences in the meaning of words or symbols could be fatal for an organization. In order to combat potential problems, some organizations actually change the name of their international products or companies to mask the fact that they are ‘‘American’’ or ‘‘French’’ in areas where public acceptance of the home country is poor. Before adding to a product line through brand extension it is best to research questions related to negative feelings associated with a type of product, its design, or name. As long as the company name, advertising, packaging, etc. are not viewed in a negative manner, brand exten sion is an effective method of introducing new products. Bibliography Buzzell, R. D., Quelch, J. A., and Bartlett, C. A. (1995). Global Marketing Management: Cases and Readings. Reading, MA: Addison-Wesley. Kaynak, E., and Ghauri, P. N. (eds.) (1994). Euromarket ing: Effective Strategies for International Trade and Export. Binghamton, NY: Haworth Press.

brand piracy John O’Connell

This is the unauthorized and therefore illegal use of a brand name or product which has trade mark, patent, or copyright protection. It is a form of property right theft which is common in many countries of the world. ‘‘Rolex’’ watches may be purchased in many parts of Southeast Asia for $29.95 or in New York City for $50.00. ‘‘Louis Vuitton’’ handbags are sold in many parts of the world for 10 percent of their cost in Louis Vuitton stores. Of course, these watches

38

break-bulk

See also intellectual property

Agreement after the location of the conference). The important and lasting achievement of the Bretton Woods Conference was the establishing of the i n t e r n a t i o n a l m o n e t a r y f u n d and the i n t e r n a t i o n a l b a n k f o r r e c o n s t r u c t i o n a n d d e v e l o p m e n t (the World Bank), which exist today to foster inter national trade and development. Bretton Woods was the beginning and even though not all of its ideas were to survive, the conference did bring nations together to plan for freedom of trade and economic development on a world wide scale.

Bibliography

Bibliography

Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin. International Intellectual Property Alliance Staff (1992). Copyright Piracy in Latin America: Trade Losses Due to Piracy and the Adequacy of Copyright Protection in 16 Central and South American Countries. Washington, DC: International Intellectual Property Alliance.

Humphreys, N. K. (1993). Historical Dictionary of the International Monetary Fund. Lanham, MD: Scarecrow Press. Salda, A. C. (1992). The International Monetary Fund: A Selected Bibliography. New Brunswick, NJ: Transaction Publishers.

and handbags are copies of the original with pirated brand names and designs. Copies of ori ginal designs using well known brand names are often referred to as knock offs. Knock offs of well known brands of watches, clothing, hand bags, and other products account for billions of dollars in lost revenues each year for the legal producers of the products. International produ cers of items subject to brand pirating must carefully research protections provided by coun tries in which they trade.

bribery John O’Connell break-bulk John O’Connell

When cargo is of insufficient size to fill a container it is broken into smaller lots (boxes, drums, etc.) and then placed in the ship’s hold. This is referred to as a break bulk shipment. Break bulk shipments are common when shipping small amounts of goods overseas.

Bretton Woods Conference John O’Connell

This 1944 conference was one of the most important ever held with respect to international monetary history. The conference established the gold standard for currency valuation. Although the linking of gold to currency values was notable, that standard was abolished at another conference in Washington, DC in 1971 (now referred to as the Smithsonian

Seeking to influence a decision (most commonly of a public official) through the giving of favors, gifts, or money directly to the official or to others on his or her behalf. Bribery of a public official is illegal in virtually all countries. Both the official and the person presenting the bribe are subject to criminal action if found guilty of the act. A problem exists, however, as to what the exact nature of bribery is and when (if ever) it is legal to make payments to officials or others to obtain preferential treatment. Some countries have attempted to outline legal versus illegal activities in their antibribery legislation (see f o r e i g n c o r r u p t p r a c t i c e s a c t for the US approach). Generally, if a payment or gift is given in order to influence the decision of a public official, the payment is a bribe and is illegal. Bribery or questionable payments are known by many names throughout the world. The following is a partial list of terms used in various languages. Note that the terms listed below do not always designate illegal activities in their home country:

buffer stock Language Term Arabic baksheesh French pot de vin pourboire German utzliche abgabe

Meaning ‘‘gratuity’’ ‘‘jug of wine’’ ‘‘tip’’ ‘‘useful contribution’’ Schmiergeld ‘‘grease money’’ Italian bustarella ‘‘little envelope’’ baccone ‘‘little bite’’ Japanese kuroi kiri ‘‘black mist’’ Persian bakshish ‘‘tip’’ Spanish el soborno ‘‘payoff’’ la Mordida ‘‘the bite’’ (Mexico) Yiddish schmir ‘‘smear’’ or ‘‘grease’’ English Bribery, pay offs, payola, lure, bait, compensation, lubrication, grease payments, and others.

39

their possession before payment is made. An alternative for an exporter is to sell goods in small lots in order to decrease the credit risk. Again, this is not the most efficient method of selling or transporting goods. Local financing of export sales is necessary and is contributed to in Great Britain by the British Exports Credits Department.

British Standard 7799 John O’Connell

A standard code of practice that provides guidance on how to secure an information system. It includes the management framework, objectives, and control requirements for infor mation security management systems.

Bibliography Bowie, N. E. (1990). Business ethics and cultural relativism. In P. Madsen and J. M. Shafritz (eds.), Essentials of Business Ethics. New York: Meridian. Coye, R. (1986). Individual values and business ethics. Journal of Business Ethics, 5 (1), 45 9. D’Andrale, K. (1985). Bribery. Journal of Business Ethics, 4, 239 48. Johnson, H. L. (1985). Bribery in international markets: Diagnosis, clarification, and remedy. Journal of Business Ethics, May, 447 55. Lane, W. H. and Simpson, D. G. (1984). Bribery in international business: Whose problem is it? Journal of Business Ethics, February, 35 42. Tong, H. (1982). What American business managers should know and do about international bribery. Baylor Business Studies, November, 7 18.

broker John O’Connell

A person acting on behalf of another in order to carry out a transaction. Often, buyers and/or sellers are unable to carry out certain trans actions themselves. When this occurs it is common to hire a broker to act as a representa tive. Brokers are experts in the transactions in which their assistance is required and can save a great deal of time and effort for their clients. Brokers may act on behalf of buyers, sellers, or may even buy for their own account (take own ership themselves), hoping to profit from resale at a later time. Brokers acting for their own account are also referred to as market makers or dealers.

British Export Credits Department John O’Connell

A government department charged with the re sponsibility for encouraging the export of British goods. The department provides money for export financing for such goods. Without the provision of export financing many exporters would have to sell goods on a cash before deliv ery basis in order to avoid credit risks. This method of selling usually decreases the demand for goods from importers who want the goods in

buffer stock John O’Connell

A country’s ‘‘own’’ supply of a commodity. When a country’s supply of a commodity is too high the price for that commodity decreases. If forced to place all of the commodity on the market, the country’s producers, such as farmers, would suffer because of lower world

40

built-in export department

prices. International commodity agreements recognize this problem by allowing countries to purchase excess commodities and place them in a reserve (buffer stock) until prices increase to allow a profit on these goods. The international community carefully monitors buffer stocks to insure that government pur chase is not used as an illegal subsidy instead of being used only to stabilize the market when demand is low and supply of commodities is high.

built-in export department

elevators, or other mechanical means. It is pos sible to section off a ship in order to carry more than one type of bulk cargo (e.g., different grades of fuel oil).

Bureau of Export Administration (BXA/BEA) John O’Connell

A US Department of Commerce agency with responsibility for carrying out the country’s export policy. The agency also issues export licenses and keeps track of businesses and indi viduals who have violated US export rules.

John O’Connell

One of the methods of handling international trade activities is to form a department within the company to deal with exports. This allows personnel to begin to become familiar with inter national transactions and to better control the flow of goods, as well as to internalize this function.

bulk cargo John O’Connell

Cargo which does not lend itself to container ization or storage in boxes or drums is referred to as bulk cargo. Bulk cargo is usually loaded into or onto the ship in raw form. Such cargo usually consists of grain, coal, unrefined ore, raw timber, and similar commodities. Contain erization of such cargo would dramatically in crease the shipping cost, with little or no resulting benefit to either the exporter or the importer.

burn rate John O’Connell

Refers to the amount of money a company spends from month to month (money burnt) in order to survive. Thus a burn rate of $50,000 would mean the company spends $50,000 above any incoming cash flow to sustain its business. Entrepreneurial companies will calculate their burn rate in order to understand how much time they have before they need to raise more money or show a positive cash flow.

business continuity plan (BCP) John O’Connell

A business continuity plan is the plan for emergency response, backup operations, and post disaster recovery steps that will insure the availability of critical resources and facilitate the continuity of operations in an emer gency.

bulk carrier John O’Connell

A specially designed ship to carry bulk cargoes. Cargo such as coal and grain is loaded by means of conveyer belts, chutes lowered from grain

buy national John O’Connell

Government or private promotion to encourage citizens to buy products manufactured locally.

buying agent Often, union groups or other special interest groups will embark on advertising campaigns suggesting that it is the patriotic duty of citizens to buy local products instead of imported items. Such campaigns are aimed at the protection of a country’s jobs and industries from outside com petition. In some cases manufacturers and gov ernments may offer rebates, discounts, or other incentives to purchase local goods instead of imports.

41

the machine manufacturer. This is a form of countertrade. Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

buying agent John O’Connell

buy-back agreements John O’Connell

An agreement between an importer of capital goods and the exporter of those goods to accept payment in the form of the finished product of the importer. For example, a machine manufac turer sells machinery to a textile company in another country. The machinery manufacturer agrees to accept payment for the machines in the form of finished textile goods produced by the buyer. The textile goods are then disposed of by

When a company does not have employees sta tioned overseas to purchase goods, a buying agent may be employed to represent the com pany. Buying agents know the foreign market for goods and how to negotiate in foreign markets. They can be of great assistance in completing foreign transactions. The authority of the agent should be carefully spelled out in the contract between the agent and the company to make certain the company’s interests are appropriately represented.

C C2C

Consumer to consumer – an auction type model.

cations, etc.) companies may actually provide employees with a camp or compound in which to live. The compound provides for the basic (and sometimes not so basic) needs of employees and offers an additional degree of security if necessary.

cable rates John O’Connell

Occasionally, foreign exchange transactions are made by cable transfer. When this occurs the transfer is instantaneous. The rate a bank charges for this type of transaction is slightly higher than the normal rate because the money merely passes through the bank rather than being held for any period of time.

Canadian International Development Agency (CIDA) John O’Connell

A Canadian government agency with responsi bility for assisting Canadian organizations to enter less developed country markets. Grants, loans, technical assistance, and investment as sistance are provided by the agency.

CACM

see c e n t r a l a m e r i c a n c o m m o n market

CAD

CAP

see c o m m o n a g r i c u l t u r a l p o l i c y

capital movements code

see c a s h a g a i n s t d o c u m e n t s

camp status John O’Connell

Employees can be assigned to overseas locations which provide a different standard of living than that to which they are accustomed. In those places where common amenities are un available (grocery stores, electricity, communi

John O’Connell

An agreement between members of the Organ ization for Economic Cooperation and Develop ment (OECD) in which they agreed to refrain from restricting the flow of direct investment capital between member countries. Although in specific instances signatories to the agreement can impose limited restrictions on foreign in vestment for specific industries deemed suscep tible to foreign takeover, direct investment normally remains unhampered.

cargo selectivity system capitalism John O’Connell

An economic system which, for the most part, allows the market system to determine production and pricing of goods and services, allows private ownership of property and means of production, and free entry into most markets. Individual ini tiative is promoted and rewarded. During the late 1980s many countries have moved from com munist, centralized, government controlled eco nomies toward capitalism and free markets. The move has been slow and sometimes difficult, but as time passes more governments are leaning toward privatizing many activities and promoting individual/group private ventures.

captive insurance company John O’Connell

An insurance company formed for the specific purpose of insuring its owners. In the 1970s cap tive insurance companies became popular as a means for large organizations to guarantee them selves a market for necessary insurance while at the same time gaining some degree of control over the operations of the insurer itself. Early in the captive movement it was possible to deduct from one’s business income taxes the premiums paid to a captive. However, changes in tax law severely limited an organization’s ability to deduct pre miums paid to a captive except for those actually used to pay losses and other insurer expenses or to purchase reinsurance. The use of captives, how ever, continued to grow, mainly because of the failure of the insurance market to offer consistent coverage at reasonable rates. Bibliography Rejda, G. E. (1995). Principles of Risk Management and Insurance, 5th edn. New York: HarperCollins.

cargo broker John O’Connell

A person who acts as a middleman between cargo owners and shipowners. By locating ships

43

for hire, the cargo broker earns a commission. The commission is also referred to as an address commission. Cargo brokers play an important role in international trade, especially when one considers the inexperience of many cargo owners in transporting goods overseas.

cargo insurance John O’Connell

Insurance covering goods being shipped by sea. Although it is possible to specify sources of loss which are covered, it is far more common to issue such insurance on an ‘‘all risk’’ basis (i.e., all sources of loss are covered unless they are specifically excluded or restricted). Common exclusions include war, delay in shipment, neg ligent packing, and wear and tear. An infrequent shipper of goods may purchase a marine policy for a single shipment, whereas a frequent ship per of goods would probably benefit from an ‘‘open cargo’’ policy. The open cargo policy allows shipments throughout the policy period (commonly one year), with automatic coverage being applied to each shipment. The shipper normally pays a deposit premium at the begin ning of the year (based upon an estimate of insured amounts being shipped) and then settles with the insurer for the actual additional or return premium at the end of the policy period.

cargo selectivity system John O’Connell

A part of Customs Automated Commercial System, which specifies the type of examination (intensive or general) to be conducted for imported merchandise. The type of examination is based on database selectivity criteria such as assessments of risk by filer, consignee, tariff number, country of origin, and manufacturer/ shipper. A first time consignee is always selected for intensive examination. An alert is also gener ated in cargo selectivity the first time a consignee files an entry in a port with a particular tariff number, country of origin, or manufacturer/ shipper.

44

Caribbean Common Market

Caribbean Common Market

Bibliography

see c a r i b b e a n e c o n o m i c c o m m u n i t y

Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

Caribbean Development Bank (CDB) John O’Connell

This development bank was begun in 1969 by Caribbean nations seeking to further the eco nomic development of the area. Like other de velopment banks, the CDB concentrates on projects to build infrastructure and increase agricultural production. Member countries in clude those located in the Caribbean as well as others interested in promoting the economic development of Caribbean nations. Members include Antigua, the Bahamas, Barbados, Belize, the British Virgin Islands, Canada, the Cayman Islands, Colombia, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts, Trini dad and Tobago, the Turks and Caicos Islands, the United Kingdom, and Venezuela. Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

Caribbean Economic Community (CARICOM) John O’Connell

The Caribbean Economic Community was founded in 1973 to promote the economic devel opment of its member nations. Along with eco nomic development, CARICOM is committed to establishing true free trade among members and monetary union. Members have common import duties aimed at developing local industry and agricultural pursuits. Members of the CaribbeanEconomicCommunityaretheEnglish speaking countries of the Caribbean: Antigua, the Bahamas, Barbados, Barbuda, Belize, Dominica, Grenada, the Grenadines, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent, and Trinidad and Tobago.

CARICOM

see c a r i b b e a n e c o n o m i c c o m m u n i t y

carnet John O’Connell

When goods enter a country all duties and taxes must normally be paid. There are, however, situations in which duties do not have to be paid. One such situation exists when goods are brought into a country to serve as sales samples, for professional purposes, or if the goods are on the way to another country. In these situations, temporary entry to the country is usually under the carnet system. A carnet is a set of vouchers issued by International Chambers of Commerce or other business associations which are accepted by customs officials as proof that the goods are not for resale in the country. Carnets are usually good for one year. If the goods have not been transported out of the country by that time, duties will be payable. There are three major types of carnets: 1

2

ATA carnet. ATA stands for admission tem poraire or temporary admission. An ATA carnet allows certain types of property to be imported into and temporarily held in a coun try without payment of import duties. Prop erty allowable under the ATA carnet includes product samples, advertising materials, pro fessional equipment (for presentations, etc.), and promotional literature and items. An ATA carnet is valid for a one year period. If property brought into a country under an ATA carnet is still in the country after a year, it becomes subject to duty payment. ECS carnet. This is a very specific use of carnet. ECS stands for echantillon carnet sample. The ECS carnet is used specifically for trade samples or other commercial

cartel samples (not imports, just samples). Under the ECS carnet literally all entry require ments are nullified. Thus, no duties are pay able on commercial or sales samples. The ECS carnet is usually good for up to one year. 3 TIR carnet. TIR stands for transport international routier, which translates as international road transport. This type of carnet is used for goods which are passing through a country on the way to another country. As long as the goods are not unloaded and reloaded in the country, the carnet allows goods to pass without customs duties or customs inspection (of course, when the goods reach the final country destination all customs inspections and duties for the final country apply). Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

45

carriage paid to (CPT) John O’Connell

Under this trading term the seller delivers goods to a nominated carrier and pays the transporta tion charges to a specified destination. All re sponsibilities for the goods (loss, damage, and possible cost increases) are transferred to the buyer when they reach the first carrier. Under this term the seller is responsible for any inland freight charges in the export country, for loading of the vessel, and for the cost of ocean or air freight. The buyer is then responsible for export insurance, unloading the vessel, import duties and costs, and any inland freight costs in the buyer’s country. Title to the goods passes upon delivery to the first carrier (if several carriers are involved). The seller is responsible for securing the export license and the buyer the import license. CPT is an INCOTERM. Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/ preambles.asp.

carriage and insurance paid (CIP) Jeanne McNett

CIP is a trade term. It means that the seller delivers the goods to the ship the seller nomin ates and pays the cost of transportation, includ ing insurance to the destination. The buyer assumes the costs and risks once the goods have reached the stipulated destination. The seller is required to purchase minimum coverage insur ance, so the buyer may want to arrange for additional coverage. The buyer is responsible for unloading the vessel, for import duties and costs, and for inland freight in the buyer’s coun try. Title to goods and risk passes from the seller to the buyer when the goods reach the first carrier. The seller is responsible for securing the export license and the buyer the import license. CIP is an INCOTERM. Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

carrier’s lien John O’Connell

The right of the provider of transportation to attach or hold the property being shipped as collateral until such time the transportation costs are paid. The holding of property may be the best recourse a carrier has to insure prompt payment of transportation costs.

cartel John O’Connell

When individuals, organizations, or countries form a group in order to regulate the supply and therefore the price of a commodity, the group is referred to as a cartel. Although cartels are illegal in some countries, international busi ness has produced a number of cartels. Probably the most notable cartel is the Organization of Petroleum Exporting Countries (OPEC).

46

cash against documents (CAD)

OPEC has been in the news for years because of its attempts to restrict production of oil among member countries, thereby supporting the world price. OPEC members include Algeria, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Bibliography Czinkota, M. R., Rivoli, P., and Ronkainen, I. A. (1989). International Business. Chicago, IL: Dryden Press.

cash against documents (CAD) John O’Connell

A buyer pays cash to an intermediary (e.g., a commission house) in exchange for title docu ments (e.g., b i l l o f l a d i n g ) to goods. Title is transferred to the buyer through the exchange of cash for documents.

prise (MNE) is cash management. Cash manage ment is essentially knowing what the cash needs are throughout the MNE, what the sources of cash are (parent and subsidiary operations, in vestment returns, borrowing, etc.), how to ef fectively access cash when needed, and how to most effectively use available cash when not needed in company operations. One of the problems with multinational operations is that delays or restrictions are often encountered when attempting to move cash out of certain countries. Also, the cost of moving cash between countries will normally involve fees and/or ex penses not encountered with domestic cash movements. One of the challenges of inter national cash management is to get cash to where it is needed, when it is needed, with the fewest movements (therefore, the lowest transfer costs). See also coordination center; multilateral netting Bibliography Celi, L. J., and Rutizer, B. (1991). Global Cash Manage ment, 1st edn. New York: Harper Business. Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. Kuhlmann, A. R., Mathis, F. J., and Mills, J. (1991). First Steps in Treasury Management: Prime Cash, 2nd edn. Toronto: Treasury Management Association of Canada.

cash before delivery (CBD)

see c a s h i n a d v a n c e

cash in advance (CIA) John O’Connell

This payment term requires the buyer to provide payment prior to the shipment of goods. CIA is usually used for small purchases, special orders, or when a product has been modified for the buyer. CIA terms are used sparingly because buyers of goods generally want to have delivery (to themselves or a designated place) before paying for goods.

cash with order (CWO) John O’Connell

A payment term which specifies that the pur chaser of goods must pay in full when the order is placed. This term is used when purchasers have shown themselves to be less than credit worthy, for purchasers unknown to the seller, and for goods which are made to order for a buyer.

cash management John O’Connell

One of the most important tasks of international finance associated with a multinational enter

CCC

see c o m m o d i t y c r e d i t c o r p o r a t i o n

centralized management CDB

47

centralized management

see c a r i b b e a n d e v e l o p m e n t b a n k

Center for International Briefing John O’Connell

A training center in Great Britain known for its training of executives and their families in cross cultural education. The center is also known as Farnham Castle.

Central American Common Market (CACM) John O’Connell

The CACM was created in 1960 to foster eco nomic development and cooperation between member nations. CACM manages the Central American Clearing House which handles central bank transactions of member countries. Member countries are Costa Rica, El Salvador, Guate mala, and Nicaragua. It is the intent of member nations that CACM be the first step to a true trade area to be known as the Economic and Social Community of Central America.

John O’Connell

A company that holds all decision making au thority and control processes in the hands of a few managers in the home office is considered to have a highly centralized management system. When authority and control are transferred to others in the company, the company is said to be decentralizing its management. One of the major issues for multinational business operations is the degree of home office control which is exerted over foreign operations. Before determining the degree of centralized control a number of questions must be answered by the parent company. A brief review of those questions follows. Mendenhall, Punnett, and Ricks (1995) discuss seven areas which must be reviewed when considering the degree of cen tralization of a multinational organization: 1

2

Bibliography Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

Central American Development Bank of Economic Integration (BCEI)

3

John O’Connell

The central bank of the Central American Common Market. Common market members include Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

4

Type of industry. If the industry of the parent company and the subsidiary can achieve economies of scale through standardization of product or process, or if the product pro duced or service provided must be standard ized to insure uniformity and consistency, moves toward centralization are normally called for. Nature of the subsidiary. Can the subsidiary be adapted to the methods used by the parent or do local production requirements and/or regulations dictate that the process must be different? If the subsidiary is a manufacturer of products which are the same as those produced by the parent, centralization suc cess is enhanced. Functional areas. Functional areas of an organization (finance, accounting, etc.) are rather simple to centralize as long as the information required by the host countries is capable of being produced by the central functional area. If not, even functional areas may have to be decentralized. Parent company philosophy. This refers to the basic corporate feelings concerning central ization of control. Some organizations believe strongly that controls must be cen tralized, whereas others approach manage ment of subsidiaries with a laissez faire attitude. Truly global firms tend to be

48

5

6

7

certificate of health centralized, whereas multidomestic firms tend to be decentralized. Parent company confidence in subsidiary’s management. The more competent the man agement of the subsidiary, the less likely a parent company will decide to centralize op erations. However, if the parent lacks confi dence or has little knowledge of subsidiary managers’ abilities, the tendency would be toward centralization. Cultural similarity. Using cultural similarity alone one could make a case both for and against centralization of control. If, for example, the parent and the subsidiary are similar, top management may determine that the subsidiary could function alone because it will be run in the same manner as the parent. Conversely, similarity of cultures may also lead to centralization because there is likely to be more acceptance of parent company control because manage ment at all levels has similar values and atti tudes about how to run a business. The same dichotomy exists if cultures are very differ ent. For example, very different cultures may make some parent company manage ment fearful that the subsidiary will be man aged in an inferior manner. This would lead to centralized control. A different parent company facing the same scenario could elect to decentralize because the cultural differences are too great to be managed externally. Firm specific advantages. The strengths of the parent company and the subsidiary must be reviewed to determine whether in dividual areas of management should be cen tralized, while others are decentralized. If research and development is the major strength of the parent company, that func tion will most likely be centralized. If local promotion and advertising is a strength of the subsidiary, that function may remain decentralized.

The seven factors mentioned by Mendenhall, Punnett, and Ricks are certainly not exhaustive (other factors could include local regulation, proximity to final markets, or demands of pro viders of raw materials or national interests of the host country), but they do point out the

importance of making a centralization decision only after considerable time is taken to deter mine what is best for each subsidiary. The common reason ‘‘Because that’s how we’ve always done it’’ is not viable in the international setting. Bibliography Adler, N. J. (1991). International Dimensions of Organiza tional Behavior, 2nd edn. Belmont, CA: Wadsworth. Austin, J. E. (1990). Managing in Developing Countries: Strategic Analysis and Operating Techniques. New York: Free Press. Daniels, J. D., Pitts, R. A. and Tretter, M. J. (1985). Organizing for dual strategies of product diversity and international expansion. Strategic Management Journal, 6, 223 37. Herbert, T. T. (1984). Strategy and multinational organization structure: An inter-organizational relationships perspective. Academy of Management Review, 19 (2), 259 71. Higgins, J. M. and Vincze, J. W. (1993). Strategic Man agement and Organizational Policy. New York: CBS College Publishing. Hodgetts, R. H. and Luthans, F. (1994). International Management, 2nd edn. New York: McGraw-Hill. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell. Rosenweig, P. M. and Singh, J. V. (1991). Organizational environments and the multinational enterprise. Acad emy of Management Review, 16, 340 61.

certificate of health John O’Connell

When exporting goods which are meant for human consumption or for use in medical care of humans, all countries require that certifi cation of the product’s purity be provided. The certification document is generally required to be certified by appropriate officials of the exporting country. The intent of health certifi cation is to reduce the chances of importing contaminated goods which may cause disease or introduce pests into a country. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

change, in a global context United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

certificate of inspection

49

which imported goods are subject to tariffs, a country may require a document certifying the country of origin of the goods. The certificate allows a country to properly assess applicable tariffs or to release goods in a shorter period of time if no duties are payable.

John O’Connell

This trade document certifies that goods were in good condition immediately prior to shipment. This document provides the seller with proof that undamaged goods were delivered for ship ment. It can then be inferred that any damage was caused during the shipping process. Pin pointing the portion of transit in which damage occurred may play an important part in deter mining responsibility for damage and potential insurance payments.

Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

CFR

see c o s t a n d f r e i g h t

Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

certificate of manufacturing John O’Connell

This document is given by the manufacturer to a bank or some other party which has issued a l e t t e r o f c r e d i t . It certifies that the manu facturing process has been completed and the goods are ready for the buyer. The certificate allows the seller to be paid. The certificate is also known as a manufacturing certificate.

chaebol John O’Connell

Chaebol are Korean conglomerates which are characterized by strong family control, authori tarian management, and centralized decision making. Chaebol dominate the Korean economy, growing out of the takeover of the Japanese monopoly of the Korean economy following World War II. Korean government tax breaks and financial incentives emphasizing industrial reconstruction and exports provided continuing support to the growth of chaebols during the 1970s and 1980s. In 1988 the output of the 30 largest chaebol represented almost 95 percent of Korea’s gross national product.

Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

certificate of origin John O’Connell

Some countries impose tariffs on certain goods from certain countries. In order to determine

change, in a global context Jeanne McNett

Change presents the manager with a complex challenge, and change that is to be implemented globally does so exponentially due to the number of constituencies and variables connected to the process (differing views of what a good course of action might be within different groups of both internal and external stakeholders, with differing cultural values, among them). Building

50

CHAPS

community is an essential part of the global change process because leaders of large, multicul tural, and geographically dispersed organizations have to bring the members of their heterogeneous groups together before they can act in concert (Osland, 2004). On a global level, behavioral change is challenging because cultures vary in their comfort with change. Few cultures value change more than the United States. Cultures that are high in u n c e r t a i n t y a v o i d a n c e are likely to avoid change and the risks that it involves. They will expect the change process to be carefully delin eated. Cultures that place a high value on the past and on tradition are also generally more resistant to change. In such cultures, managers will be less proactive about making changes and change pro cesses are likely to take more time. The same is true of cultures that believe more in fate than in human control of destiny. Cultural values also affect the change imple mentation process. In cultures where human nature is viewed as unchangeable, people are more likely to be skeptical about the success of a change effort, and building trust and commit ment may take longer. Participation is the best way to allow employees to feel some sense of ownership of the change process in low p o w e r d i s t a n c e cultures. Employees from high power distance cultures are more likely to expect leaders to make decisions without their input and there fore change through techniques such as em powerment and employee participation may be more difficult. Global managers need to take into consider ation the local context, the indigenous cultural values, the country’s history, and the organiza tional and occupational cultures of the particular groups involved in the change effort. Bibliography Bartlett, C. A. and Ghoshal, S. (1989). Managing Across Borders: The Transnational Solution. Boston, MA: Harvard Business School Press. Champy, J. and Nohria, N. (1996). Fast Forward: The Best Ideas on Managing Business Change. Cambridge, MA: Harvard Business School Press. Cooperrider, D. and Dutton, J. E. (1999). Organizational Dimensions of Global Change: No Limits to Cooperation. Thousand Oaks, CA: Sage.

Denison, D. (ed.) (2001). Managing Organizational Change in Transitional Economies. London: Lawrence Erlbaum Associates. DeSanctis, G. and Fulk, J. (eds.) (1999). Shaping Organ ization Form: Communication, Connection, and Commu nity. Thousand Oaks, CA: Sage. Evans, P., Pucik, V. and Barsoux, J. (2002). The Global Challenge: Frameworks for Human Resource Manage ment. Boston, MA: McGraw-Hill Irwin. Ghoshal, S. and Bartlett, C. A. (1996). Rebuilding behavioral context: A blueprint for corporate renewal. Sloan Management Review, 37 (2), 23 37. Kotter, J. (1990). A Force for Change: How Leadership Differs from Management. New York: Free Press. Osland, J. (2004). Building community through change. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Pettigrew, A. M. (1987). The Management of Strategic Change. Oxford: Blackwell. Spector, B. (1995). Taking Charge and Letting Go: A Breakthrough Strategy for Creating and Managing the Horizontal Company. New York: Free Press.

CHAPS

see clearing house payment system

automated

chemterrorism John O’Connell

The use of chemical agents in a terrorist oper ation. The most worrisome chemical is the nerve gas sarin, used in a Tokyo subway attack that killed 12 but injured thousands. Chemical agents are far easier to store and transport safely than many other weapons. The most likely to be used are blister agents, choking agents, nerve agents, and cyanide based compounds.

CHIPS

see c l e a r i n g h o u s e i n t e r b a n k p a y m e n t system

clearing account barter

51

CIA

Bibliography

see c a s h i n a d v a n c e

Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

CIF

see c o s t , i n s u r a n c e , a n d f r e i g h t

clean bill of lading John O’Connell

CIP

see c a r r i a g e a n d i n s u r a n c e p a i d

circular letter of credit John O’Connell

A circular letter of credit is also referred to as a traveler’s letter of credit or traveler’s credit. This document is used to provide payments to a person who will be traveling in a foreign country. The person holding the letter of credit presents it to a bank specified in the letter and is able to withdraw funds up to the limit established by the letter. See also letter of credit

A b i l l o f l a d i n g issued by a carrier for goods which were received in good condition. A clean bill of lading provides proof that up until the time goods were transferred to the carrier, no damage had occurred. This assists in placing responsibility if in fact goods are eventually delivered in other than undamaged condition.

clean collection John O’Connell

When only a financial document needs to be pre sented to a bank in order to make payment to the exporter this is referred to as a clean collection. Although the term was replaced by the term ‘‘clean remittance’’ by the i n t e r n a t i o n a l c h a m b e r o f c o m m e r c e , many people still use the old term.

civil law John O’Connell

This system of law depends upon a written body of laws to determine the outcome of legal dis putes. Unlike common law, which relies upon past decisions, civil law is linked to the codes and statutes in force in a particular country. This means that as one moves from country to coun try (assuming all have civil law systems) the legal interpretation of an action or a contract will vary. When organizations seek to become multi national, they should also seek expert assistance in reviewing the various codes and statutes which demand their compliance. Civil law systems exist in most of Europe, Latin America, some African countries, and Japan. See also common law system; legal system

clean remittance John O’Connell

An alternative term for c l e a n c o l l e c t i o n .

clearing account barter John O’Connell

This is an agreement under which two com panies (each in different countries) contract with one another to exchange their goods over a period of time. Actually a type of c o u n t e r trade. See also compensatory trade

52

clearing house automated payment system

clearing house automated payment system (CHAPS) John O’Connell

The CHAPS system is responsible for process ing interbank transactions involving accounts denominated in British pounds sterling. Both domestic and foreign banks are serviced through the system, which is located in London.

stringent support for communistic forms of gov ernment are moving toward internationalization of their economies by increasing foreign trade. China is an example of a formerly closed economy which has become more open to international commerce.

closed loop reporting John O’Connell clearing house interbank payment system (CHIPS) John O’Connell

The CHIPS system is responsible for processing hundreds of billions of dollars of international transactions each day. CHIPS is a US based clearing house for processing Eurocurrency, for eign exchange, and other interbank transactions involving dollar denominated accounts. The clearing house is operated by the New York Clearing House Association and clears accounts of both US banks and branches or subsidiaries of foreign banks with dollar denominated accounts.

click-through rate (CTR) John O’Connell

The number of times an advertisement is clicked upon over the number of times the advertise ment is served. Typical click through rates have been declining (a CTR of 1 percent would be very high). The click through rate will deter mine the cost of an advertising campaign that was based upon CPC and CPA.

The ability to measure the effectiveness of a particular ad on the Web by tracking which ad viewers actually bought which product, re quested a catalog, or took other specific actions on the website.

co-branding John O’Connell

Loosely, the appearance of two company names on a web page or website, implying that a product or service is provided jointly by the two companies. Often, the site belongs to a company with a significant customer base, market awareness, or marketing power, while the other company on the page or site is actually providing the bulk of the product or service. In another variety of co branding, an advertiser provides information about its offering in the midst of ostensibly objective information on the site.

code of liberalization of capital movements

see c a p i t a l m o v e m e n t s c o d e

code law

closed economy John O’Connell

John O’Connell

This type of economy attempts to require that all economic transactions be carried out within a given country. Such systems have long been as sociated with communist countries, but are be coming fewer and far less important with the passage of time. Even those countries espousing

A system of law based upon the interpretation of teachings included in a religious text. For example, Muslim Law is a code law based upon the Koran. Because of its deep religious roots, code law is sometimes referred to as revealed law, or being sent from the scriptures. For inter

collection system national businesses from common or civil law countries, code law is probably the most difficult of all to understand. Since the basis of code law is a religious text, those not familiar with the writing may be at a great disadvantage in seeking decisions under its rules. Bibliography Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

53

COFACE John O’Connell

COFACE stands for Compagnie Franc¸aise d’As surances pour le Commerce Exte´rieure and is the French government agency responsible for pro viding export credit insurance for French com panies. With the assistance of this agency French exporters are able to secure financing for their activities which might not otherwise be available.

COFC

codetermination

John O’Connell

John O’Connell

This is an important concept in relation to who is responsible for determining the strategic goals and objectives as well as the direction of activity of an organization. In most countries, this would be the board of directors (of course, serving at the discretion of the stockholders). Under codeter mination, employees of the organization have the right to assist in the basic strategic decisions affecting the firm. In Germany, codetermination means that an employee of an organization must be placed on that organization’s board of direct ors. Thus, the direction of the organization is partially determined by the employees as well as the owners of the firm (i.e., ‘‘codetermination’’). The European Union has agreed to adhere to laws requiring employee input on decisions affecting the strategic plans of an EU company. Strategic planning is thought to be so important that man dating that one of the most affected parties (em ployees) be included in the planning process was made a part of the EU’s Community Charter of the Fundamental Rights of Workers. Although board membership of employees has been a prac tice for many years for some organizations, many companies still believe that employees do not have the right to participate in a company’s stra tegic decision making process. If these com panies begin operations in the EU, the strategic management process will have to change. Bibliography Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill.

When a container is carried by rail it may be referred to as COFC (container on flatcar).

collaborative strategies

see m a r k e t e n t r y s t r a t e g i e s

collection papers John O’Connell

Collection involves the payment by an importer for goods sold by an exporter. Collection papers are the documents specified in the sales contract which must be provided to the buyer (or the buyer’s bank) in order for payment to be made.

collection system John O’Connell

Part of the Customs Automated Commercial System, which controls and accounts for the bil lions of dollars in payments collected by Customs each year and the millions in refunds processed each year. The collection system permits elec tronic payments of the related duties and taxes through the automated clearinghouse capability. Automated collections also meet the needs of the importing community through acceptance of electronic funds transfers for deferred tax bills

54

collectivist culture

and receipt of electronic payments from lockbox operations for Customs bills and fees.

collectivist culture Jeanne McNett

Collectivist culture is a term used to designate the cultural trait of giving primacy to the goals and welfare of groups in the view of the world related to relationships with other humans (Kluckhohn and Strodtbeck, 1961; Hofstede, 1991). In some descriptions of culture, the term communitarianist is used to label the same pri ority (Trompenaars and Hampden Turner, 1998). In collectivist societies, people are inte grated into cohesive groups which expect their loyalty and which, in turn, will take care of them throughout life. This is contrasted with the cul tural trait of individualism. The implications of collectivism for inter national managers are significant. For example, in communication, a collectivist culture is likely to be h i g h c o n t e x t , with many layers of shared meanings related to the context (historical, social norms, roles, situational, and relational), and to value indirect, subtle, and highly nuanced communication (Thomas and Osland, 2004). In collectivist cultures, direct, explicit communica tion may be understood as rude, brash, and insulting. As an example of the relevance to man agement, since the organization of work and the reward systems are best aligned with cultural values, in collectivist cultures team work and team or group rewards would be appropriate; in dividual performance rewards such as piece work or bonuses tied to individual productivity would be inappropriate without significant training. Bibliography Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell.

Hall, E. T. and Hall, M. R. (1995). Understanding Cultural Differences. Yarmouth, ME: Intercultural Press. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill. Kim, U., Triandis, H. C., Kagitcibasi, C., Choi, S., and Yoon, G. (eds.) (1994). Individualism and Collectivism: Theory, Method, and Applications. Thousand Oaks, CA: Sage. Kluckhohn, F. and Strodtbeck, S. F. (1961). Variations in Value Orientations. Evanston, IL: Row, Peterson. Lane, H., DiStefano, J., and Maznevski, M. (2000). International Management Behavior, 4th edn. Oxford: Blackwell. Peterson, M. F. and Smith, P. B. (2000). Meanings, organizations and cultures: Using sources of meaning to make sense of organizational events. In N. M. Ashkenasy, C. P. M. Wildrom, and M. F. Peterson (eds.), Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Thomas, D. and Osland, J. (2004). Mindful communication. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Trompenaars, F. and Hampden-Turner, S. (1998). Riding the Waves of Culture: Understanding Cultural Diversity in Global Business, 2nd edn. New York: McGraw-Hill. Vinken, H., Soeters, J., and Ester, P. (eds.) (2003). Com paring Cultures: Dimensions of Culture in a Comparative Perspective. Leiden: Brill.

co-location Jeanne McNett

The sharing of the same physical space is termed co location and can function to support the effective transfer of knowledge. Co location enhances the transfer of knowledge because it enables informal networks and relationships to develop among members of the various groups. Co location facilitates face to face interactions that are the only way for managers to share per ceptions based on individual t a c i t k n o w l e d g e stocks built from experiences. Such benefits may be important to global alliances and mergers. Virtual teams can also benefit from periods of co location early in the life of the team. When relationships are established working across geo graphic and cultural barriers, tasks are often more fluid, roles are less clear, and there tends

commercial attache´ to be less supervision and social control. Team members know less about each other’s context and special situation, and can interpret actions as personal rather than against a larger context. This tends to diminish levels of trust and to require a longer time for deeper trust to build. The face to face interaction that co location allows builds deeper trust more quickly. Bibliography Athanassiou, N. and Nigh, D. (2000). Internationalization, tacit knowledge and the top management team of MNCs. Journal of International Business Studies, 31 (3), 471 88. Davison, S. C. and Ekelund, B. Z. (2004). Effective team processes for global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Davison, S. C. and Ward, K. (1999). Leading International Teams. London: McGraw-Hill. DiStefano, J. J. and Maznevski, M. L. (2000). Creating value with diverse teams in global management. Organ izational Dynamics, 29 (1), 45 63. Gluesing, J. C. and Gibson, C. B. (2004). Designing and forming global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, H. W., Greenberg, D. and Berdrow, I. (2004). Barriers and bonds to knowledge transfer. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Marks, M. A., Mathieu, J. E. and Zaccaro, S. J. (2001). A temporally based framework and taxonomy of team processes. Academy of Management Review, 26 (3), 356 76. Maznevski, M. and Athanassiou, N. (2003). Designing knowledge management infrastructure for virtual teams: Building and using social networks and social capital. In C. B. Gibson and S. G. Cohen (eds.), Virtual Teams That Work: Creating Conditions for Virtual Team Effectiveness. San Francisco: Jossey-Bass, 196 213. White, N. Full Circle Associates. An online resource for virtual workgroups and communities of practice. /www.fullcirc.com/.

55

and then combining those goods to either meet existing orders or to place on the export market. Manufacturers of goods do not always produce sufficient quantities to take advantage of the most efficient modes of transportation or discounts for shipment of large lots. A CEM can take advantage of such efficiencies and/or discounts by combin ing the production of many companies. Although CEMs do occasionally work on a commission basis for manufacturers, they more commonly buy and sell as a separate entity involved in the export business. It is very common for CEMs to specialize in particular goods or industries. In this way they become familiar to both producers and buyers of particular goods. Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley.

combined transport bill of lading John O’Connell

A combined transport bill of lading allows goods to be shipped over more than one method of transportation (ship, rail, truck) without the need for separate bills of lading.

combined transport operator (CTO) John O’Connell

While most carriers of goods operate only one mode of transportation, a number of carriers com bine two or more (air, sea, land). Carriers ship ping under more than one mode of transportation are referred to as combined transport operators.

commercial attache´ John O’Connell combination export manager (CEM) John O’Connell

Combination export managers are in the business of purchasing goods from a number of companies

A government representative sent to a foreign country as part of a country’s formal diplomatic staff with an assignment to promote the import ation of home country products and services to the host country. Assistance to home country

56

commercial invoice

exporters in the form of local information on markets, regulations, and contacts is provided. Persons in these positions can be of enormous assistance in beginning trade activities with other countries.

Eiteman, D. K., Stonehill, A. J. and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. Rosenweig, P. M. and Singh, J. V. (1991). Organizational environments and the multinational enterprise. Acad emy of Management Review, 16, 340 61.

commercial invoice John O’Connell

A commercial invoice is a document which is used to provide details of an international trade transaction. Information normally required in cludes the following: buyer and seller names, types of property, value of goods, origin and des tination points, and parties accepting delivery of goods.

commercial risk John O’Connell

When a business begins it faces the risks that the economic conditions it hoped would be present will change, causing the business to suffer losses or less profit or growth than originally expected. This risk is referred to as the business risk. The new venture also faces the possibility that persons or firms purchasing goods or services on credit will not or cannot pay their debts. This is referred to as the credit risk. When one combines the business and credit risks the result is the commercial risk a business faces. A business operating in a single economy cannot do much to affect the business risk. Most businesses are so small as to have very little finan cial impact on an entire economy. Thus, businesses spread their risk by moving into inter national activities. It is a fair bet that when one economy is down another will be on the upswing. Credit risk can be managed by instituting credit controls and management techniques from the outset of a business. Good credit management is one of the keys to successful business operations. Bibliography Bishop, P. and Dixon, D. (1992). Foreign Exchange Hand book: Managing Risk and Opportunity in Global Cur rency Markets. New York: McGraw-Hill.

commercial visa John O’Connell

A commercial visa is issued to business travelers who are visiting a country on a temporary basis. Usually, a business traveler is not allowed to be paid a salary by a company in the host country (local salary earners are usually not eli gible for a commercial visa, although exceptions are made). Commercial visa holder activities are also stated in each country’s immigration laws. Common activities which are allowed are attending business conferences or conventions, conducting sales meetings, negotiating business contracts, purchasing goods for export, and other specifically allowed business activities. Other categories of business visitors may be eli gible for special visa status. The party seeking special status must check with a consulate or the immigration authorities of the proposed host country. See also visa

commission agent John O’Connell

It is common for companies involved in foreign trade to work through representatives or agents who sell goods on behalf of the companies. These agents usually work for a percentage of the goods sold (a commission). In many countries these agents are referred to as manu facturer’s representatives. Commission agents usually specialize in certain types of products or industrial output in order to build their rela tionships with both buyers and sellers. In order to monitor their activities, commission agents are required by many countries to be registered and bonded.

common external tariff commoditization John O’Connell

An increase in the number, availability, and simi larity of products in a given category which tends to drive down the price of the products. Some people believe the rapid and easy access to infor mation about products on the Internet will make markets more efficient, facilitate comparisons, increase competition, eliminate inconsequential differences between products, and drive toward commoditization and lower prices. Others believe that low marketing and distribution costs will enable companies to differentiate their products and establish a wide variety of niche markets.

commodity John O’Connell

It is important to recognize that the term ‘‘com modity’’ does not mean the same thing in all contexts. A commodity is commonly broadly de fined in international trade to include anything which is traded or purchased, other than a service. This broad definition includes manufactured goods as well as grains, oil, livestock, and other agricultural or extractive goods. In financial markets, commodities refer to grains, livestock, metals, etc., but not general manufactured goods. Agreements between countries related to com modity trade may be very specific (listing the items agreed upon) or broad based (with little definition). The context in which the term is used will determine its meaning. Failure to know the context may result in misunderstandings.

57

of the agency is to assist in keeping US agricul tural production stable and profitable while at the same time meeting the needs of the country. The CCC provides price supports and other subsidies to agricultural entities. Whenever pos sible, the agency also encourages the export of US agricultural goods. See also common agricultural policy

common agricultural policy (CAP) John O’Connell

Common agricultural policy is created when a group of countries agrees to cooperate to stand ardize their agricultural policies for the benefit of the signatories of the agreement. Common markets are good examples of groups of coun tries which often have common agricultural pol icies. These policies usually are aimed at improving the status of farmers by stabilizing prices, providing price supports when necessary, and seeking to further develop agricultural pro duction and distribution in the area. The Euro pean Union is one of the best examples of a c o m m o n m a r k e t providing a common agri cultural policy for its member countries. See also Commodity Credit Corporation Bibliography Ashegian, P. and Ebrahimi, B. (1990). International Busi ness. Philadelphia, PA: HarperCollins. Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

commodity cartel

see i n t e r n a t i o n a l c o m m o d i t y g r o u p

common external tariff (CAT/CXT) John O’Connell

Commodity Credit Corporation (CCC) John O’Connell

The Commodity Credit Corporation is a US Department of Agriculture agency. The purpose

This is the set of tariffs established by the members of a c o m m o n m a r k e t or free trade area to apply to goods imported from outside the member countries. Common external tariffs re flect the protectionist needs of all of the trade area’s members. Thus, if one country’s industry was threatened by imports from outside the

58

common law system

trade area, high tariffs would apply to those products in all member countries. The tariffs do not apply between members, just to outsiders. A high tariff would make the member country’s goods more competitive, which would not only keep its domestic demand but also increase the demand from other member coun tries.

as a whole from foreign competition. Common markets also address the standardization of cur rency, product standards, and coordinated fiscal policy to make the market work as if it was one nation instead of many. Many common markets exist around the world. Probably the best known is the e u r o p e a n u n i o n , which has progressed nearer the goal of true freedom of movement and trade than any other common market. Bibliography

common law system John O’Connell

Under this system of law each situation is subject to review based upon the precedents established through prior court rulings and from custom of the country. Although not re stricted to them, common law is found mainly in the English speaking countries. Matters of law and dispute are dealt with by the system employing a judge and jury. Contract interpret ation under common law is many times more liberal than under other systems. Thus, the ter minology used in contractual agreements must be precise and clearly express the intent of the parties. See also legal system Bibliography Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

common market John O’Connell

A common market is a geographic region in which the countries agree to cooperate with one another to further their joint economic interests. Within the boundaries of the common market, countries strive to reduce and eventually do away with barriers to free trade. Major goals of common markets are the elimination of duties, customs delays, and other barriers to the free flow of goods, services, and people between the member countries. Tariff systems may be estab lished to protect common market countries

Springer, B. (1992). The Social Dimension of 1992: Europe Faces a New EC. New York: Greenwood Press. Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

communication John O’Connell

This refers to the ability (or its absence) to transmit information in such a way that the intent of the communication is received by the appropriate person. Communication is not merely writing letters, sending a fax, or even face to face conversation. Writing or speaking are merely means of communication. Great skill is required to formulate information in a way which is understandable to others. Even greater skill is required when communications flow between countries or cultures. Not only must a person communicate his or her own thoughts and feelings, but also the communica tion may be in a different language or to persons with very different educational abilities, and will also be received by persons of different beliefs, values, and attitudes. Education in proper com munication is essential for managerial success. Such education must include communications with diverse work groups and cultures. See also cross cultural communication Bibliography Francis, J. N. (1991). When in Rome? The affects of cultural adaptations on intercultural business negotiations. Journal of International Business Studies, 22 (3), 403 28. Johnson, M. (1992). Cultural Guide to Doing Business in Europe, 2nd edn. Boston, MA: ButterworthHeinemann.

compensation package (expatriate) McLaughlin, M. L., Cody, M. J., and Read, S. (1992). Explaining One’s Self to Others: Reason Giving in a Social Context. Hillsdale, NJ: Lawrence Erlbaum Associates.

community John O’Connell

In the context of the Internet and electronic commerce, this refers to a community of people who participate in an online discussion group or bulletin board, or who return frequently to a website because of a common interest in a given subject. One business strategy developing on the Internet is to create a community and then sell access to the group for marketing purposes.

Compagnie Franc¸aise d’Assurances pour le Commerce Exte´rieure

see c o f a c e

comparative cost advantage John O’Connell

When a country is able to supply one or more of the resources to produce a product at lower prices than other countries, it has a comparative cost advantage. Mexico, for example, has a com parative cost advantage in terms of labor expense when compared to its northern neighbors and the rest of the industrialized nations of the world. Many of the industrialized nations are capitalizing on Mexico’s low wages by building and operating plants on the Mexican border. This helps both the Mexican people and the companies seeking lower costs. The cost advan tage could be in any of the resources necessary for production: labor, energy, raw materials, or other areas. One of the problems with compara tive cost advantages is that they are transient. That is, as Mexico’s economy develops and more companies seek low labor costs, demand will push costs higher. It is also possible that as citizens of Mexico see the money being made

59

by foreign companies, demands will be made to make their wage system equal to that of the home countries of the visiting organizations. There is another aspect of comparative cost advantage that carries with it a great deal of concern. Comparative cost advantage is also present when the cost of complying with regula tions governing an organization’s actions are ex tremely high in the home country whereas those regulations do not exist (or the cost of compli ance is far less) in a host country (see r e g u l a t o r y c o s t a d v a n t a g e ). Current examples of regulatory cost advantage give rise to some serious ethical and/or legal questions. For example, do companies locate in countries be cause laws are less stringent than in the com pany’s home country? Does evidence indicate that companies have left countries because of what they consider an oppressive legal system (e.g., from the United States because of its high cost of litigation, uncertainty, and high liability insurance costs)? Do companies locate in de veloping countries to avoid strict pollution liabil ity regulations and responsibility? Are high levels of taxation for social insurance and pen sion plans driving companies to other countries? Questions such as these are common. The answer to each is probably ‘‘yes.’’ One must remember, though, that monetary rewards for taking advantage of regulatory cost advantages are probably only temporary as environmental legislation sweeps the globe and countries realize the long term effects of their legal systems. Whether to take advantage of cost advantages may actually be more of an ethical decision on the part of a company instead of a financial one. Bibliography Davis, K. and Blomstrom, R. L. (1975). Business and Society: Environment and Responsibility, 3rd edn. New York: McGraw-Hill.

compensation package (expatriate) John O’Connell

The total of various types of compensation which are paid to an e x p a t r i a t e . The package can include the employee’s b a s e s a l a r y , plus

60

compensation package (expatriate)

differentials for housing, home leave, children’s education, auto allowance, and other benefits. The package compensates the expatriate for work performed as well as the inconvenience of moving and working overseas. Compensation packages may include a number of different categories of payments or benefits. A list of common categories of pay or other compensa tion provides an idea of the variety of costs or expenses which may be incurred by an expatri ate, as well as the immense cost frequently asso ciated with sending an employee overseas. The following list is arranged alphabetically with the terms commonly used in international human relations management. Some terms are narrowly defined, while others are quite broad and overlap with others on the list. Base salary. An expatriate’s base salary is the comparable salary for the same work and position as would be paid in the expatriate’s home country. Adjustments are made to the base salary for expenses, inconveniences, and hardships encountered in the host country. 2 Benefit allowance. An employee may receive additional payments from the employer with which to purchase insurance or other types of benefits. Expatriates also receive such payment although the benefits purchased may be different from those normally obtained in the home country. For example, education expenses for private schooling for children may seem an appropriate benefit overseas, but left unfunded by the employer while in the home country. 3 Completion allowance. Sometimes referred to as a completion bonus, this payment is offered an employee as incentive to stay the full time period of the a s s i g n m e n t . An employee may encounter situations of such inconvenience, hardship, or danger that em ployers have difficulty with employees re questing early departure from assignments. The completion allowance is a reward which is offered to the employee, but is actually paid at the end of the normal assignment period (or at other times if agreed upon be tween employer and employee). 4 Cost of living allowance. This is an additional amount of compensation paid to an em ployee on foreign assignment. The allowance

5

1

6

7

permits the employee to maintain the same standard of living in the host country as was normal in the home country. The allowance includes funds for increased costs of food, transportation, housing, and other goods and services. The problem which arises many times, however, is that the quality or quan tity of goods and services normally available is not the same as in the home country. For example, the cost of housing in Japan is far greater than in the United States. A housing allowance would be given to make up for the cost difference, but housing in Japan is nor mally quite small when compared to the United States and can be quite inconvenient for US citizens. Danger pay. Employees may be placed in danger when they are transferred to certain countries because of political unrest, actions of terrorists, active war or insurrection, or public reaction to citizens of specific foreign countries. Some companies will compensate their employees at higher levels when the job places them in extraordinarily high danger. ‘‘Danger’’ pay is given to employees from the time they enter the dangerous country or region until the time they leave. Danger pay may also be referred to as hazardous duty pay. Education allowance. When a person is ac companied by family members on an over seas assignment special arrangements can be made for the children’s education. Differ ences exist in educational facilities and pro grams throughout the world. To exactly match the needs of a child in two different countries may be difficult. An education al lowance provides funds which may be used to provide special education opportunities or enroll a student in private school. In this way the child’s educational progress will be affected as little as possible by the move to a foreign country. Enroute expenses. Travel expenses between the home country and the assignment loca tion are referred to as enroute expenses. Enroute expenses include airfare and other transportation expense, meals, hotel costs, tips, and other incidental expenses. Enroute expenses can be very high and should be reimbursed (or better yet, paid in advance) by the employer.

compensation package (expatriate) 8 Expatriate differential. Companies often pay (or make available as a benefit) an extra amount of compensation to expatriates to make up for the inconvenience and extra problems associated with living outside of one’s own country. The differential makes up for higher housing costs, education for children, leasing an automobile, or other costs. The differential ceases to be paid when the expatriate returns to the home country. Sometimes this causes problems with living standards because often the same amount of money purchases so much more overseas than in the employee’s home country. The expatriate literally suffers a reduced standard of living when returning to the home country. 9 Fringe benefits. These are items of indirect compensation provided to employees. Fringe benefits include insurance (life, health, disability, dental, legal services, and others are available), company sponsored education programs, scholarship programs for employees’ children, vacation time, em ployer paid or subsidized lunches, company car, sick leave, retirement programs, and many others, depending upon the country of employment and the agreement with the employer. Fringe benefits are provided for a number of reasons, including (a) incentives for persons to begin and continue employ ment; (b) to increase morale; (c) due to local customs; (d) union agreements. Many fringe benefits also receive favored tax treatment for both the employer and the employee. For example, in the United States employer paid insurance premiums are generally not taxed as income (subject to some specific excep tions) to employees and are deducted as a business expense by the employer. Fringe benefits which are not taxable or taxable at a lower rate for employees (e.g., employer paid life insurance in the United States) are referred to by some people as perqs or perquisites. 10 Furnishing allowance. An amount of money made available to an expatriate to furnish the apartment or home selected in the host country. 11 Hardship allowance. An organization send ing employees overseas may offer additional

12

13

14

15

61

pay for the inconvenience or because the location of overseas employment is con sidered less than desirable. Such pay is often referred to as a hardship allowance. Home leave. Expatriates (including family) are often given paid leave each year to return to their home country. Normally, all expenses of the trip home are paid by the company. Home leaves were developed to allow expatriates and their families to maintain ties with relatives, friends, and others. This eases problems commonly associated with the transition to and from the foreign location. Housing allowance. A common benefit pro vided to expatriates. Housing allowances are provided in several forms: additional salary to help pay housing costs; provision of employer owned housing in the foreign country; and reimbursement (or paid dir ectly to the landlord) of the actual cost of housing incurred by the expatriate. Living allowance. This is an additional amount of compensation to account for additional costs of living in an expatriate’s host country versus the home country. Examples of costs of living which are com monly higher in other countries are food, housing, transportation, and services. If the expatriate would normally take advantage of certain goods and services while in the home country, a living allowance is nor mally provided for those same goods and services in a host country. This is an im portant consideration for an employee con sidering an overseas assignment. It is also important to recognize that the degree or quality of goods or services may also vary and must be taken into consideration as well. Overbase compensation. Base salaries be tween the home country and the host coun try are usually equalized for an expatriate. That is, the pay in the host country would be the same for the same job in the home country. Adjustments in the form of higher pay to offset inconveniences, dangers not occurring in the home country, or longer periods of work (as are expected in some countries) are referred to as overbase com pensation.

62

compensation trade

16 Relocation allowance. A payment given to employees to cover the cost of moving them selves, family, and personal possessions to the site of a foreign assignment. The costs of relocating employees may be quite high depending upon the assignment location. 17 Rest and relaxation leave (R&R). When an expatriate employee is assigned to a location which is exceptionally inconvenient com pared to the employee’s home country (some Middle Eastern oil field locations, for example), companies often pay for a week or two week excursion away from the location to rest and relax. R&R allows employees to reacclimatize themselves in order to avoid burnout. 18 Settling in allowance. Moving to another country normally takes a considerable amount of time and effort before all of one’s personal property and family are settled in a new home. It is common for expatriates to take a minimal amount of personal property when first assigned and live in temporary quarters until suitable permanent accommodation can be found. This is generally a good idea because an expatriate does not always know the nature of the accommodation and cannot make rational decisions about what property to bring, what amount is appropriate, and what will fit into the new living situation. A settling in allowance is an amount of money given to an expatriate for temporary quarters, storage expenses in the new coun try, and other expenses (known and un known) likely to be associated with the initial move to a new country. 19 Travel time. As part of the compensation package, most companies allow an expatriate a specified number of days to travel to their assignment country. Full pay and spe cified expenses are paid during this period of time. It is also very important when comparing average housing, food, or transportation costs between the home and host countries to not only consider the cost differential but also the qualitative dif ferences. For example, the average middle man ager in the United States may have housing costs of $2,000 per month, whereas the Japan assign

ment will have average housing costs of $5,000 per month. What is often overlooked is that the United States housing is a detached home having 3,000 square feet of area, whereas the Japanese home is an apartment having 1,200 square feet of living space. Qualitative differences are import ant and cannot be made up for with additional compensation alone. Bibliography Bird, A. and Dunbar, R. (1991). Getting the job done over there: Improving expatriate productivity. National Productivity Review, spring, 145 56. Black, J. S. and Gregerson, H. B. (1991). When Yankee comes home: Factors relating to expatriate and spouse repatriation adjustment. Journal of International Busi ness Studies, 22 (4), 471 94. Business International Corporation (1982). World Execu tive Compensation and Human Resource Planning. New York: Business International Corporation. Feldman, D. C. and Thomas, D. C. (1992). Career management issues facing expatriates. Journal of Inter national Business Studies, 23 (2), 271 94. Feldman, D. C. and Thompson, H. B. (1993). Expropriation, repatriation, and domestic geographical relocation: An empirical investigation of adjustment to new job assignments. Journal of International Business Studies, 24 (3), 507 30. Harris, J. E. (1989). Moving managers internationally: The care and feeding of expatriates. Human Resources Planning, 12, 49 53. Harvey, M. (1985). The executive family: An overlooked variable in international assignments. Journal of Inter national Business Studies, Columbia Journal of World Business, 785 800. Pulatie, D. (1985). How do you insure success of managers going abroad? Training and Development Journal, December, 22 4. Reynolds, C. (1986). Compensation of overseas personnel. In Handbook of Human Resource Administration, 2nd edn. New York: McGraw-Hill. Toyne, B. and Kuhne, R. J. (1983). The management of the international executive compensation and benefits process. Journal of International Business Studies, 14 (32), 37 50.

compensation trade John O’Connell

When an importer and an exporter agree to exchange specified goods as payment to each

comprehensive export credit insurance coverage other for those goods. The exchange does not have to occur at the same time. This is a form of countertrade. Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

compensatory duty John O’Connell

A reduction in tax for one commodity in exchange for increased taxes on others. A coun try may reduce duties on some imports from a particular country to offset higher duties being paid on other commodities. It is possible that higher duty items are more subject to public scrutiny and thus require the d u t y to remain high. To provide some break to a country’s trading partner, duties on other items may be relaxed. See also concessional duty

compensatory trade John O’Connell

An arrangement in which partial or total pay ment for imports is made in the form of goods or services rather than money. Compensatory trade is another name for c o u n t e r t r a d e . There are a large number of compen satory arrangements, ranging from informal barter between willing buyers and sellers to different types of contractual agree ments between governments or business organ izations.

63

completion allowance John O’Connell

Sometimes referred to as a completion bonus, this payment is offered (and paid when the dur ation of an overseas assignment is completed) to an employee as incentive to stay the full time period of the a s s i g n m e n t . An employee may encounter situations of such inconvenience, hardship, or danger that employers have diffi culty with employees requesting early departure from assignments. The completion allowance is a reward which is offered to the employee, but is actually paid at the end of the normal assignment period (or at other times if agreed upon between employer and employee). See also compensation package (expatriate)

compound duty John O’Connell

A tax placed on imported items, the amount of which is based upon two types of duties: a per centage of the value of the goods (called an a d v a l o r e m d u t y ) and a specific tax per unit (called a specific duty) of the goods (weight, numbers). The sum of these customs taxes is referred to as a compound duty. An example will assist in understanding: Country A assesses a compound duty on imports of car batteries. The duty consists of 10 percent of the value plus $1.00 per battery. A shipment of 100 batteries valued at $2,000 would be assessed at a $300 compound duty (10 percent of $2,000 þ $1.00
100 ¼ $300). Bibliography Nexia International Staff (1994). International Handbook of Corporate and Personal Taxes. New York: Chapman and Hall.

comprehensive export credit insurance coverage

competitive intelligence John O’Connell

John O’Connell

Espionage using legal (or at least not obviously illegal) means.

This insurance provides coverage for losses (above those normally expected in the course of

64

computer emergency response team

business) caused by a buyer failing to make pay ment due to political and commercial risks. Polit ical risks are those associated with acts of government, whereas c o m m e r c i a l r i s k in cludes insolvency of a buyer or other economic reasons for non payment. Another type of loss commonly covered by the broader forms of this coverage is if a foreign buyer cannot convert cur rency in order to make payment to the insured. Coverage is generally very broad, but one cannot rely on the name of an insurance contract (e.g., ‘‘comprehensive’’) to imply coverage. Each con tract must be carefully reviewed in making a purchase decision. See also political risk; political risk insurance

Concessional loans are provided at far lower than market rates for such countries, for longer terms, and with conditions which allow grace periods for payments. Concessional financing is part of the responsibilities normally given to de velopment agencies of various industrialized countries and to local and regional development banks. Loans are commonly given for infrastruc ture projects and agricultural development leading to more self sufficiency for the LDC. Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates. Scharf, T. and Shetty, M. C. (1973). Dictionary of Devel opment Banking: A Compilation of Terms in English, French, and German with Definitions in English. New York: Elsevier Science.

computer emergency response team (CERT) John O’Connell

An organization that studies computer and net work i n f o r m a t i o n s e c u r i t y in order to provide incident response services to victims of attacks, publish alerts concerning vulnerabilities and threats, and offer other information to help improve computer and network security.

confidentiality John O’Connell

This is the need to insure that information is disclosed only to those who are authorized to view it. See also privacy

concessional duty John O’Connell

A d u t y between trading partners which is very low. Concessional duties are also applied by in dustrialized nations to developing nations in order to promote developing country economic growth.

concessional financing John O’Connell

International economic development depends in part upon the willingness of industrialized coun tries to subsidize some of the development efforts of less developed countries (LDCs). One of the ways of accomplishing subsidization of develop ment is to offer loans to LDCs on terms normally not available under usual financing conditions.

confirmed letter of credit John O’Connell

This is a l e t t e r o f c r e d i t guaranteed by the exporter’s bank. This type of letter of credit poses the least risk for the exporter of goods. A bank in the exporter’s own country guarantees payment even if the importer, or the importer’s bank, fails to remit funds to the exporter’s bank. Normally, the exporter’s bank requires the im porter’s bank to deposit funds before the goods are shipped, in order to guarantee payment. Upon presentation of the letter of credit and compliance with all terms of the letter, payment is made to the exporter. If payment is not made by the importer or the importer’s bank, the ex porter’s bank will make payment by virtue of its confirming or guaranteeing the letter of credit.

consolidation Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

65

the buyer or importer of goods, although it could also be an agent who then sells goods on behalf of the owner. Consignees do not take title to goods until they are sold and the purchase price paid to the owner or consignor.

confiscation John O’Connell

This is one of the major political risks faced by multinational enterprises. Confiscation is the tak ing of private property by a government without any offer of compensation. Governments which confiscate privately owned property of foreign organizationsorindividualsusuallyusetheexcuse that the foreign firm was exploiting the host coun try or that relations between the governments are too strained to allow any representative of the foreign country to continue in business. p o l i t i c a l r i s k i n s u r a n c e may be purchased to protect against confiscation of property. See also political risk

consignment John O’Connell

Consignment is a process through which an owner of goods (c o n s i g n o r ) transfers them to an agent (c o n s i g n e e ) who is then respon sible for selling the goods to others. In inter national trade, consignment is actually a method of financing import transactions. The exporter of goods (consignor) transfers goods to an importer (consignee) who then sells the goods. When the goods are sold the proceeds are divided between the agent (a commission for selling the goods) and the exporter (the bal ance of the amount paid).

Bibliography Coplin, W. D. and O’Leary, M. K. (1994). The Handbook of Country and Political Risk Analysis. New York: Political Risk Services. Howell, L. D. (1994). The political sociology of foreign investment and trade: Testing risk models for adequacy of protection. AGSIM Faculty Publication, No. 94 05.

consign

consignor John O’Connell

A consignor is the owner of goods which are trans ferred to another party (the c o n s i g n e e ) for future sale. Title to goods normally remains with the consignor until goods are sold. The consignee receives a commission from the sales and the consignor receives the balance of the sales price.

John O’Connell

To consign is to place goods into the hands of another party. In international trade that other party is normally a carrier who is to deliver the goods to a specified destination and party. A b i l l o f l a d i n g or other transit or sales document usually specifies the name of the owner and pur chaser of goods, as well as the carrier involved.

consignee John O’Connell

A consignee is the party to whom goods are sent. In international trade the consignee is usually

consolidation John O’Connell

The combination of goods into a single ship ment. A producer of goods will often not have sufficient quantity to take advantage of the lowest transportation rates (full carload or full container). Reduced costs might be achieved if producers could coordinate the shipping of goods so that the combined amount shipped is eligible for lower rates. The combining of goods from several producers is referred to as consoli dation. The process of consolidation could take place through agreements between producers

66

consul

and also through specialists called freight for warders or freight consolidators.

consul John O’Connell

A consul is a person sent to a foreign country by a government to represent the personal and busi ness interests of citizens of the home country. In this capacity, a consul often is involved in answering questions regarding business oppor tunities in the host country in the hopes of fostering increased imports. Consuls are very im portant contacts in foreign countries because of their knowledge of commercial regulations as well as the business needs of the host country. Consuls will also address questions regarding home coun try citizens’ rights, as well as assisting with travel papers, etc. needed by citizens of the home coun try. Consuls are often referred to as a t t a c h E´s .

consul general John O’Connell

A government official stationed in a major com mercial center outside of his or her own country. A consul general is in charge of other consuls located in other offices in that same country.

to the export’s movement to another country by a c o n s u l representing the importing country. The invoice includes the type of property, the property value, the origin of the property, the destination, and the method of transport. Con sular invoices are required in many transactions. They allow a country to keep concise records of imports as well as to make certain that what is sent is what was described in the invoice. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

consularization John O’Connell

Consularization is the process of stamping docu ments or translations with the official seal of an embassy or c o n s u l a t e of a country. Often, documents must have an official government seal to be accepted as valid. Documents which are commonly stamped are college records of persons seeking to continue school overseas, birth certificates, translated contracts, and other personal records.

See also consul consulate John O’Connell

consular declaration John O’Connell

A written description of exports being shipped to another country. The description is made by a c o n s u l representing the importing country. A more detailed description of the entire export transaction isincluded inac o n s u l a r i n v o i c e .

A government office located in a foreign country with responsibility for acting on behalf of the business interests of the home country. It is a very important contact point for domestic busi ness seeking to expand internationally.

containerization John O’Connell

consular invoice John O’Connell

An official statement outlining the details of an export transaction. The invoice is created prior

Containerization refers to the process of placing goods in containers for shipment. A container is a specially designed metal box used to ship goods without the necessity of unloading each of the

context items in the box each time the container is moved from one transportation mode to another. Specially designed, watertight metal containers are used for shipping over the seas. The same container can be shipped by rail, truck, and ship without the necessity of unpacking. Containers capable of being transferred between different types of transportation systems are called inter modal containers. When a container is carried by rail it is often referred to as container on flatcar or COFC. A container ship is a ship specially designed and outfitted to carry containers. This type of ship has become the major method of transporting finished goods by water.

context Jeanne McNett

The term context is used in several ways in inter national management. First, in the more general way, context describes the environment around a specific focus, such as change or global teams. In this sense, context describes the geographic area, business conditions, cultural assumptions, and unique history. Some of the dimensions of con text are climate, nationality, education, politics, judicial systems, economic systems, corporate governance, management systems, and incentive, motivation, and reward schemes. Multiple con texts offer challenges to the process of change and to team formation. In a global environment, members frequently have to cross contexts in order to accomplish their tasks. The greater the number of contexts involved, the more complex the work becomes. Context also is used more specifically to de scribe the communication process environment across cultures. Cultures vary to the extent that they use language itself and not its environment to convey meaning. E. T. Hall (1976) describes the role of context in c o m m u n i c a t i o n across cultures on a scale from low to high. l o w c o n t e x t communication relies on explicit verbal messages to convey meaning, whereas h i g h c o n t e x t communication relies on the physical context or is internalized in the communicators; very little of the intended meaning is in the explicit, language part of the message. High context communication involves multi layered

67

contexts (historical context, social norms, roles, situational and relational contexts), and the lis tener is expected to understand the nuances of the implicit messages. In low context communi cation, the sender of the message has to transmit a clear, explicit message that the listener can decode (Thomas and Osland, 2004). The concept of context is extended to de scribe cultures. High context tends to be found in c o l l e c t i v i s t c u l t u r e s such as in Latin America and Asia. Low context tends to be found in individualist cultures such as Germany, Switzerland, and the US. In international management context plays an important role, yet may not receive the attention it merits from the novice international manager, since it represents a new set of signals and mes sages to which the novice international manager may not be in the habit of paying heed. Bibliography Doz, Y., Santos, J., and Williamson, P. (2001). From Global to Metanational. Boston, MA: Harvard Business School Press. Gluesing, J. and Gibson, C. (2004). Designing and forming global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gudykunst, W. B., Ting-Toomey, S., and Chua, E. (1988). Culture and Interpersonal Communication. Newbury Park, CA: Sage. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Hall, E. T. and Hall, M. R. (1995). Understanding Cultural Differences. Yarmouth, ME: Intercultural Press. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Osland, J. S. and Bird, A. (2000). Beyond sophisticated stereotyping: Cultural sensemaking in context. Acad emy of Management Executive, 14, 65 77. Thomas, D. and Osland, J. (2004). Mindful communication. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Ting-Toomey, S. (1999). Communicating Across Cultures. New York: Guilford Press. Trompenaars, F. and Hampden-Turner, S. (1998). Riding the Waves of Culture: Understanding Cultural Diversity in Global Business, 2nd edn. New York: McGraw-Hill.

68

contraband

contraband

contract manufacturing John O’Connell

John O’Connell

Contraband refers to goods which are forbidden by a government to be held in the country, produced, exported, or imported. Probably the most widespread type of contraband in today’s world are illegal narcotic drugs. Different coun tries have different laws pertaining to what con stitutes contraband and the penalties associated with possessing such goods in that country. In many countries pornographic material is con sidered to be contraband, while in others it is not. Possession of alcohol will cause a person problems in some countries, while in others the laws are more forgiving. Possession of a small amount of illegal narcotic drugs is punishable by death in Malaysia and by a jail term in the United Kingdom. It is very important for persons traveling to other countries to be aware of the local laws and the penalties for breaking those laws. The same awareness must be exhibited by international organizations in their training of employees to be assigned overseas or even when going on short business trips. Failure to inform employees of additional dangers (different laws concerning contraband) may make an employer partially responsible for problems which result for both the employee and the organization. e x p a t r i a t e family members must also be made aware of the rules of the host country.

A method of entering a foreign market in which a company uses manufacturers in foreign countries to make (or assemble) their product and distribute it through the foreign manufacturer’s existing marketing channels. Thus, entry to the country is achieved with the assistance of local companies using proven marketing channels. Although the cost of this type of method is usually a substan tial portion of the product revenues, it allows a company to test the market for its goods and become more familiar with doing business overseas.

Bibliography Sarachek, B. (1994). International Business Law: A Guide for Executives With Case Examples. Pennington, NY: Darwin Press. Torbiorn, J. (1982). Living Abroad. New York: John Wiley.

See also market entry strategies Bibliography Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins.

contract of affreightment John O’Connell

When goods are to be transported over water, a vessel operator must agree to provide sufficient space on a vessel (ship, barge, etc.) at a specific point in time. A contract of affreightment is a contract between the owner of goods and the vessel operator. The contract details the terms of the transport agree ment.

contract of carriage John O’Connell

contract frustration John O’Connell

A British term for c o n t r a c t r e p u d i a t i o n or the default on the payment of a contractual obligation on the part of a foreign government. See also political risk

An agreement between an owner of goods and a carrier which leads to the transportation of goods. The contract generally includes all of the details of the transit transaction (such as destination, type of goods, values, cost of shipping, and responsibilities for damaged goods).

convertibility contract repudiation

69

Bibliography

John O’Connell

From time to time a contractor will enter into a contract with a foreign government only to find that the contract cannot be fulfilled. This may be because the government terminates the contract without showing cause, refuses to pay for de livered goods, cancels the contractor’s license to operate, or otherwise causes cancellation of the contract. Contracts with private buyers are sub ject to the same set of circumstances, although legal remedies may be available which are lacking when dealing directly with government con tracts. Although most contracts are fulfilled with out problem, a sufficient number are not honored to support the growth of a specific type of insur ance to protect against contract repudiation. See also contract repudiation coverage; political risk; political risk insurance

Coplin, W. D. and O’Leary, M. K. (1994). The Handbook of Country and Political Risk Analysis. New York: Political Risk Services.

convention John O’Connell

In international business, the term con vention usually refers to an agreement made between countries. Thus, the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter is an ‘‘agreement’’ which forbids the dumping of pollutants into the sea from a ship or an aircraft. The United Nations refers to most of its major agreements as conventions.

conversion

see f o r e i g n e x c h a n g e

contract repudiation coverage John O’Connell

This type of p o l i t i c a l r i s k i n s u r a n c e provides coverage for non compliance with con tracts by a foreign government. An insured doing business with a foreign government faces the risk that the government will not comply with the contract, thereby causing loss to the insured. For example, a building construction contractor expects to be paid when the building is completed, but may not if the government terminates the contract or makes it impossible for the contractor to complete the project on schedule, thereby forcing a default. Insurance against contract repudiation commonly provides coverage for unilateral government termination of a contract without cause, non payment by a government for service or other contracts, license termination which forces the company to default, embargoes which make completion impossible, and other government actions as outlined in each policy. Some insurers will also offer coverage for war risk. See also political risk

convertibility John O’Connell

The ability to exchange one currency for another. In international business the convert ibility of currency cannot be taken for granted. Some countries will not allow conversion of cer tain currencies, while others may institute re strictions ‘‘after’’ a foreign organization has begun operations. Insurance is available against two convertibility problems: (1) a currently con vertible currency becoming inconvertible; (2) long administrative delays in allowing con vertibility. See also inconvertibility of currency coverage; pol itical risk insurance Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

70

convertible currencies

convertible currencies

cooperative exchange agreements John O’Connell

John O’Connell

Currencies which may be easily exchanged for other currencies are considered con vertible.

One of the most important agreements which must be carried out between members of a c o m m o n m a r k e t or other regional economic development association. Cooperative exchange agreements attempt to reduce and eventually remove restrictions to currency exchanges; for example, between a common market’s member countries. Freedom from government imposed restrictions or b a r r i e r s will normally lend more stability to all of the currencies of member nations. This in turn will promote additional trade within the market as well as increased cooperation among member nations. Through the European Monetary System the e u r o p e a n u n i o n has progressed successfully along the lines of cooperative exchange agreements. As a result, 12 EU member countries now have a single currency, the Euro.

See also convertibility

cookie John O’Connell

A capability of Web browsers which allows Web servers to store information about user visits to the website on the hard disk in the user’s PC or workstation. Because it can be useful to identify repeat visitors the cookie allows on the fly cus tomization of a website to feature items the user showed an interest in during previous visits. The cookie also allows a Web server to track the sequence of a session on a website, including how long a user spent on each Web page. While it is a boon to marketing on the Web, the cookie raises some p r i v a c y issues because it removes some of the traditional anonymity associated with viewing websites and uses a small portion of a user’s hard disk. As con sumers we should be wary of what is being stored.

Bibliography Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

coordination center John O’Connell

cooperation agreement John O’Connell

When there is a need in one country for resources in order to produce products and the availability of those resources in another country a cooperation agreement may be in order. For example, country A needs electrical power to produce clothing; country B has excess electrical power but needs clothing. An agreement is made for country B to supply power in return for future pay ment in clothing that country A is then able to produce. See also barter

A financial clearing house to handle the needs of an organization. A coordination center is usually located in a tax haven or other site which offers low operating costs and favorable tax regula tions. The center is a centralized finance and planning unit with responsibility for handling financial transactions of a region or worldwide operations of the company; providing a central location for all administrative processes of the company (accounting, information systems, in surance and self insurance administration, and other administrative activities); and the planning function related to all of its activities. Bibliography Celi, L. J. and Rutizer, B. (1991). Global Cash Manage ment, 1st edn. New York: Harper Business.

cost and freight – named port of destination copyright John O’Connell

Protection for written or artistic work given by a government for a specific period of time. Items subject to copyright are literary works, works of art, musical scores, stories or words to a song, labels, and other written works. It is very common for citizens of some countries to use copyrighted works without authorization from the copyright holder. The unauthorized use is commonly referred to as pirating or copying and is illegal in most countries of the world. Pirating of copyrighted works costs copyright holders billions of dollars in lost revenues each year. Any holder of a copyright should strongly con sider protecting that right in as many countries as possible. Several international agreements have been reached which protect copyrights and other intellectual property rights (this term also includes patents and other rights as well). See also Berne Convention for the Protection of Literary and Artistic Works; universal copyright convention

71

culture. This virtually guarantees the continu ance of the culture. International organizations sometimes run into problems when they attempt to extend their corporate culture to overseas operations. Conflict may occur between the corporate cul ture and that of the host country culture. Com panies which have carried out international operations over extended periods of time gener ally begin to see their corporate culture become more cosmopolitan. Bibliography Deal, T. E. and Kennedy, A. A. (1982). Corporate Cul tures. Reading, MA: Addison-Wesley. Hofstede, G. (2001). Culture’s Consequences: Com paring Values, Behaviors, Institutions, and Organi zations Across Nations, 2nd edn. Thousand Oaks, CA: Sage.

corruption John O’Connell

A threat or action that undesirably alters system operation by adversely modifying system func tions or data. corporate culture John O’Connell

Corporate culture is defined as the set of common values, attitudes, and behaviors which are perceived as being those of the or ganization. As with other cultures, corporate culture is taught to employees both explicitly and by example. Corporate values and attitudes include ethical standards, flexibility of manage ment, creativity of employees, concern for public welfare, and the need for compliance with the law. It is expressed in a number of ways: the facilities of an organization (show places of modern construction or traditional office structures); the way employees dress (for mally or informally); availability of manage ment (open door or three week appointments). Organizations generally attempt to hire those individuals who fit well into their corporate

cost and freight (CFR)

named port of destination John O’Connell

CFR is a trade term. It describes when the seller is responsible for all inland costs and freight charges in the seller’s country, the cost of loading vessels, and for ocean or air freight charges necessary to bring goods to a specified port of destination. The buyer is responsible for arranging and purchasing export insurance, import duties, and inland freight charges in the buyer’s country. Title of the goods passes when the goods cross the rail of the ship while being loaded for shipment to the buyer. The seller is responsible for securing the export license and the buyer the import license. This term is used only for sea and inland waterway transport. CFR is an i n c o t e r m .

72

cost differential

Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

home country. For example, the cost of housing in Japan is far greater than in United States. A housing allowance would be given to make up for the cost difference, but housing in Japan is normally quite small when compared to the United States and is often quite inconvenient for US citizens.

cost differential

see c o s t o f l i v i n g a l l o w a n c e

See also compensation package (expatriate) Bibliography

cost, insurance, and freight (CIF) John O’Connell

This is a trade term. CIF means that delivery takes place when the goods pass the ship’s rail. The seller is responsible for inland freight charges in the seller’s country, the cost of loading the vessel, all ocean/air freight charges, and the se curing and cost of export insurance. The buyer is responsible for unloading the vessel, import duties, and inland freight charges in the buyer’s country. Title of the goods passes when the goods cross the ship’s rail in the initial loading for export. The seller has the responsibility for secur ing the export license and the buyer the import license. This term is used only for sea and inland waterway shipments. FIC is an i n c o t e r m . Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

Golding, J. (1993). Working Abroad: Essential Financial Planning for Expatriates and Their Employers. Plymouth: International Venture Handbooks.

cost-per-click (CPC) John O’Connell

A method of charging for b a n n e r advertise ments on the Web on the basis of how many viewers click on the ad, rather than charging on a flat rate basis for the advertising space. The CPC model is generally considered to favor ad vertisers rather than publishers because it ignores the brand building value of an ad that is seen but not clicked on, generally gives the publisher no control over the content and ap pearance of the ad, and may require the pub lisher to allocate space to poorly performing ads until the contracted number of clicks have been achieved.

counterfeit

see p i r a c y

cost of living allowance John O’Connell

An additional amount of compensation paid to an employee on foreign a s s i g n m e n t . The allow ance permits the employee to maintain the same standard of living in the host country as was normal in the home country. The allowance in cludes funds for increased costs of food, transpor tation, housing, and other goods and services. The problem which arises many times, however, is that the quality or quantity of goods and ser vices normally available is not the same as in the

counterpurchase agreements John O’Connell

Two purchase contracts are agreed to by buyer and seller. Buyer agrees to purchase goods or services at a specified price (contract number one). Seller agrees to purchase a certain value of goods from buyer over a given period of time (contract number two). Contract number one is not valid unless contract number two is accepted

countertrade and signed. Thus, all or part of the sales price of the original goods or services is paid for with other goods or services.

4

See also countertrade

countertrade John O’Connell

An arrangement in which partial or total payment for imports is made in the form of goods or ser vices rather than money. Countertrade is also sometimes referred to as compensatory trade. There are a large number of countertrade arrangements ranging from informal b a r t e r between willing buyers and sellers to a number of different types of contractual agreements between governments or business organizations. Countertrade takes place for a number of reasons. There may be little or no currency available, unstable governments make currency difficult to exchange, or currency restrictions may be in effect. In these situations a number of countertrade scenarios may be appropriate. The following is a list of some of the more common types of countertrade. 1 Buy back. An agreement between an exporter of capital goods (e.g., processing equipment to be used by the buyer to produce a finished product) to accept future payment for those goods in the form of the finished product of the buyer. 2 Compensation trade. When an importer and an exporter agree to exchange specified goods as payment to each other for those goods. The exchange does not have to occur at the same time. 3 Cooperation agreements. When there is a need in one country for certain resources in order to produce products and there is availability of those resources in another country a c o o p e r a t i o n a g r e e m e n t may be in order. For example, country A needs elec trical power to produce clothing and country B has excess electrical power but needs clothing. An agreement is made for country B to supply power in return for future pay

5 6

73

ment in clothing that country A is then able to produce. Counterpurchase agreements. Two purchase contracts are agreed to by buyer and seller. The buyer agrees to purchase goods or ser vices at a specified price (contract number one). The seller agrees to purchase a certain value of goods from the buyer over a certain period of time (contract number two). Con tract number one is not valid unless contract number two is accepted and signed. Thus, all or part of the sales price of the original goods or services is paid for with other goods or services. Offset trade. When an importer pays an exporter with goods or services. Switch trade. A situation in which an im porter is contractually bound to complete the purchase of goods from an exporter. The importer for some reason cannot fulfill its contract and instead ‘‘switches’’ the con tract to another importer who then fulfills the remaining portion of the contract. Switching many times involves several im porters who may pay in currency or in goods. Exporters allow switching to occur in order to complete the countertrade transaction.

The above are all examples of trade in which countertrade plays a role in an international trade transaction. Countertrade is an important facet of world commerce and should be considered by companies seeking to do business with organiza tions or governments of countries in which ap propriate currency is blocked or in short supply. Countertrade may also be a way of turning what otherwise may be a bad loan or unpaid transaction into something of potential value. Bibliography Czinkota, M. R., Rivoli, P., and Ronkainen, I. A. (1989). International Business. Chicago, IL: Dryden Press. Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin. Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill.

74

countervailing duty

countervailing duty (CVD) John O’Connell

When a foreign government provides subsidies for the production of goods, those goods can be exported at low sale prices. In an attempt to offset the impact of exporting country subsidies, importing countries often attach a special d u t y to counter the low import price (thus, the name countervailing duty). The CVD raises the price of the import, thereby reducing the competitive effects of the export country’s original govern ment subsidy.

country of origin John O’Connell

This term can refer to two different things: (1) in international trade, the country of origin refers to the place where production originally took place. Country of origin is important be cause different rules may apply to imports from different countries. For example, goods from one country may be banned because of political problems between countries or different amounts of import duty may apply to goods from different countries. Country of origin nor mally must be prominently displayed on the goods themselves as well as on the shipping papers (see m a r k i n g ); (2) the country from which an e x p a t r i a t e comes is also referred to as the country of origin. After the a s s i g n m e n t is completed it is also the country to which the expatriate is expected to return.

country risk John O’Connell

The financial risk associated with conducting a transaction with or in a country with weak or unstable economic, political, or social systems. The degree of country risk is not subject to exact measurement, but instead must be inferred through the evaluation of a number of factors. These factors include: 1

Economic stability. The degree to which the performance of the country’s economy is

2

3

positive and can be expected to remain so. Factors associated with economic stability include inflation rates, balance of payments, public debt, private debt, stability of monet ary system, interest rates, currency values, industrial base, reliance of foreign invest ment or imports, and others. Political stability. Stability of the current government, wars, rebellions, strong oppos ing parties, terrorism, strong labor unions, type of government, relations with neighbor ing countries, and others. Social stability. Level of education, religious affiliations, l e g a l s y s t e m , class systems, poverty level, strong culture, and others.

Country risk adds to the overall degree of risk associated with doing business in a foreign coun try. Most companies today review, in some manner, the degree of country risk before they become committed to interaction with a given country. See also political risk Bibliography Cosset, J. and Roy, J. (1991). The determinants of country risk ratings. Journal of International Business Studies, 22 (1), 135 42. Doz, Y. L. and Prahalad, C. K. (1980). How MNCs cope with host government intervention. Harvard Business Review, March April, 150. Gregory, A. (1989). Political risk management. In A. Rugman (ed.), International Business in Canada. Scarborough, Ontario: Prentice-Hall, 310 29. Kennedy, C. R., Jr. (1991). Managing the International Business Environment: Cases in Political and Country Risk. Englewood Cliffs, NJ: Prentice-Hall. Kenyon, A. (1990). Currency Risk and Business Manage ment. Cambridge, MA: Blackwell. Rogers, J. (1986). Global Risk Assessments: Issues, Concepts, and Applications. Riverside, CA: Global Risk Assessments.

country risk assessment John O’Connell

An attempt to evaluate the extensiveness of eco nomic, political, and social risks associated with a particular country or region of the world. Risk

CPM: cost per thousand assessment allows management to estimate the potential impact of country risk on their activ ities in the country. The greater the country risk, the greater the return that should be expected from an investment or loan. The factors associ ated with country risk are very similar to those associated with what is referred to as p o l i t i c a l r i s k . This is because many of the con tributing factors to country risk result in government action to resolve problems. Political risk is the impact of government action on an organization’s assets and its ability to continue operations. See also political risk assessment Bibliography Coplin, W. D. and O’Leary, M. K. (1994). The Handbook of Country and Political Risk Analysis. New York: Political Risk Services. Cosset, J. and Roy, J. (1991). The determinants of country risk ratings. Journal of International Business Studies, 22 (1), 135 42. Howell, L. D. (1994). The political sociology of foreign investment and trade: Testing risk models for adequacy of protection. AGSIM Faculty Publication, No. 94 05.

court of arbitration John O’Connell

One of the major problems associated with inter national transactions is knowing what to do if a dispute arises between companies from different countries. Many companies attempt to reduce the time and expense related to this type of problem by agreeing ahead of time that disputes will be handled through a r b i t r a t i o n . The major source of arbitration assistance inter nationally is the i n t e r n a t i o n a l c h a m b e r o f c o m m e r c e (ICC). The ICC established the International Court of Arbitration, which acts as the decision making body in arbitration matters. The court hears matters which are voluntarily placed in front of it by parties in dispute. The parties must agree before they begin their busi ness relationship to abide by the decisions of the arbitration process specified in their contract. Access to the court may be achieved by contact ing the International Chamber of Commerce. The court itself is located in Paris. Bibliography Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

country similarity theory John O’Connell

The conduct of trade is dependent upon there being a supply of goods and services and a cor responding demand for those (or similar) goods and services. The country similarity theory states that countries having the most similarities with one another (degree of industrialization, per capita incomes, savings habits, communica tions and transportation systems, degree of tech nology, language, etc.) will be the most likely to trade with one another. This rather logical theory is based upon the premise that similar countries will be interested in similar goods and services. Not a devastatingly scientific theory, it is one which at least points to specific countries as being good candidates for a com pany’s first foray into international trade. It ignores opportunities in developing economies as well.

75

Court of Justice

see e u r o p e a n c o u r t o f j u s t i c e

CPA: cost per action

see c l i c k t h r o u g h r a t e

CPC

see c o s t p e r c l i c k

CPM: cost per thousand

see c o s t p e r c l i c k

76

CPT

CPT

see c a r r i a g e p a i d t o

cre´dit mixte John O’Connell

A French term meaning that the financing pro vided for an export transaction comes from two sources: normal bank lines of credit and govern ment assistance funds.

goods. International credit insurance resembles credit insurance secured for an exporter’s do mestic credit risk. That is, the price of insurance generally is dependent upon the insured’s credit policies, amounts outstanding, and past credit history. This type of insurance is underwritten very differently from other insurances. With credit risk insurance the insured’s financial con dition, financial management, and credit policies provide the basis for pricing and issuing the insurance contract. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

credit protocol John O’Connell

This is an agreement between credit granting agencies in two countries to each provide credit to importers from the other country. When a company is involved with numerous import transactions it is time consuming and sometimes costly to arrange for the transfer of currency for each separate transaction. A simpler way of financing purchases in another country is for the trade financing agencies of both countries to agree that the company in country A can use the credit available from the agency in country B to finance its purchases. This allows the company to arrange for financing in the foreign country rather than in its own country – a much simpler process. The agreement between credit granting agencies is essentially a guarantee of the private company’s borrowings from the foreign credit granting agency.

credit risk insurance

creeping expropriation John O’Connell

Expropriation involves government action to seize the assets of a foreign entity. Expropriation infers a quick action by government. Creeping expropriation, on the other hand, involves the gradual removal of property rights from a for eign entity. Creeping expropriation could take many forms: gradual increases in tax rates on profits which eventually make a business un profitable to operate; instituting ever increasing barriers to removing profits or dividends from the country; gradually increasing property tax rates for foreign companies; changing the per centage of ownership which must be held locally; as well as many other actions. Creeping expro priation takes place over the long run and is generally not subject to p o l i t i c a l r i s k i n s u r a n c e compensation. See also political risk

John O’Connell

Insurance which protects against a borrower de faulting on a debt to the insured. International trade is commonly carried out with some form of credit being advanced by the exporter to the importer. Credit insurance reimburses the ex porter if the importer fails to pay for the ordered

Bibliography Coplin, W. D. and O’Leary, M. K. (1994). The Handbook of Country and Political Risk Analysis. New York: Political Risk Services. Gregory, A. (1989). Political risk management. In A. Rugman (ed.), International Business in Canada. Scarborough, Ontario: Prentice-Hall, 310 29.

cross-cultural communication CRM

see c u s t o m e r r e l a t i o n s m a n a g e m e n t

2

cross-cultural communication John O’Connell

Communication between cultures is one of the greatest challenges facing an international man ager. Not only does the manager face the normal problems of creating a concise and clear commu nication, but also the communication must be accomplished in the context of another culture. The following discussion reviews a number of areas which must be considered in order to con duct successful cross cultural communication. 1 The medium of communication. The medium is the method by which a message is sent. Mediums of communication include writing (notes, email, annual statements, letters, etc.), speaking (telephone, videotape, public address system, face to face conversation, etc.), b o d y l a n g u a g e , tone of voice (high anxious tone, soft, aggressive and loud), depicting a message in pictures (dir ections for use, signs, etc.), or any combin ation of media. A very important aspect of cross cultural communications is knowledge of which medium is acceptable for different situations. For example, is a note sufficient to convey a message or do the formalities of a culture require a face to face meeting? Sending a note may be taken as a rude ap proach from someone who does not want to face the person receiving the message. On the other hand, a face to face meeting when a simple note would convey the same mes sage may place more importance on the com munication than intended by the sender. The medium used depends on a number of factors, including: large or small audience; how quickly the message must be sent; dis tance of communication (across the room or to another country); intent of message (good news or downsizing of the organization); legal considerations (contracts, hiring/ firing); simple or complex message; message

3

77

content needed in future; and the availability of various communications media. The information intended vs. the information received. People normally feel that communi cation is successful when the person receiving the message does not have any questions or does not express any concern over the mes sage’s content. If the sender delved further into the reasons that no questions were asked or concerns expressed he or she may find one or more of the following had occurred: the receiver did not understand the message suf ficiently to respond in any manner; the re ceiver felt the message content was irrelevant and chose to ignore it; the message was unim portant and did not affect the receiver; or any number of other misinterpretations which occur during the process we call c o m m u n i c a t i o n . When developing information to be included in a communication the sender must take into consideration the audience (education level, cultural values, need for dir ection as well as acceptance of direction from superiors, etc.). The challenge in cross cul tural communication is to make certain that the message is received in the way intended. This requires a great deal of understanding on the part of the sender of the receiver’s cultural background and current situation. Failure to have knowledge of the parties who receive messages will virtually insure miscommunication. The message will be too intricate, too simple, or irrelevant to some or all of those to whom it is transmitted. The result will be that the message is not under stood (too intricate), people feel talked down to (too simple), or the message is not taken seriously (felt to be irrelevant). Timing of communications. Determining the appropriate time for communicating certain ideas is extremely important for successful cross cultural communications. Some cul tures desire to discuss work only at work and leave the rest of the time for family and friends. Japanese managers may allow them selves to have fun after work but rarely on the job. Social occasions are just that in many countries, whereas in the United States social occasions are commonly the site of business

78

4

cross-cultural training contacts. The first time one meets a Middle Eastern business person is not the time to get right to business discussions, as relationship building and trust are important precursors to business activity. Even important commu nications must be relayed at the appropriate time or their import may be overshadowed by the bad timing of the message. Who communicates. One of the problems inter national managers have is that they are unfamiliar with communication patterns in different cultures. Cultures in which relation ship building is important may not allow a business discussion to take place between the company president and an unknown rep resentative from another company. Instead, a lower level manager or representative will act as a go between. The importance of a message will often dictate who the communicator will be. For example, when Johnson and Johnson had a problem with Tylenol, which had been tampered with, the head of the company appeared on television. This showed the im portance of the message to the consuming public. If a middle manager had made the recall announcement its impact would not have been as great.

When communicating across cultures it is im portant to know the expectations of all parties to the communication: expectations as to the proper wording, timing, place of communication, sender of the message, and appropriate medium of com munication. If the timing, wording, sender or receiver, medium, or any of a number of other important considerations is inappropriate, the communication has a good chance of failing. Bibliography Black, J. S. and Mendenhall, M. (1993). Resolving conflicts with Japanese: Mission impossible? Sloan Man agement Review, spring, 83. Brislin, R. W. (1981). Cross Cultural Encounters. New York: Pergamon. Evans, W. A., Sculli, D., and Yau, W. S. L. (1987). Crosscultural factors in the identification of managerial potential. Journal of General Management, 13 (1), 52 7. Francis, J. N. (1991). When in Rome? The affects of cultural adaptations on intercultural business negotiations. Journal of International Business Studies, 22 (3), 403 28.

Hayes, J. and Allison, C. W. (1988). Cultural differences in the learning styles of managers. Management Inter national Review, 28 (3), 75 80. Moran, R. (1988). Venturing Abroad in Asia: Complete Business Traveller’s Guide to Cultural Differences in Eleven Asian Countries. New York: McGraw-Hill. Moran, R. T. (1994). NAFTA: Managing the Cultural Differences. Houston, TX: Gulf Publishing. Terpstra, V. and David, K. (1985). The Cultural Environ ment of International Business. Dallas, TX: SouthWestern.

cross-cultural training John O’Connell

Cross cultural training is designed to help people become more aware of the differences between cultures throughout the world. An understanding of the differences makes employ ees more sensitive to the values, wants, and needs of others. Such an awareness can make manage ment more effective and employees more pro ductive in jobs located either in other countries or involving contacts with other countries. Fric tion associated with workforce diversity may also be reduced through cross cultural training. Cross cultural training is commonly carried out in the following ways: (1) lectures by persons familiar with different cultures; (2) awareness training in which employees are exposed to the values and behaviors found in a particular cul ture; (3) experiential training through field trips, role playing, or country visits; (4) attribution training to assist in developing an understanding of why people act or do things in the way they do; (5) behavior modification training to allow employees to understand the reward and pun ishment systems in another country. See also expatriate training Bibliography Alkhafaji, A. F. (1990). International Management Chal lenge. Acton, MA: Copley. Evans, W. A., Sculli, D., and Yau, W. S. L. (1987). Crosscultural factors in the identification of managerial potential. Journal of General Management, 13 (1), 52 7. Ferraro, G. P. (1990). The Cultural Dimension of Inter national Business. Englewood Cliffs, NJ: Prentice-Hall. Kuroda, Y. and Suzuki, T. (1991). A comparative analysis of the Arab culture: Arabic, English, and Japanese lan-

cultural adaptation guage and values. International Association of Middle Eastern Studies. Landis, D. and Brislin, R. (1983). Handbook on Intercul tural Training. New York: Pergamon. Mendenhall, M. E., Dunbar, E., and Oddou, G. (1987). Expatriate selection, training, and career pathing: A review and critique. Human Resource Management, 26, 331 45. Pulatie, D. (1985). How do you insure success of managers going abroad? Training and Development Journal, December, 22 4. Ronen, S. and Tung, R. L. (1981). Selection and training of personnel for overseas assignments. Columbia Jour nal of World Business, spring, 68 78.

79

compare all currencies to a single base. For ex ample, when seeking to compare French euros, British pounds, and Japanese yen the simplest way may be to compare them all to the US dollar. This provides a good measure of their comparable value. The determination of an ex change rate between two or more currencies by using a third currency’s exchange rate as a base develops what is referred to as a cross rate of exchange.

cryptography John O’Connell cross-licensing John O’Connell

Situations exist in which different companies are working on similar research and development projects at the same time. One company makes advances in one area and the other in a second area. By joining effort and sharing discoveries and technology, both companies could move forward more quickly than either could alone. This synergistic approach (resulting in mutual benefit) could be accomplished by a cross licensing arrangement. Under cross licensing each company gives the other permission to use patented or copyrighted technology, processes, or inventions. Cross licensing achieves two things: (1) gains for both companies are in creased through the dual use of intellectual property rights; (2) both companies still protect their property rights because the only party able to use them is the company designated in the cross licensing agreement. Bibliography Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Seminsky, M. and Bryer, L. G. (eds.) (1994). The New Role of Intellectual Property in Commercial Transactions. New York: John Wiley and Sons.

The mathematical technique of encryption allows distribution or transmission of information or data so that it can only be read or used by the intended recipients.

CTO

see c o m b i n e d t r a n s p o r t o p e r a t o r

cultural adaptation John O’Connell

The process through which a person becomes able to function successfully in another culture. Failure to adapt is the major reason expatriates find themselves unable to complete overseas as signments. Generally, people are chosen for over seas a s s i g n m e n t for their technical ability or other skills related to the tasks required of them by their employer. Thus, it is typically not the inabil ity to do a task which causes failure, it is the inability to adapt to the new cultural environ ment. See also environment, cultural Bibliography

cross rate of exchange John O’Connell

When seeking to compare the relative value of a number of different currencies it is common to

Briody, E. K. and Chrisman, J. B. (1991). Cultural adaptation on overseas assignments. Human Organization, 50 (3), 264 82. David, K. (1991). ‘‘Field Research’’ in the Cultural Envir onment of International Business. Cincinnati, OH: South-Western.

80

cultural adoption

Francis, J. N. (1991). When in Rome? The affects of cultural adaptations on intercultural business negotiations. Journal of International Business Studies, 22 (3), 403 28. Howard, C. G. (1982). How best to integrate expatriate managers into the domestic organization. Personnel Administrator, July, 27 33. Johnson, M. (1992). Cultural Guide to Doing Business in Europe, 2nd edn. Boston, MA: ButterworthHeinemann. Watson, W. E., Kumar, K., Subramanian, R., and Nonis, S. A. (1990). Differences in decision-making regarding risk between culturally diverse and culturally homogeneous groups. IAMM Proceeding, 1, 130 2.

worker to middle management. The employee is able to easily converse with yard workers and top management on their terms. Two separate cul tures exist between workers and top manage ment, but this manager has learned to coexist in each without making judgments about which is better or worse or good or bad. Cultural assimi lation does much the same thing for expatriates. Bibliography Glover, M. K. (1990). Do’s and taboos: Cultural aspects of international business. Business America, August, 2 6.

cultural borrowing

cultural adoption

John O’Connell

John O’Connell

Many employees who are sent overseas not only learn to work and live within a new culture but also actually take on some of the culture’s values, etc. as their own. For example, some employees sent to Asia take on the local religion and values in place of those of their original culture. Al though cultural adoption is not necessarily good or bad, care must be taken by the employee to determine the impact of such changes upon returning to the home country. Employees who adopt important cultural attributes of their host country may not desire to come home when the time comes. The new location has in fact become their home.

When a person is placed in another culture, some of the culture’s attributes may take the place of some attitudes, values, or ways of doing things that person learned in his or her home culture. A person coming home from an overseas a s s i g n m e n t may very well exhibit not only the values, etc. of his or her original culture but also some of those of the new culture. The person has borrowed items or beliefs from the new culture. Generally, upon return to the home culture, borrowed beliefs slowly become extinguished. See also cultural adoption Bibliography

See also cultural adaptation

cultural assimilation John O’Connell

This is the process through which a person not only is aware of the differences and nuances of a new culture, but also is able to incorporate these differences into daily work and private life. This does not mean the employee gives up home country values or attitudes, but instead takes the position that both cultures can coexist. A simple home country example will show how this works in a diverse workforce. An employee works his way up in the organization from yard

Black, J. S. and Gregerson, H. B. (1991). When Yankee comes home: Factors relating to expatriate and spouse repatriation adjustment. Journal of International Busi ness Studies, 22 (4), 471 94. Moran, R. T. (1989). Coping with re-entry shock. AGSIM Faculty Publication, No. 89 05. Napier, N. K. and Peterson, R. B. (1990). Expatriate reentry: What do repatriates have to say? Human Resource Planning, 14, 19 28.

cultural differences David A. Ricks

Many unexpected events happen in inter national business: some are good, but others are

cultural differences

81

bad. Many problems occur because of cultural differences, which cause six types of problem:

until its name was changed, because in Spanish no va means ‘‘does not go.’’

. . . . . .

Wrong Package

Overestimation of product interest Product not correctly modified Wrong name Wrong packaging Wrong promotional efforts Wrong management style

Lack of Product Interest Many products which sell well in one country do not sell well at all in others. Firms that simply assume that their products are wanted overseas often encounter unexpected losses. One US com pany, for example, unsuccessfully tried to sell ketsup in Japan. The firm finally realized that the Japanese did not like ketsup. Another US firm tried to sell American style bed mattresses in Japan. The Japanese did not use such mat tresses, did not want them, and therefore did not buy them.

Product Modification Sometimes the product will sell in another market, but only if it has been modified. Camp bell’s soup did not sell well initially in Britain, even though it was competitively priced and tasted fine to the British. The problem was that it was condensed soup. The British are used to buying soup in cans with the water already added. To them, it looked as though a buyer of Campbell’s condensed soups would only get half as much soup for his or her money. The firm eventually recognized the problem, changed the production method by adding the water, and was then able to sell its soups in Britain. Similarly, Jell O was only made available the way it is sold in America – in powder form. The British, however, preferred to purchase such products already made (jelled): they wanted to see what it looked like. Jell O had to change the way it did business there in order to be successful.

Wrong Name The name of the product can also be a problem and may need to be changed. General Motors had trouble in Puerto Rico when it tried to introduce its Nova model. The car was popular in the USA, but did not do well in Puerto Rico

Sometimes the problem is the packaging. It might be the wrong color (white is often a prob lem color in Asia because it represents death), the wrong style, or even have the wrong picture on it. An animal might be considered cute in one culture, but dirty in another. Dogs are seldom pictured successfully on packages sold in the Middle East. An owl might seem like a wise animal in America, but it is a symbol of bad luck in parts of Asia. Gerber Foods thought that its widely success ful baby foods would do well in one African coun try. Prices were tested. Tastes were tested. Everything looked ready for a successful market entry, but almost no one bought the jars of baby food. When Gerber investigated, it was found that they had failed to test market the packaging. Most of the consumers in that market were illit erate, so they guessed what was in a new product’s package by seeing what was shown on the label. Gerber had used its famous (and usually highly successful) smiling baby picture on its jars. Un fortunately, therefore, the local people incor rectly believed that the jars contained ground up babies.

Wrong Promotional Efforts Companies have often blundered when trying to market their products in foreign markets. Some times they offend the local culture by ignoring religious beliefs. One company, for example, tried to sell its refrigerator in the Middle East by showing it filled with food, including a large ham – a food not eaten there. Sometimes the promotion is ruined by a simple translation blunder. Pepsi had its famous ‘‘Come Alive With Pepsi’’ slogan come out as ‘‘Come Back From the Dead With Pepsi.’’ Gen eral Motors had problems in Belgium when its ‘‘Body by Fischer’’ was translated into ‘‘Corpse by Fischer.’’ Parker Pens wanted to sell its foun tain pens in Mexico with the successful US slogan ‘‘Avoid embarrassment, use Parker Pens.’’ However, the Spanish word for ‘‘embar rassment’’ was slang for ‘‘pregnancy,’’ and so the promotional effort only brought embarrassment.

82

cultural dimensions

Wrong Management Style Sometimes it is the style of the manager that causes the problem. An aggressive style might work well in one culture, but fail miserably in another. Some American firms have caused problems by trying to rush negotiations in countries which prefer a slower approach. The Japanese, for example, generally prefer a deliberate style of careful consideration and full discussion. Many people are often involved in the decision making process. One American firm, not aware of this style, incorrectly assumed that its offer was being rejected by the Japanese negotiators, and so it kept improving the offer before even receiv ing a response to the previous one. An American mining company had serious problems when its top manager at a mine on a Pacific island had a heart attack. The firm hur riedly flew the manager to the USA for special medical attention and, on the same day, sent a replacement from California. Unfortunately, the replacement was not prepared. He also arrived tired, nervous, and with his family. The new manager was told that he could expand mining operations by 50 percent, so he quickly called a meeting of his top supervisors and told them of the expansion. He then asked the most senior supervisor to take care of hiring the needed new miners. As soon as the American left the meet ing, the supervisors began to argue. This con tinued during the day, and more and more people were drawn into the discussion. By late afternoon, most of the miners – and even some non employees – were engaged in a heated con versation. As it grew dark, torches were lit and the apparent mob included most of the local villagers. The manager grew concerned for the safety of his family. He did not know the local language and could not understand what was happening, so he called on the company’s secur ity force to protect his family. Late in the evening, the mob started moving toward the manager’s home, still carrying torches. Fearing for the safety of his family, the manager ordered the guards to fire on the crowd, and several people were killed. A subsequent investigation revealed that the plant always hired a certain percentage of its employees from each tribe and that each tribe had a representative supervisor.

However, the American manager had asked only one supervisor to hire. That supervisor, natur ally, felt it necessary to first suggest that all new employees be from his tribe. The other super visors needed to represent their tribes and put on a good showing. They all knew that they would eventually go back to the old percentage formula, but they enjoyed the discussion. The torches were for light. When an agreement was finally reached, the employees just wanted to tell the new American manager the good news. Obviously, cultural differences can and do make differences in how we conduct business. Failure to be aware of cultural differences can lead to embarrassing, costly, and even deadly international business blunders.

cultural dimensions Jeanne McNett

Social scientists have categorized the aspects of culture into taxonomies using many criteria and frameworks for their classifications. Among them are the structure for communication, the solutions to common sets of problems, the com monly shared values of a culture’s members, and distinctive values that set cultures apart (Bran nen et al., 2004). Dimensions of the more famil iarly used approaches follow. Hall (1976) focuses on aspects of the c o n t e x t in which communication exists within the culture. Does the meaning that is communicated lie in the words themselves or in the environment surrounding the words and other shared experiences in which meanings may be located? In l o w c o n t e x t cultures, meaning resides in the words themselves; in h i g h c o n t e x t cultures meaning may reside mostly in the surrounding context. Hall also focuses on other issues related to time and space. Kluckhohn and Strodtbeck (1961) address six problems common to all societies, yet whose solutions differ widely across cultures. These problems and their categories are as follows: 1 How do we view the environment (natural and social worlds)? Subjugation, harmony, mastery.

cultural dimensions 2 How do we see relationships among people? Hierarchical, group, individual. 3 How do we posit ourselves in the world? Being, thinking, doing. 4 What is basic human nature? Bad, mixed, good, and changeable/unchange able. 5 How do we think about and use time? Past, present or future orientation, and plentiful or scarce. 6 How do we think about and use space? Private, mixed, public. Cultural values represent the goals toward which members in a society are socialized. They are found at the personal level and in the way social institutions operate. Examples of this approach include Hofstede (1991, 2001) and Hampden Turner and Trompenaars (2000). Hofstede’s (1991, 2001) cultural dimensions include power distance, a measure of the degree of inequality among people in a society that its members consider normal; individualism, a measure of the tendency of a society’s mem bers to act as individuals rather than as group members; masculinity, the degree to which goal oriented and competitive activities prevail over activities oriented around quality of life and personal relationships (femininity); uncertainty avoidance, the degree to which members of a society prefer the structured over the unstructured; and long term vs. short term orientation. Hampden Turner and Trompenaars (2000) identify six dimensions as pairs of opposing values whose reconciliation, they claim, can be a source of value creation. These are: 1 Universalism–Particularism. This is a meas ure of the preference for rules and laws against the preference for exceptions and special circumstances. 2 Individualism–Communitarianism. This mea sures preference for personal freedom and competitiveness against social responsibility, harmony, and cooperation. 3 Specificity–Diffusion. This measures the preference for the analytic and objective against a preference for the holistic, syn thetic, and relational.

83

4

Achieved status–Ascribed status. This is a di mension of status accruing as a result of actions against status resulting from connec tions and who one is. 5 Inner direction–Outer direction. This dimen sion describes where the locus of control is seen to be. Does it reside in an inner con science or an outside influence? 6 Sequential time–Synchronous time. This di mension looks at time as a race against time or as a dance. Bibliography Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Hall, E. T. and Hall, M. R. (1995). Understanding Cultural Differences. Yarmouth, ME: Intercultural Press. Hampden-Turner, C. and Trompenaars, F. (2000). Build ing Cross Cultural Competence: How to Create Wealth from Conflicting Values. New Haven, CT: Yale University Press. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill. Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations, 2nd edn. Thousand Oaks, CA: Sage. Kluckhohn, F. and Strodtbeck, S. F. (1961). Variations in Value Orientations. Evanston, IL: Row, Peterson. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Nisbett, R. (2003). The Geography of Thought. New York: Free Press. Triandis, H. C. (1972). The Analysis of Subjective Culture. New York: Wiley. Triandis, H. C. (1995). Individualism and Collectivism. Boulder, CO: Westview Press. Vinken, H., Soeters, J., and Ester, P. (eds.) (2003). Com paring Cultures: Dimensions of Culture in a Comparative Perspective. Leiden: Brill.

84

cultural diversity

cultural diversity

Bibliography

John O’Connell

Cultural diversity refers to the existence of dif ferent cultures between countries, in different parts of the same country, or within a single organization. Multinational organizations as well as many purely domestic organizations are faced with cultural diversity every day. Diversity may be displayed in the variety of social and ethnic backgrounds of workers or the variety of customers one serves. Learning to live and work in a culturally diverse world requires education and the ability to accept others as they are. See also cross cultural training; cultural variables

Ajiferuke, M. and Boddewyn, J. (1970). Culture and other explanatory variables in comparative management studies. Academy of Management Journal, 13, 153 63. Ferraro, G. P. (1990). The Cultural Dimension of Inter national Business. Englewood Cliffs, NJ: Prentice-Hall. Kuroda, Y. and Suzuki, T. (1991). A comparative analysis of the Arab culture: Arabic, English, and Japanese language and values. International Association of Middle Eastern Studies.

cultural factors

see c u l t u r a l v a r i a b l e s

Bibliography Ajiferuke, M. and Boddewyn, J. (1970). Culture and other explanatory variables in comparative management studies. Academy of Management Journal, 13, 153 63. Anderson, L. R. (1983). Management of the mixed-cultural work group. Organizational Behavior and Human Performance, 31, 303 30. Cox, T., Lobel, S. A., and McLeod, P. L. (1991). Effects of ethnic group cultural differences on cooperative and competitive behavior on a group task. Academy of Man agement Journal, 4, 827 47. Evans, W. A., Sculli, D., and Yau, W. S. L. (1987). Crosscultural factors in the identification of managerial potential. Journal of General Management, 13 (1), 52 7. Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations, 2nd edn. Thousand Oaks, CA: Sage.

cultural empathy John O’Connell

The word ‘‘empathy’’ means a sharing of feel ings. Cultural empathy means that a person has an awareness and understanding of the cultural attributes of a given society and how they differ from his or her own culture. One who is empathetic will tend to be more accepting of differences rather than seeing them as good or bad, right or wrong. This will lead to a better acceptance of the empathetic person into the new cultural setting. See also cultural sensitivity

cultural insensitivity John O’Connell

The inability of a person to accept or to become aware of cultural differences. Insensitivity leads to miscommunication, increased stress for all parties involved, and an increased risk of unsuc cessful business outcomes. See also cultural sensitivity

cultural literacy Mark E. Mendenhall

Cultural literacy is the expert knowledge of both surface and core cultural values, norms, mores, traditions, and operating procedures of a culture. Empirical research in the field shows that ex patriates serving in expatriate a s s i g n m e n t must increase their cultural literacy in order to be successful in these assignments. Cultural literacy involves more than knowing, for example, when and how to bow in Japan when greeting a client. An e x p a t r i a t e who is culturally literate understands why that trad ition exists, and understands the deeper core cultural values to which that tradition is linked. When expatriates do not possess high levels of cultural literacy they naturally operate from their personal views regarding what is and what is not appropriate behavior across various life

cultural maps situations in the foreign culture. One’s personal views are obviously only workable as guides to behavior in one’s culture of birth. Thus, apply ing personal views as guides to one’s behavior while overseas invariably leads expatriates into troubling, embarrassing, and sometimes danger ous incidents in the foreign culture. Cultural literacy enables an expatriate to understand the reasons behind the behavior he or she encounters overseas, and this understand ing enables the expatriate to avoid stereotyping, racial prejudice, and other forms of inappropri ate behavior while living and working in a for eign culture. Living and working in a foreign culture require the expatriate to learn a new mental framework, one that can guide the ex patriate in choosing culturally correct behaviors in the foreign culture. The acquisition of cul tural literacy requires significant amounts of effort by the expatriate. Companies often try to assist in this task by offering c r o s s c u l t u r a l t r a i n i n g programs and other types of training. Bibliography Black, J. S. and Mendenhall, M. (1990). A practical but theory-based framework for selecting cross-cultural training methods. Human Resource Management, 28, 511 39. Black, J. S., Gregersen, H. B., and Mendenhall, M. (1992). Global Assignments: Successfully Expatriating and Repatriating International Managers. San Francisco: Jossey-Bass. Black, J. S., Mendenhall, M., and Oddou, G. (1991). Toward a comprehensive model of international adjustment: An integration of multiple theoretical perspectives. Academy of Management Review, 16, 291 317. Mendenhall, M. and Oddou, G. (1985). The dimensions of expatriate acculturation: A review. Academy of Man agement Review, 10 (1), 39 47. Oddou, G. and Mendenhall, M. (1984). Person perception in cross-cultural settings: A review of crosscultural and related literature. International Journal of Intercultural Relations, 8, 77 96.

85

maps were developed by Geert Hofstede as a method of comparing cultures along what he referred to as value dimensions. A cultural map essentially shows how cultures of different coun tries are similar and how they are different along four dimensions: 1

2 3

4

Individualism: the tendency to look out for yourself first and the employer and society next. Masculinity: aggressiveness, assertiveness, and inability to think of the good of others. Power distance: the acceptance of an unequal distribution of power between employees of an organization; the acceptance of the right of others to command. Uncertainty avoidance: the degree of accept ance of uncertain situations; the willingness to make decisions; to be flexible.

Charts (cultural maps) are developed by showing the degree to which a country exhibits each of the dimensions. Countries tend to cluster when their value dimensions are similar. The implications of cultural maps in the inter national business setting are very important. If one agrees with the precept that interactions be tween parties (trade agreements, contracts, etc.) who are similar are more likely to be successful than if the parties are dissimilar, cultural maps may allow an organization to better choose inter national partners based upon similar cultural at tributes. Maps can also be of assistance even if countries are not close together on various attri butes, because a manager will have an idea of the ‘‘differences’’ which do exist. This allows training and other preparation to occur to deal with those differences more successfully. The idea of a cultural map is not the source of all answers, but it is a valuable tool for use by inter national organizations. See also value dimensions (Hofstede’s) Bibliography

cultural maps John O’Connell

A cultural map groups countries (cultures) based upon their similarity to one another. Cultural

Elashmawi, F. and Harris, P. R. (1993). Multicultural Management: New Skills for Global Success. Houston, TX: Gulf Publishing. Ferraro, G. P. (1990). The Cultural Dimension of Inter national Business. Englewood Cliffs, NJ: PrenticeHall.

86

cultural noise

Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations, 2nd edn. Thousand Oaks, CA: Sage.

should be aware of the normative behaviors of the host country prior to taking up residence. See also cultural variables; expatriate training; value dimensions (Hofstede’s)

cultural noise Bibliography

John O’Connell

Cultural noise refers to impediments to success ful c o m m u n i c a t i o n between people of dif ferent cultures. Sources of cultural noise include differences in language (e.g., the same words have different meanings), values (e.g., import ance of being on time or setting work schedule times in a culture ), non verbal cues (e.g., inter pretation of b o d y l a n g u a g e ), and many others. Persons involved in international com munication (or domestic, if communication in volves other cultures) should be aware of any barriers which may affect the message from being interpreted in the way the sender intended. This requires special understanding of the com munication process and the various sources of cultural noise which may impede that process.

Howard, C. G. (1982). How best to integrate expatriate managers into the domestic organization. Personnel Administrator, July, 27 33.

cultural orientation

see c r o s s c u l t u r a l t r a i n i n g ; e x p a t r i ate training

cultural profiles John O’Connell

See also cross cultural communication

A description of a country (culture) based upon its acceptance or adherence to specific c u l t u r a l v a r i a b l e s . Cultural profiles are used to compare countries and cultures based upon preselected dimensions.

Bibliography

See also value dimensions (Hofstede’s)

Moran, R. (1988). Venturing Abroad in Asia: Complete Business Traveller’s Guide to Cultural Differences in Eleven Asian Countries. New York: McGraw-Hill.

cultural relativism John O’Connell

cultural norms John O’Connell

Cultural norms are standards of conduct or ac ceptable behavior in any given culture. The way people communicate (adding gestures vs. just speaking), the way they eat (fork in right hand if from United States and left hand if from Europe), how close one stands when communi cating to another (distant in the United States, close in Latin America), equality of men and women (strive for equality in many countries; not an issue in other countries), the work ethic (commitment to employer vs. individual creativ ity), and many other situations are influenced by the norms of a society or culture. An e x p a t r i a t e or other person living overseas

Cultural relativism refers to the proposition that what is right or wrong, good or bad, justifiable or not, depends upon the culture in which it occurs. Two examples illustrate cultural relativism: drinking alcoholic beverages is not bad or wrong in Great Britain or Ireland, but is wrong (and punishable by the authorities) in Middle Eastern countries; bribery is illegal under the laws of the United States, but is an accepted business practice in many countries. It is difficult to dispute this part of the cultural relativism proposition (that major differences exist between cultures/countries in what is con sidered good/bad, moral/immoral, etc). How ever, problems of ethics and even law may occur if one takes cultural relativism to its extreme and believes the following: ‘‘Therefore, in order to

cultural variables get along in another country/culture, it is accept able to act in the same manner as those from that country/culture.’’ As an example of potential problems, such a feeling would allow a US organ ization (when in another country which lacks strict anti bribery laws) to bribe public officials, even though bribery is illegal under the US f o r e i g n c o r r u p t p r a c t i c e s a c t . Cultural relativism may be an appropriate part of the deci sion making process in some instances, but its application must be tempered by common sense and a respect for the laws of both the host and home country.

cultural variables John O’Connell

The factors which are evaluated in determining the extent and nature of cultural differences. The following set of variables (in alphabetical order, not order of importance) were described by Harris and Moran (1996). Each variable is important to an international manager because it may be the source of a particular work behav ior or attitude with which the manager is unfamiliar. 1

Bibliography Bowie, N. E. (1990). Business ethics and cultural relativism. In P. Madsen and J. M. Shafritz (eds.), Essentials of Business Ethics. New York: Meridian.

cultural sensitivity John O’Connell

An awareness of the differences between cul tures and how these differences affect ways in which others work and live. It is the acceptance of differences, rather than a feeling that one way of doing things is either right or wrong. A cul turally sensitive person is open to other ways of doing things and cares about adapting to differ ences rather than changing others to fit a model of ‘‘how one is supposed to act or believe.’’ See also cross cultural training; cultural insensitiv ity; expatriate training

2

3

Bibliography Black, J. S. and Mendenhall, M. (1993). Resolving conflicts with Japanese: Mission impossible? Sloan Man agement Review, spring, 83. Glover, M. K. (1990). Do’s and taboos: Cultural aspects of international business. Business America, August, 2 6. Ricks, D. A. (1983). Big Business Blunders: Mistakes in Multinational Marketing. Homewood, IL: Dow JonesIrwin.

cultural value dimensions (Hofstede’s)

see v a l u e d i m e n s i o n s (h o f s t e d e ’s )

87

4

Associations. This variable addresses the vari ous groups with which an individual may be associated. Groups are of many types: frater nal, religious, business, professional, trade, union, advocacy (e.g., environmental), polit ical, and many others. Each group may have an impact on an employee in terms of ethical issues, work habits, priorities, loyalties, and other important factors which may affect job performance. The exact nature of the impact depends upon the employee, the group, and the country/culture being reviewed. Economy. General economic factors also con tribute to the way people conduct themselves on the job. The type of economy (capitalist, high government control, low government control, public vs. private ownership, etc.) affects areas such as incentive systems, avail ability of goods and services, a worker’s feel ings about achievement, and loyalty to an employer. Education. The types and amounts of educa tional opportunities offered in a country pro vide a reasonable measure of the availability of trained employees as well as the needs for further training to meet the needs of employ ers. Educational levels may dictate hiring practices (host country nationals vs. expatri ates) as well as the types and levels of com pany training programs to be offered. Health. Of growing importance is the general health of people in a country. Healthy em ployees tend to be more productive and happier then those suffering ill health. The quality and availability of the health care system in a country will affect the ser vices, etc. which may have to be provided by a company. Social healthcare vs. private

88

5

6

7

culture healthcare has great implications for em ployee expectations about what the company should provide in benefits. In some countries employers are actively involved in promot ing the good health of employees and their families, while in other countries employers do not become involved. Kinship. The family and its importance in the life of an employee is another cultural variable which may affect employees. Family unit size is decreasing in some countries and holding stable in others. Large families are common in some countries, while smaller ones seem more acceptable in others. Family units consisting of only immediate family (parents and children) exist in many parts of the world, whereas extended family units (grandparents, parents, children, and other family members) are common elsewhere. The responsibilities placed upon a family in terms of time commitments and income needs have real implications for employers. Politics. The political system found in a par ticular country impacts both employees and the employer. If the system is democratic, employees will probably be more democratic and flexible in their attitudes. Controlled political systems (communistic, dictatorial) may decrease creativity, company loyalty, and the work ethic, as well as other charac teristics normally thought to be important to managers. Politics may dictate the sources of raw materials for a company, the sources of labor, the type of distribution system used, and the general activities related to com merce. Recreation. This variable describes the role of leisure time in the life of a worker and his or her family. In some countries leisure time is an important and sought after goal. Com pany benefits in these countries include long vacations, personal days off, provision of company sponsored recreation activities, and on site workout and sports facilities. None of these benefits exists in some coun tries. In other countries, the employer is a part of the employee’s leisure time as well and the employee’s family literally becomes a part of the bigger company family. A coun try’s/culture’s need for leisure or free time and what the employee normally does with

8

this time has important implications for a manager. Religion. In certain countries religion is the most important cultural variable related not only to the workplace but also to the daily lives of the people (Middle Eastern countries). In other countries the impact is much more difficult to perceive or measure (United States, Australia). Religious teach ings guide the everyday work and other ac tivities of many workers around the world. These must be taken into consideration by managers when dealing with many factors such as employee workweek, hours of work, religious holidays, and the values of the com pany.

Bibliography Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. England, G. E. (1978). Managers and their values systems: A five-country comparative study. Columbia Journal of Business, summer, 35 44. Graham, J. L. (1985). The influence of culture on business negotiations. Journal of International Business Studies, 16 (1), 81 96. Harrison, P. R. and Moran, R. T. (1996). Managing Cultural Differences, 4th edn. New York: Gulf Publishing. Kelley, L., Whatley, A., and Worthley, R. (1987). Assessing the affects of culture on managerial attitudes: A three-culture test. Journal of International Business Studies, summer, 17 31. Mead, R. (1994). International Management: Cross Cultural Dimensions. Cambridge, MA: Blackwell. Webber, R. (1969). Culture and Management: Text and Readings in Comparative Management. Homewood, IL: Irwin.

culture Jeanne McNett

This broad term may be used to describe any thing from excellence in the arts (opera and the symphony – high culture) to a group of people’s cooking and eating habits and ways of thinking. In international management, the term culture is used to describe the combination of gradually changing, interdependent elements, including assumptions, beliefs, values, practices, and insti

currency depreciation tutions, distinctive to a particular society. Cul ture is understood as learned and shared, linking people to groups, and resting on deep assump tions of which members of the culture are often unaware. It is a concept that can be applied at many levels, including the national, regional, ethnic, and organizational (Brannen et al., 2004). Anthropological analysis of national culture has resulted in several taxonomies of culture, summarized under c u l t u r a l d i m e n s i o n s . At the corporate or organizational level, culture is understood to be the accumulated learning of the organization that is so taken for granted that it drops out of awareness (Schein, 1992). Nego tiated cultures are the new cultures that are emergent as the result of mergers, alliances, or other cultural mixings. They are not the result of a model; rather, they are worked out as the newly formed group solves problems so it can work together. Culture is always present and usually multi layered, and it often operates in hidden ways and with unarticulated assumptions. Awareness and understanding of culture are central to success ful global management and g l o b a l t e a m s . Bibliography Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations, 2nd edn. Thousand Oaks, CA: Sage. Kluckhohn, F. and Strodtbeck, S. F. (1961). Variations in Value Orientations. Evanston, IL: Row, Peterson. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Schein, E. H. (1992). Organizational Culture and Leader ship, 2nd edn. San Francisco: Jossey-Bass.

89

culture shock John O’Connell

Frustration, confusion, fear, apprehension, and even disorientation because of differences be tween a person’s own culture and the culture in which he or she is currently working or living are termed culture shock. Expatriates often suffer from culture shock. A person who does not know how to behave in personal or business activities in another culture may feel (and actu ally be) left out of activities and discussions. The e x p a t r i a t e may be perceived as being uncar ing about the concerns and values of others. Culture shock can lead to dissatisfaction and anxiety on the part of the employee. An em ployee (and family members as well) must be properly oriented to the new culture to reduce the impact of culture shock. Without this cul tural integration the chances of expatriate failure are dramatically increased. See also cross cultural training; expatriate training Bibliography Briody, E. K. and Chrisman, J. B. (1991). Cultural adaptation on overseas assignments. Human Organization, 50 (3), 264 82. Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations, 2nd edn. Thousand Oaks, CA: Sage. Moran, R. T. (1989). Coping with re-entry shock. AGSIM Faculty Publication, No. 89-05. Oberg, K. (1960). Culture shocks: Adjusting to new cultural environments. Practical Anthropology, July Aug., 177 82.

currency depreciation John O’Connell

A decrease in the value of a currency with re spect to the value of other currencies. When this occurs, that currency will purchase less on the international market and import costs will increase. An organization holding a currency that depreciates or is a creditor of anyone paying in that currency will show a decline in asset value.

90

currency devaluation

currency devaluation

currency option

see d e v a l u a t i o n

John O’Connell

currency diversification John O’Connell

A person or company desiring to reduce the currency risk (fluctuations, devaluation) may decide to conduct operations in a number of different currencies. The theory is that decreases in value of one currency may be offset by in creases in others. Reducing risk through invest ment diversification and product diversification are aspects of the same diversification strategy.

A currency option allows a person to buy or sell currency at a fixed price for a specified period of time. Persons purchasing options are usually seeking to hedge a previous commitment of cur rency or to profit if the exchange rate moves in the ‘‘right’’ direction for their investment. See also foreign exchange risk management Bibliography Peters, C. C. and Gitlin, A. W. (eds.) (1993). Strategic Currency Investing: Trading and Investing in the Foreign Exchange Markets. Hinsdale, IL: Probus.

customer relations management

currency futures market

John O’Connell

see f u t u r e s

currency hedge

see f o r e i g n e x c h a n g e r i s k m a n a g e m e n t

currency inconvertibility John O’Connell

A government may restrict the right of foreign firms to repatriate (send home) profits to their home country. Thus, all profits remain in the foreign country. If an organization does not have other operations in that country, or the owners do not have residence there, this may cause great hardship. Inconvertibility may arise because of the passage of new laws or because of adminis trative slowdown. Administrative slowdown refers to situations in which the government bureaucracy in a foreign country slows (either intentionally or unintentionally) the process to convert currency to such a point that it becomes a financial burden to foreign owned companies. Insurance is available for both causes of currency inconvertibility. See also political risk; political risk insurance

This is a business strategy built around the con cept of being ‘‘customer centric.’’ The main goals are to optimize revenue through improved customer satisfaction via improved interactions at each customer touch point. This can be ac complished by a better understanding of cus tomers, based on their purchasing patterns and demographics, and better information empower ment at all customer touch points, whether with employees or other media interfaces.

customhouse broker John O’Connell

Importers often believe that their tasks are com plete when arrangements have been made to pay for and take delivery of imported items. How ever, another obstacle may lie in the path of the successful completion of the transaction: the customs authority of a country. Obtaining customs approval to bring goods into a country (clearing customs) is not always a simple task. Appropriate papers must accompany imports and all requirements of the importing country must be met. Privately owned and operated con sultants called customhouse brokers are ready to assist importers in clearing goods through

customs invoice customs. All necessary papers will be obtained, and clearances, certificates (country of origin, health, etc.), and other documents will be checked by the broker in order to speed the customs clearing process. For this service they charge a fee. Customhouse brokers are licensed by the appropriate government agency. These people generally know how to get goods cleared quickly and are usually worth the expenditure.

91

Goods are also checked to ascertain whether they are restricted or banned from entry to a country.

customs clearing agent

see c u s t o m h o u s e b r o k e r

customs clearing time John O’Connell

customs agencies John O’Connell

The government agency responsible for enfor cing regulations applicable to the importation and exportation of goods from a country. In this capacity, customs agents inspect property, classify as to type of good or commodity, deter mine if any special regulations apply to the prop erty, assess applicable duties or other charges, and eventually clear (or in some cases refuse admittance to or confiscate) property. Customs authorities are usually charged with reducing the incidence of smuggling of legal property as well as the entrance of illegal property into a country. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

The time it takes for customs officials of a coun try to make inspections and process the paper work necessary to allow goods to enter a country. The time period varies depending upon the type of property and the country into which it is imported.

customs declaration John O’Connell

A form presented to customs inspectors at the point of entry as a verification of the types and values of property which are brought into a country by travelers. Most people who have traveled internationally have filled out a customs declaration form.

customs invoice John O’Connell

A document sometimes required by customs authorities in order to allow imports to enter a country. A customs invoice must be completed on the form specified by the country. The in voice includes information which the country desires but which is not found on the ordinary commercial invoice.

customs broker

see c u s t o m h o u s e b r o k e r

customs classification John O’Connell

Imports are classified in order to keep records of the amounts and values of goods brought into a country. Classifications are also made to deter mine which tariffs (if any) or other duties apply.

See also entry documents Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

92

customs valuation

customs valuation

cybermediary John O’Connell

John O’Connell

The value of goods as set by the customs author ities of a country. The value normally should be near the price of the goods noted on the customs declaration form plus any adjustments allowed under customs regulations of a country. In the United States, an importer can dispute the value assigned by inspectors, up to and including a hearing in front of the US Customs Court.

An individual or organization that collects a fee for facilitating transactions over the Internet without taking ownership of the products or services sold. Examples include websites that provide many of the services of traditional real estate brokers and insurance agents but at much lower costs.

customs valuation code

see a g r e e m e n t o n c u s t o m s v a l u a t i o n

D D/A

data encryption standard (DES)

see d o c u m e n t s a g a i n s t a c c e p t a n c e

DAC

see d e v e l o p m e n t a s s i s t a n c e c o m m i t t e e

DAF

John O’Connell

A widely used method of data encryption using a private (secret) key. There are 72,000,000,000,000,000 (72 quadrillion) or more possible encryption keys that can be used. For each given message, the key is chosen at random from among this enormous number of keys. Like other private key cryptographic methods, both the sender and the receiver must know and use the same private key.

see d e l i v e r e d a t f r o n t i e r data mining John O’Connell

danger pay John O’Connell

Employees might be placed in danger when they are transferred to certain countries because of political unrest, actions of terrorists, active war or insurrection, or public reaction to citizens of specific foreign countries. Some com panies will compensate their employees at higher levels when the job places them in extra ordinary danger. Danger pay is given to employ ees from the time they enter the dangerous country or region until the time they leave. Danger pay may also be referred to as hazardous duty pay. See also compensation package (expatriate)

data aggregation

This is a technique used to evaluate existing information, usually with the intention of pur suing new avenues to pursue business.

data protection John O’Connell

The prevention of the passing of an individual’s personal information from one computer system where the information legitimately resides to other computer systems without the consent of the individual. In the United Kingdom the Data Protection Act of 1984 requires the registration of every data user who possesses personal infor mation.

date draft John O’Connell

John O’Connell

This is the ability to obtain a more complete picture of information by analyzing several dif ferent types of records at once.

A d r a f t which expires in a specified number of days after its issuance, even if not yet presented for payment.

94

dating systems

dating systems John O’Connell

The way the calendar date is expressed in numbers is different in various countries. For example, 4/7/06 either means April 7, 2006 in the United States or July 4, 2006 in Great Britain. The difference lies in the ordering of the day, month, and year. Although this may seem to be a minor inconvenience, think about a US manu facturer with a contract to produce goods for a European purchaser as of 4/12/06. The US manufacturer is ready for delivery on April 12, 2006 but the European purchaser is not ready to take delivery until December 4, 2006. To avoid problems with numerical dating always abbrevi ate the month when dating international corres pondence. Thus, July 12, 2006 becomes either JUL/12/06 or 12/JUL/06. Either way it is clear that the month is July and the day is the 12th.

DCRs

which are difficult to meet, or making it difficult to secure import licenses. All of these activities are examples of protectionist actions even though such actions are not backed by formal government action. Bibliography Bowker, R. R. (1994). Report on US Trade and Investment Barriers (1993): Problems of Doing Business with the US. Chester, PA: Diane Publishing. Korth, C. (1985). Barriers to International Business. Englewood Cliffs, NJ: Prentice-Hall.

debt rating John O’Connell

The level of credit worthiness of an organiza tion. An organization’s debt rating will affect its ability to secure funds and the cost of those funds. See also international debt rating

see d o m e s t i c c o n t e n t r e q u i r e m e n t s decentralized management DDP

John O’Connell

see d e l i v e r e d d u t y p a i d

The degree to which control of functions or operations is vested in a multinational com pany’s foreign subsidiaries. The more decision making and control are left to the subsidiary, the more decentralized the management. For examples of factors to review in order to decide whether management should be centralized or decentralized, see c e n t r a l i z e d m a n a g e ment.

DDU

see d e l i v e r e d d u t y u n p a i d

de facto protectionism John O’Connell

Countries often pass legislation to restrict the flow of certain imports. These protectionist ac tivities comprise statutory moves toward pro tecting local goods, manufacturers, and distributors. Even without statutes or formal regulations countries can still protect what they see as their national interests. De facto protec tionism may take the form of delays in clearing imported goods, setting standards for imports

Bibliography Phillips, N. (1992). Managing International Teams. London: Pitman. Punnett, B. J. and Ricks, D. (1992). International Business. Boston, MA: PWS-Kent.

deconsolidation

see b r e a k b u l k

delivered ex quay – named port of destination decryption John O’Connell

The process of transforming an encrypted message into its original plain text.

95

duties of customs, duties, and taxes for import. The buyer assumes responsibility when the goods are delivered. Title transfers on the dock. The seller is responsible for securing the export and the import license. DDP is an incoterm. Bibliography

defacement John O’Connell

Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

This is the method of modifying the content of a website in such a way that it becomes ‘‘vandal ized’’ or embarrassing to the website owner. delivered duty unpaid destination (DDU)

John O’Connell

defense in-depth John O’Connell

Using multiple layers of security to guard against failure of a single security component.

delivered at frontier

named place (DAF) John O’Connell

DAF is a trade term under which the seller’s responsibilities for goods ceases when the goods are delivered at the frontier (border, but before customs border) of the country named in the contract. This term is generally used for land transportation by rail or truck. DAF is an incoterm. Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

delivered duty paid destination (DDP)

named place of

named place of Jeanne McNett

DDP is a trade term. It means that the seller delivers the goods to an agreed destination, cleared for import and not unloaded. Under a DDP contract, the seller assumes the risks and

DDU is a trade term. It means that the seller delivers the goods to the buyer at a specified location, not cleared for import and not unloaded. The seller is responsible for the cost of inland freight in the seller’s country, the cost of loading the vessel, ocean/air freight costs, securing and paying for export insurance, the cost of unloading the vessel, and the cost of inland transportation in the buyer’s country. The buyer is responsible for import duties. Title to the goods transfers at the specified point of destination. The seller is responsible for securing the export license and the buyer the import license. DDU is an i n c o t e r m . Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

delivered ex quay named port of destination (DEQ) Jeanne McNett

This is a term used in trade. DEQ means that delivery takes place when the seller delivers goods to the buyer at the quay (wharf) at a specified port. The seller is responsible for inland freight charges in the export country, the cost of loading the vessel, all costs of ocean/air freight, securing and paying for export

96

delivered ex ship – named port of destination

insurance, and the cost of unloading the vessel. The buyer is responsible for clearing the goods for import and all other duties, taxes, and for malities, including paying inland freight in the buyer’s country. Title to goods transfers when goods reach the dock in the importer’s country. The seller is responsible for securing the export license, the buyer the import license. DEQ is an incoterm.

equipment purchased overseas. Delivery risk is the uncertainty concerning delays in delivery of parts, lack of guarantees that parts will be avail able in the future, or interference with deliveries because of labor unrest or government action in a foreign country.

demurrage

Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

delivered ex ship named port of destination (DES) John O’Connell

DES is a trade term. It means that the seller delivers when the seller makes goods available to the buyer while on the ship at the specified point of destination. The seller is responsible for any inland freight charges in the seller’s country, the costs of loading the goods onto the vessel, the cost of ocean/air freight, and securing and paying for export insurance. The buyer is responsible for costs of unloading the goods from the vessel, import duties, and any inland freight charges in the buyer’s country. Title to the goods transfers while the goods are still on board the ship in the import country’s port. The seller is responsible for securing the export license and the buyer the import license. DES is an i n c o t e r m .

John O’Connell

A penalty imposed upon a charterer (one who rents or leases) if the vessel is not returned to the owner on time. Situations arise when a ship is not promptly unloaded at the destination port. This could be due to a large number of ships awaiting unloading or for other reasons. The charter for the vessel provides a period in which to unload the ship and also for any re quired layovers. If the actual unloading time or the layovers are in excess of that provided for in the charter, a penalty may be assessed. This penalty is referred to as demurrage. De murrage can also be charged by other forms of carriers (e.g., a railroad) for delays in loading/ unloading.

denationalization John O’Connell

The process of transferring ownership and op erational control from government to private ownership.

Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp.

See also privatization

denial of service delivery risk

John O’Connell John O’Connell

Risk associated with fears of a buyer that parts or repairs will not be available for machinery or

The prevention of authorized access to a system resource or the delaying of system operations and functions.

developing world

97

Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

dependent visa

see v i s a

depreciation

devaluation John O’Connell

John O’Connell

With respect to currency exchange rates, depre ciation refers to the fall in value of one currency relative to other currencies. The fall in value could be due to a nation devaluing its currency or other imbalances between countries. See also devaluation

Devaluation occurs when a currency declines in value relative to other currencies. Although the process of devaluation may take place over a long period of time, the term devaluation is usually associated with a government action which dra matically reduces currency values as of a specific time.

DEQ

developing world

see d e l i v e r e d e x q u a y

Jeanne McNett

DES

see d a t a e n c r y p t i o n s t a n d a r d ; d e livered ex ship

destination control statement John O’Connell

This US document is used to discourage export ers or others from transferring goods bound for a given location to another location which is not authorized by the US government. For example, if electronic goods were not able to be exported to a given country, a destination control state ment may be issued for shipments of electronic goods out of the US. The statement would be attached to all transportation papers (bills of lading, etc.) clearly indicating the party and the country to which the goods must be shipped. No deviation from the listed location is allowed. Bibliography United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

The United Nations describes the developing world based on the level of individual earnings, as low and middle income economies that may include economies in transition from central planning. Because the idea of development rests on values, its use as a term is sensitive (Punnett, 2004). The US Council for International Busi ness distinguishes developed from developing countries or less developed countries (LDCs) by level of industrialization. Industrialized coun tries include the 24 members of the Organization for Economic Cooperation and Development (OECD) and the industrialized countries of East ern Europe. The term developing countries is used by the UN to describe economies that depend heavily on the sale of commodities and that lack industrial infrastructures. They also lack ad vanced healthcare and educational facilities. Other terms used in the past to describe such economies include underdeveloped and Third World (the First World being the developed OECD countries and the Second World the ves tiges of the communist countries). North–South has also been used, with the South being the developing countries. The terms transitional and industrializing are used to describe countries with rapidly industrializing bases, as are newly indus trialized countries (NICs) and emerging markets.

98

Development Assistance Committee

Bibliography Austin, J. E. (1990). Managing in Developing Countries: Strategic Analysis and Operating Techniques. New York: Free Press. Aycan, Z. (forthcoming). Leadership and teamwork in developing countries: Challenges and opportunities. In W. Lonner (ed.), Readings in Psychology and Culture. Gwartney, J. and Lawson, R. (2002). Economic Freedom of the World: 2002 Annual Report. Vancouver: Fraser Institute. Hall, E. T. and Hall, M. R. (1995). Understanding Cultural Differences. Yarmouth, ME: Intercultural Press. Jackson, T. (2004). Management and Change in Africa: A Cross Cultural Perspective. London: Routledge. Kanungo, R. N. (1995). Employee Management in Develop ing Countries. Greenwich, CT: JAI Press. Lawrence, S., Coleman, J., and Black, J. (1997). Education and Training for Public Sector Management in Develop ing Countries. New York: Rockefeller Foundation. Punnett, B. (2004). The developing world: Toward a managerial understanding. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. United Nations (2000). Entering the Twenty First Cen tury: World Development Report. Oxford: Oxford University Press. United Nations Development Program (2001). Human Development Report. Oxford: Oxford University Press.

available to less developed countries (LDCs) at subsidized rates. See also regional development banks; International Bank for Reconstruction and Development Bibliography Ludlow, N. H. (1988). A Practical Guide to the Develop ment Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

Development Center of the Organization for Economic Cooperation and Development John O’Connell

The center was begun by members of the Or ganization for Economic Cooperation and De velopment (OECD) in 1961. Its purpose is to gather and disseminate information and ideas pertaining to economic development. By using the experience of the membership of the OECD, the center produces information which is pro vided to developing nations to assist in their further development.

Development Assistance Committee (DAC) dictionary attack John O’Connell John O’Connell

The Organization for Economic Cooperation and Development (OECD) established the De velopment Assistance Committee to oversee development assistance activities of OECD members. The purpose of the committee is to avoid duplication of effort in order to make OECD activities as efficient as possible.

A computer attack that tries all of the phrases or words in a dictionary, trying to crack a pass word or key to a system. A dictionary attack uses a predefined list of words compared to a brute force attack that tries all possible combinations.

development banks

differential duty John O’Connell

John O’Connell

Banks which are established by a government or governments to enhance the economic develop ment of a certain country, geographic region, or the entire world. In addition to assisting member countries, development banks also make loans

A d u t y based on the status of trading partners. Those countries seen as the most ad vantageous partners generally receive lower duties than partners whose trade status is not as high.

dirty float diplomatic agent John O’Connell

Under international law a diplomatic agent is any person given responsibility and authority to act on behalf of a nation in its relations with other nations. Diplomatic agents carry out nego tiations between countries, conduct the transac tion of business requiring official recognition, and generally deal with all other official govern mental interactions with other nations.

99

door to door sales, and sales obtained through responses to television advertising which refers customers to the manufacturer of goods. In some countries direct sales are extremely popular. Amway, Avon, and Mary Kay have international reputations in the direct sales arena. Assuming that all local laws are followed, direct marketing may be a way of testing a for eign market before taking the plunge into full overseas operations. In fact, it may be found that in some organizations direct marketing efforts can take the place of some current international activities with little or no reduction in the bottom line.

direct exchange rate John O’Connell

When an exchange rate between two currencies is stated in terms of one of the currencies (e.g., one British sterling pound is equal to $1.82 US dollars) it is referred to as a direct exchange rate.

direct importing

Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin.

direct selling John O’Connell

Direct importing exists when the only parties to the transaction are the importer who arranges the purchase of goods from an exporter and the exporter who sells the goods. No intermedi aries (freight forwarders, c u s t o m h o u s e b r o k e r s , etc.) are involved with the transac tion. Direct importing requires a great deal of knowledge of the import transaction and its various requirements, as well as a good deal of faith in the exporter. Bibliography United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

see d i r e c t m a r k e t i n g

dirty bill of lading John O’Connell

When goods are received in damaged condition for shipment on a vessel, the master of the ship will note the damage on the b i l l o f l a d i n g . A bill of lading with such a notation is referred to as a dirty bill of lading. If goods were received in good condition the bill of lading would be a clean bill of lading.

dirty float direct marketing

John O’Connell John O’Connell

When goods are sold directly to the consumer without passing through the hands of whole salers or retailers. Direct marketing can take the form of telephone sales, mail order sales,

When currency is allowed to seek its own level of value based upon market conditions the currency is said to float. When a government attempts to control the direction and magnitude of currency fluctuation the float is described as dirty float.

100

dirty money

dirty money John O’Connell

Earnings from illegal activities are referred to as dirty money. The nomenclature of crime is such that we even distinguish between how dirty the money is. Black money is received from actual illegal activities such as drug smuggling. Gray money is received from business deals which may not be illegal, but are certainly suspicious. The suspicions are that if anyone checked, the deal might be illegal. Dealing in dirty money is an illegal act in most countries.

disaster recovery plan (DRP) John O’Connell

This is the process of recovery of IT systems in the event of a disruption or disaster.

are very common in international trade. Instead of attempting to enter foreign markets directly (normally a very time consuming and expensive proposition) an exporter may instead enter into a relationship with an importer to become a dis tributor for the exporter. A distributor does more than just import goods. A distributor also packages or repackages if necessary, advertises the goods, distributes them, and may even pro vide service after the sale. For all of this activity the distributor usually retains a portion of the sales and is commonly granted exclusive rights to distribute the product in a specified region. Hiring a distributor to handle goods in a foreign country is one of the simpler methods of entering a foreign market. Bibliography Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin.

DISC

see d o m e s t i c corporation

international

sales

diversification strategy John O’Connell

discriminatory taxation John O’Connell

Charging higher tax rates to foreign companies than for domestic companies. This type of pro tectionist action is not as common as it has been in the past, but it still exists in many countries. The system of taxation in a foreign country must be considered when determining the method by which a company will enter that country. For example, if a local company is charged lower tax rates than a foreign owned company, a local joint venture may be in order. See also barriers; political risk

In a domestic market, diversification usually means broadening a product line so that the company is not overly reliant on a single prod uct. In international business, diversification also applies to product lines, but it can also apply to geographic expansion. A company may diversify its activities in terms of the number of countries within which it sells products. Thus, no single country becomes the one that makes or breaks the firm. Geographic diversification also has an interesting impact on currency risk. The more diverse the operations of a company, the less likely it will suffer dramatic losses due to currency d e v a l u a t i o n in a single country. The company now deals in many currencies, which theoretically spreads its risks, thereby smoothing currency fluctuations. Bibliography

distributor John O’Connell

A distributor is an intermediary who acts on behalf of others to distribute goods. Distributors

Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Majaro, S. (1977). Marketing: A Strategic Approach to World Markets. London: George Allen and Unwin.

documents against payment dock receipt John O’Connell

A receipt issued in conjunction with the ocean carriage of goods. When cargo is received at the carrier’s location, the carrier issues a dock re ceipt signifying its arrival. The receipt is then used to complete the b i l l o f l a d i n g .

101

national commerce as payment instruments for exports. A d r a f t is merely an instruction to a bank to pay a certain amount of money to a specific person. A documentary draft requires the person seeking to be paid (usually the ex porter) to present documents related to the sale of goods. Documents could include a b i l l o f l a d i n g , shipping papers, and others as stated in the draft.

documentary collection John O’Connell

When an exporter transfers goods to an importer in another country, the importer must provide certain documents (e.g., b i l l o f l a d i n g , export declaration, etc.) to the import country’s customs authority in order to take possession of the goods. Under a documentary collection, a bank representing the exporter has possession of the documents needed to release goods. Upon presentation of payment from the importer, the bank transfers the documents and the importer gains title and possession of the imported goods. Documentary collection may be of two types: d o c u m e n t s a g a i n s t p a y m e n t (D/P) and d o c u m e n t s a g a i n s t a c c e p t a n c e (D/A). See also entry documents

documentary letter of credit John O’Connell

This is the formal name for a l e t t e r o f c r e d i t . A seller under a letter of credit is paid by a bank upon presentation of the shipping papers and other documents specified in the letter of credit. Unless it is irrevocable, a letter of credit does not guarantee that the credit might not be revoked by the bank prior to presentation of the documents. Specific types of letters of credit are available to provide additional assur ances to the seller that payment will be made upon presentation of the proper documents.

documents against acceptance (D/A) John O’Connell

Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

documentary credit John O’Connell

It is very common for an exporter to provide for a bank to transfer title documents to the buyer. The exporter generally requires the bank to hold title until receipt of a b i l l o f e x c h a n g e or other payment from the buyer. Once the condi tions are met and the payment is accepted by the bank the title documents are released to the buyer.

The formal name for a l e t t e r o f c r e d i t . See also documentary letter of credit

documents against payment (D/P) John O’Connell

documentary draft John O’Connell

A documentary draft is a type of b i l l o f e x c h a n g e . Documentary drafts are used in inter

An exporter may require a buyer to wait for the transfer of title to exported goods until the buyer’s draft has been paid or presented for payment. Under documents against payment method, the bank must hold the title documents

102

domestic content requirements

until the d r a f t is cashed or presented for cash ing. Thus, no money changes hands until all documents are in order and the draft is actually presented for cashing.

domestic content requirements (DCRs) John O’Connell

One method of increasing the domestic presence of foreign manufacturers is to require that goods produced in a country have a certain percentage of their value provided domestically. For ex ample, assume a country or c o m m o n m a r k e t required at least 60 percent of the value of autos sold within its borders to be produced locally. Manufacturers would have to prove that for every $20,000 auto, local labor and locally pro duced parts made up at least $12,000 of that value. DCRs effectively prohibit a foreign auto manufacturer from establishing an assembly fa cility in another country and then importing all of the parts to construct an auto. As such, DCRs are a barrier to free trade.

most tax systems base their assessment on the total income of a person, it is possible that the expatriate will be requested to pay taxes in the host country and in the home country based upon the same income. Countries which com monly have foreign workers employed within their borders often have tax agreements with other countries to insure that taxes are only paid once. Persons employed overseas must carefully determine their tax status in each coun try in which they work or live. If tax laws do assess more taxes than would have been collected in the home country, the c o m p e n s a t i o n p a c k a g e for the overseas worker is often adjusted to reduce the burden. Bibliography Nexia International Staff (1994). International Handbook of Corporate and Personal Taxes. New York: Chapman and Hall.

draft John O’Connell

See also barriers

domestic international sales corporation (DISC) John O’Connell

A DISC is a US corporation which has at least 95 percent of its profits and 95 percent of its equipment values associated with export activ ities. If a US corporation qualifies as a DISC it can secure export loans from the US Treasury at lower than market rates. The purpose of legisla tion creating DISCs was to assist in the growth and development of US export companies.

A draft is technically a type of b i l l o f e x c h a n g e . Drafts are commonly used to pay for exports. The actual details of payment (timing, documents necessary, etc.) are included in the wording of the draft itself. The person securing a draft (usually the seller or exporter of goods) is referred to as the drawer. The party responsible for paying the draft (usually a bank) is referred to as the drawee. The drawee is in structed to remit the amount of the draft when the details of the transaction (as outlined in the draft) have been completed. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley.

double taxation John O’Connell

One of the problems sometimes encountered by employees sent on overseas assignments is the income tax implications of working in one coun try, but being a citizen of another country. Since

drawback John O’Connell

When used in reference to importing goods to the United States, drawback is the refunding

dumping of duties paid by US importers of goods. Duties may be refunded only under specific circum stances. Circumstances in which refunds may be made include merchandise returned to the exporter as unfit; merchandise not ordered by the importer (if returned to the exporter); and goods which are processed in some manner and then re exported. Importers seeking to receive drawback payments must apply to the US customs authorities within a specified period of time after the goods were originally imported. Bibliography Serko, D. (1991). Import Practice: Customs and Inter national Trade Law. New York: Practicing Law Institute. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

103

ard variable rate loan in which interest payments are set by the market. The drop lock portion is a guarantee built into the loan that if interest rates fall to a certain point the loan will be replaced with long term bonds carrying the lower interest charge as a fixed rate. The loan is a floating rate instrument unless the interest rate drops. The rate is then locked by replacing the loan with fixed rate bonds. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

DRP

see d i s a s t e r r e c o v e r y p l a n

dual currency bond John O’Connell

drawee John O’Connell

In export financing, the person or entity respon sible for paying a b i l l o f e x c h a n g e or d r a f t . Usually, the importer’s bank is desig nated as the drawee on behalf of the importer.

A bond issued in one currency, but redeemable in another currency. Until maturity, interest payments on the bond are made in the issuing currency. The intent of structuring such a bond is to take advantage of low interest rates associ ated with one of the stronger currencies, yet at maturity redeem the bond in the home country’s currency.

drawer John O’Connell

In export financing, the person or entity who receives the proceeds of a b i l l o f e x c h a n g e or d r a f t . Usually, the buyer or importer of goods (d r a w e e ) causes a draft to be drawn in the favor of the seller or exporter (drawer).

due diligence John O’Connell

The requirement that organizations must de velop and deploy a protection plan to prevent fraud and abuse, and additionally deploy a means to detect them if they occur.

drop-lock floating-rate note John O’Connell

An interesting combination of a bank loan and a bond (usually found only in international finance). The float rate note portion is a stand

dumping Kent A. Jones

According to the traditional definition, dumping is the practice of price discrimination in

104

duty

international trade, in which the exporter charges a lower price for a specific product in the export market than in his or her home market. International trade law, as embodied in the g e n e r a l a g r e e m e n t o n t a r i f f s a n d t r a d e (GATT) article VI, recognizes two add itional definitions of dumping, which can be applied if the exporter’s home price is deemed inappropriate as a basis for comparison: 1 charging a lower price for a product in one export market than in another export market; 2 charging a price that does not cover the cost of production, including a ‘‘reasonable’’ add ition for selling cost and profit. US international trade law generalizes the definition of dumping as the sale of an imported product at ‘‘less than fair value’’ according to the applicable basis of price comparison. According to GATT rules, if an investigation finds that dumping has taken place and ‘‘injures’’ a domes tic industry (see below), the importing country can impose an anti dumping duty in the amount of the difference between the export price and the ‘‘fair value’’ price. Viner (1991) was the first to offer a systematic investigation of dumping. For the purposes of economic analysis, the central questions focus on the motivation for and welfare effects of dumping. If an exporting firm with price making power has the ability to isolate markets with differing price elasticities of demand, for example, simple profit maximizing behavior mo tivates a systematic pricing policy of dumping as an international form of third degree price dis crimination (‘‘persistent’’ dumping, in Viner’s terms). Typically, factors such as transportation cost or import restrictions in the exporter’s home country, as well as an international market structure restricting competition, contribute to the exporter’s ability to price discriminate. In addition, temporary surpluses may lead to ‘‘sporadic’’ dumping and third party consign ment sales may lead to pricing differentials that can be characterized as ‘‘inadvertent’’ dumping. In these scenarios, dumping generally improves consumer welfare in the importing country while decreasing the welfare of import competing producers, with a net gain to the

importing country as long as competition itself is not significantly reduced. The main focus of anti dumping laws, how ever, is the fear of p r e d a t o r y d u m p i n g , which is presumably motivated by a strategy by the exporter of undercutting prices of domestic producers in the targeted export market in order to drive them out of business and monopolize the market, thus decreasing total welfare in the importing country. Typically, such a strategy would require pricing below the marginal cost of production, which differs significantly from that of simple price discrimination. In addition, the ‘‘cost of production’’ definition of dumping, described above, may merely reflect the loss minimizing practice of equating marginal rev enue and marginal cost and then setting price below average total cost but above the shut down point of the firm when the firm’s demand curve lies below its average total cost curve. In short, dumping may merely reflect traditional profit maximizing/loss minimizing behavior by firms in international markets that does not involve predatory motives. Although the conditions for a successful preda tory strategy are difficult to fulfill (see Boltuck and Litan, 1991: ch. 1), anti dumping laws are driven principally by the fear of predatory dumping, whether or not there is evidence that the exporter is capable of pursuing such a strat egy. According to GATT rules, in order to impose anti dumping duties an anti dumping in vestigation must establish (1) that dumping has taken place and (2) that the dumping causes or threatens ‘‘material’’ injury to a domestic industry. Bibliography Boltuck, R. and Litan, R. E. (1991). Down in the Dumps: Administration of the Unfair Trade Laws. Washington, DC: Brookings Institution. Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

duty John O’Connell

A tax on goods imported into (or exported from) a country. The purpose of a duty is to increase

duty the price of goods to make domestic goods more competitive or to raise tax revenues for a govern ment. Duties may also be used to punish export ers or countries for unfair trade practices. There are a number of different types of duties which may be applied to imports or exports: 1 Ad valorem duty. Ad valorem duties are taxes which are paid on imported items. The duty is expressed as a percentage amount of the value of goods which clear customs. Thus, if a 10 percent ad valorem duty was due on $50,000 worth of goods, the duty would amount to $5,000. 2 Anti dumping duty. From time to time, prod ucts imported into a country have sales prices which are far below the exporter’s local market for such goods. This means the goods are sold for less in other countries than their market price in the exporter’s home country. When this occurs production and distribution of similar domestic prod ucts of the importing country may be harmed. In order to protect local industry, taxes may be imposed on specific imports to drive their prices up, thereby allowing local industry to compete. This tax is sometimes referred to as an anti dumping duty (see d u m p i n g ). 3 Autonomous duty. Autonomous duties are levied as penalties against persons who at tempt to circumvent customs restrictions or quotas. They are also applied to protect do mestic industry against an unexpected in crease in imports of specific types of products. 4 Compensatory duty. A reduction in tax for one commodity in exchange for increased taxes on others. A country may reduce duties on some imports from a particular country to offset higher duties being paid on other com modities. It is possible that higher duty items are more subject to public scrutiny and thus require the duty to remain high. To provide some break to a country’s trading partner, duties on other items may be relaxed. 5 Concessional duty. A duty between trading partners which is very low. Concessional duties are also applied by industrialized nations to developing nations in order to promote developing country economic growth.

105

6 Countervailing duty (CVD). When a foreign government provides subsidies for the production of goods, those goods can be exported at low sales prices. In an attempt to offset the impact of exporting country subsidies, importing countries often attach a special duty to counter the low import price (thus, the name counter vailing duty). The CVD raises the price of the import, thereby reducing the competi tive effects of the export country’s original government subsidy. 7 Differential duty. A duty based on the status of trading partners. Those countries seen as the most advantageous partners generally receive lower duties than partners whose trade status is not as high. 8 Exclusionary duty. This duty is aimed dir ectly at stopping the importation of certain items or punishing a country for unfair trade practices. The suggested US 100 per cent duty on Japanese luxury automobiles in 1995 is an example of an exclusionary duty imposed to punish Japan for what the US believed were unfair trade practices. 9 Marking duty. ‘‘Marking’’ is the indication of imports as to the country of origin. If improper marking occurs an additional duty is applied as a penalty. 10 Penalty duty. Any duty which is additional to regular duties. Penalty duties are im posed to add additional costs on an ex porter/importer for not complying with fair trade practices or the customs laws of a country. Penalty duties include marking duties, exclusionary duties, anti dumping duties, and retaliatory duties. 11 Preferential duty. When a country offers favored treatment to another country it often does so by reducing duties on prod ucts imported from that country. Such duties are referred to as preferential duties. 12 Prohibitive duty. A duty designed to stop the flow of imports of specific goods. Pro hibitive duties may be arranged so as to apply at a low rate for a specified number or value of goods and then at a much higher or prohibitive rate for additional numbers of imports. 13 Protective duty. A tax placed on imported goods to carry out protectionist activities of

106

duty remission

a government. Taxes increase the cost of imports to consumers, thereby reducing their demand. Properly applied duties will increase the development of local in dustry, as well as protect it from foreign competition. 14 Retaliatory duty. A penalty duty (in add ition to other duties) imposed by a country to punish another country for unfair trade practices. President Clinton’s 1995 threat to increase US duties to 100 percent on imported Japanese luxury cars was in retali ation for Japan’s closed markets with re spect to most imports. 15 Specific duty. A tax levied on imports. The amount of duty is specified as an amount per unit of weight or unit of other measure ment (e.g., $1 per item imported or $1 per pound or hundredweight). 16 Unilateral duty. A duty imposed by execu tive order to punish a country for unfair trade practices. It may also be used to reduce the flow of specific types of imports. Unilateral duties are temporary, lasting until the trade problem has been resolved. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Czinkota, M. R., Rivoli, P., and Ronkainen, I. A. (1989). International Business. Chicago, IL: Dryden Press. Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley. Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin. Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill. Taoka, G. M. and Beeman, D. R. (1991). International Business. New York: HarperCollins. Toyne, B and Walters, G. P. (1993). Global Marketing Management. Boston, MA: Allyn and Bacon. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

duty remission John O’Connell

When goods are imported duties are commonly paid. Duties add to the cost of the goods. If goods are to be combined into other products and then re exported the government may allow import duties to be refunded. The refunding of a duty essentially lowers the cost of goods for the importer, making it more likely that additional goods will be imported and then re exported. This increase in export activity is the ultimate goal of duty remission.

dynamic response Jeanne McNett

Dynamic response is a managerial approach to global complexity that involves four types of interrelated processes: collaborating, discover ing, architecting, and systems thinking. Collab orating involves establishing relationships that are respectful, trustful, community building, and mutually accountable. Discovering has to do with learning and creating. Architecting aligns and balances the organization. Systems thinking is the ability to see the interrelation ships among components and levels in an organ ization and to anticipate the effects of change to the organization, both within and outside it. Development of dynamic response involves r e q u i s i t e v a r i e t y ; that is, organizations need to be as complex as their contexts or envir onments. Bibliography Ashby, W. R. (1957). An Introduction to Cybernetics. London: Chapman and Hall. Easterby-Smith, M. and Lyles, M. A. (2003). The Black well Handbook of Organizational Learning and Know ledge Management. Oxford: Blackwell. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

dynamic response Pascale, R., Millemann, M., and Gioja, L. (2000). Surfing the Edge of Chaos. New York: Random House. Prahalad, C. K. (1990). Globalization: The intellectual and managerial challenges. Human Resource Manage ment, 29 (1), 30. Zack, M. H. (2001). If managing knowledge is the solution, then what’s the problem? In Y. Malhotra (ed.),

107

Knowledge Management and Business Model Innovation. Bloomington, IN: Idea Group Publishing. Zack, M. H. (2003). Rethinking the knowledgebased organization. Sloan Management Review, 44 (4), 67 71.

E EBRD

Bibliography

see e u r o p e a n b a n k f o r r e c o n s t r u c t i o n and development

Miletello, F. C. and Davis, H. A. (1994). Foreign Exchange Management. Morristown, NJ: Financial Executives Research Foundation. Weigand, R. (1983). International investments: Weighing the incentives. Harvard Business Review, July Aug., 146 52.

E-commerce John O’Connell

E commerce means all forms of business activities conducted across the Internet. It includes e tailing, B2B, intranets and Extranets, online advertising, and other online presence of any form used for some type of communication (e.g., customer service). E tailing is a subset of e commerce and means retailing over the Internet. An e tailer is a B2C business that executes a transaction with the final customer. E tailers can be ‘‘pure play’’ businesses like Amazon.com.

economic exposure John O’Connell

The foreign exchange risk associated with doing business in other countries. The total economic exposure is the extent to which the overall pre sent value of an organization may be impacted by fluctuating exchange rates. The selling of prod ucts, obtaining of raw materials or subproducts, and other activities renders a business to eco nomic exposure. The value of currency may rise or fall before, during, or after a transaction takes place. Parties to import–export transactions or businesses doing business in other countries are therefore exposed to losses related to deterior ating currency values while awaiting payment for goods already delivered or those currently being delivered.

economic integration John O’Connell

Economic integration is the final step in cooper ation between countries to establish freedom of movement of goods, services, and people. True economic integration would mean the following to member nations: no barriers to trade or flow of goods; free flow of capital and financial re sources; and freedom of people to move within the borders of the association of countries. A common monetary system and policy are es sential for viable economic integration. One of the major problems associated with economic integration is that individual countries must be willing to give up some of their national power and control in favor of what some call a supra national agency (an organization with authority over a group of nations). The European Union is an example of a c o m m o n m a r k e t organiza tion which has achieved economic integration. See also supranational agencies Bibliography Springer, B. (1992). The Social Dimension of 1992: Europe Faces a New EC. New York: Greenwood Press. Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

education allowance economic union John O’Connell

Economic unions are agreements between coun tries to coordinate and guide the economic de velopment and activities of the member countries. Economic unions are often referred to as trading blocs or common markets. In order for an economic union to be successful, national borders between member countries must be open to free trade and free movement of capital, people, and other resources. Movement must be made toward standardizing monetary systems between countries or possibly introducing a single monetary system. Examples of economic unions in various stages of development include the European Union, the North American Free Trade Agreement, the Latin American Integra tion Association, the Economic Community of West African States, and the Association of Southeast Asian Nations. Bibliography Springer, B. (1992). The Social Dimension of 1992: Europe Faces a New EC. New York: Greenwood Press. Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

109

samples. Under the ECS carnet literally all entry requirements are nullified. Thus, no duties are payable on commercial or sales samples. The ECS carnet is usually good for up to one year.

edge corporation John O’Connell

This is a US term describing a US organization established to conduct international banking ac tivities (also formally known as an agreement corporation). An edge corporation is a US bank branch or subsidiary of a US based corporation that is used mainly for international banking purposes. Edge corporations have been allowed to operate since 1981 by US banking authorities as a response to competition from foreign banking centers. These special corporations are exempt from normal banking and antitrust legis lation with regard to pricing and restrictive trade practices. This allows edge corporations to be more creative and flexible in their activities than regular US banks. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

economic zone John O’Connell

Economic zones are designated regions in a country which operate under rules that provide special investment incentives, including duty free treatment for imports, for manufacturing plants which re export their products.

ECS carnet John O’Connell

This is a very specific c a r n e t . ECS stands for echantillon carnet sample. The ECS carnet is used specifically for trade samples or other com mercial samples (not imports, just samples). It allows the importer of sales or trade samples to delay or avoid payment of import duties on

education allowance John O’Connell

When a person is accompanied by family members on an overseas a s s i g n m e n t , special arrangements are often made for the children’s education. Differences exist in educational facil ities and programs throughout the world. To exactly match the needs of a child in two differ ent countries may be difficult. An education allowance provides funds which may be used to provide special education opportunities or enroll a student in a private school. In this way the child’s educational progress will be affected as little as possible by the move to a foreign country. See also compensation package (expatriate)

110

effectiveness cycle

effectiveness cycle Jeanne McNett

This is the series of actions in which managers engage in order to be effective. The three step, repetitive cycle begins with the manager’s ability to perceive, analyze, and decode a situ ation; that is, to understand what is occurring in the environment. The second step is to identify accurately what managerial action would be most effective in the situation. The third step, which leads back to the first, is to possess the behavioral repertoire and flexibility to act appro priately, and then, to do so (Bird and Osland, 2004).

Mintzberg, H. (1973). The Nature of Managerial Work. New York: Harper and Row. Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. Columbia Journal of World Business, 4, 9 18. Perlmutter, H. V. and Heenan, D. A. (1974). How multinational should your top managers be? Harvard Busi ness Review, 52 (6). Weick, K. E. (1996). Sensemaking in Organizations. Newbury Park, CA: Sage.

EFTA

see e u r o p e a n f r e e t r a d e a s s o c i a t i o n

Bibliography Barnard, C. (1968). The Functions of the Executive. Cambridge, MA: Harvard University Press. Berger, P. L. and Luckman, T. (1966). The Social Con struction of Reality. New York: Anchor Books. Bird, A. and Osland, J. (2004). Global competencies: An introduction. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complex ity. Oxford: Blackwell. Drucker, P. (1954). The Practice of Management. New York: Harper.

EIB

see e u r o p e a n i n v e s t m e n t b a n k

embargo John O’Connell

To embargo is to prohibit or forbid the move ment of certain or all goods to a certain country

Perceive, analyze, diagnose-decode the situation

Possess the behavioral repertoire and flexibility to act appropriately, then do so

Figure 1 What effective managers do (Bird and Osland, 2004)

Accurately identify what managerial action would be most effective in the situation

emergent states or countries. One of the most significant embar goes was that placed against Iraq after its inva sion of Kuwait in the early 1990s. As with the UN sanctioned embargo of Iraq, most embar goes are implemented in times of war or to attempt to force political change other than by military force. Embargoes are difficult to imple ment and even more difficult to enforce over long periods of time. Embargoes not only harm the country upon which they are imposed, but also all of the international exporters and sup port organizations who were involved with export of goods and services to that country. Bibliography Korth, C. (1985). Barriers to International Business. Englewood Cliffs, NJ: Prentice-Hall.

embassy John O’Connell

An official diplomatic delegation of a nation which represents that country’s interests in a foreign country. An embassy is the highest level of diplomatic representation and is located in the capital city of a foreign country. Embassy activities are managed by an ambassador who is designated an official representative by the highest government officials of his or her coun try. In this capacity the ambassador is respon sible for carrying out all diplomatic activity between the home and host country.

EMC

see e x p o r t m a n a g e m e n t c o m p a n y

emergent states Jeanne McNett

Team members collectively create a broad mental environment for their interaction based on their predispositions and assumptions (Davi son and Ekelund, 2004). The conditions of this environment that shift and evolve as teams work

111

together are known as emergent states. The three most important emergent states for teams are mutual trust, collective team identity, and confidence in the team’s ability to achieve its tasks. Each of these states is an aggregate of the views individual team members hold and they influence and are influenced by team interaction in a synergistic way. High levels of the emergent states are more likely to increase commitment, participation, openness, and honesty, while lower levels tend to undermine trust, cohesion, and confidence. At the beginning of the team, members will attribute levels of these states to team members and to the team as a whole. If task and social processes in the team evolve effectively, these states are enhanced until high levels are shared by nearly all the team members. Though these three dimensions are important for any team, factors such as cultural differences and geographic distance make them particularly important for g l o b a l t e a m s and virtual teams. The emergent state of trust is especially relevant for global teams. High levels of trust allow global teams to work together, especially when they are geographically distributed (Davi son and Ekelund, 2004). Trust provides a safe environment in which team members can ex plore issues and make decisions for one another. Different team tasks require different kinds and levels of trust. For example, routine administra tive tasks such as coordinating meetings require reliability, whereas more complex tasks such as product development require confidentiality, discretion, and openness. In a global team, members may begin with different preponderances to give trust, so a special focus on building trust is appropriate. Processes include creating safe boundaries for interaction and establishing constructive norms for collaboration, inclusive decision making, and conflict resolution (Davison and Ekelund, 2004). With virtual teams, the emergent state of trust may be supported through a discussion of what trust means among team members. Team members need also to remember that people understand and reciprocate trust differently. When team members act to support the trust that is developed early, this trust can be used to support other positive emergent states that can help goal achievement.

112

employee categories

Bibliography Canney Davison, S. and Ward, K. (1999). Leading Inter national Teams. London: McGraw Hill. Davison, S. and Ekelund, B. (2004). Effective team processes for global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. DiStefano, J. J. and Maznevski, M. L. (2000). Creating value with diverse teams in global management. Organ izational Dynamics, 29 (1), 45 63. Duarte, D. L. and Snyder, N. T. (1999). Mastering Vir tual Teams. San Francisco: Jossey-Bass. Gibson, C. B. and Early, C. (2002). Multinational Work Teams: A New Perspective. Mahwah, NJ: Lawrence Erlbaum Associates. Hackman, J. R. (2002). Leading Teams: Setting the Stage for Great Performances. Cambridge, MA: Harvard Business School Press. Marks, M. A., Mathieu, J. E., and Zaccaro, S. J. (2001). A temporarily based framework and taxonomy of team processes. Academy of Management Review, 26 (3). Maznevski, M. L. and Athanassiou, N. (2003). Designing the knowledge-management infrastructure for virtual teams: Building and using social networks and social capital. In C. B. Gibson and S. G. Cohen (eds.), Virtual Teams That Work. San Francisco: Jossey-Bass.

employee categories John O’Connell

A multinational company may employ workers from a number of different countries. Employees are often classified by their country of origin. The implications associated with hiring persons from each category will be discussed after detailing each of the most common employee categories. Multinational firms that operate in a number of countries may select employees from a variety of sources: a company may hire parent country nationals (PCNs), who are defined as persons from the home country of the organization, to fill positions at overseas locations. When PCNs are sent overseas they are referred to as expatri ates. The use of expatriates, however, is often restricted by the host country government. Host countries place limits on numbers of expatriates or make it difficult, administratively, to secure proper work papers. A multinational using ex patriates may also find itself with a system of

management which becomes extremely expen sive and difficult to perpetuate (see e t h n o c e n t r i s m ; e x p a t r i a t e ). A multinational firm may also hire h o s t c o u n t r y n a t i o n a l s (HCNs) to staff its overseas operations. Host country nationals, who know the local culture and monetary system, will not have problems fitting into the society, and will not have the c u l t u r e s h o c k and other problems commonly associated with expatriate employees. Hiring host country na tionals will also meet host government leanings toward keeping the benefits from multinational companies within its borders. Problems may arise, however, in that there may be few host country nationals who have the experience ne cessary to be productive in a new organization. Lack of local educational opportunities or simi lar industries in the host country poses a real problem for multinationals. Often, multinational companies will be forced to overstaff in order to meet local demands, while at the same time providing overall supervision through the use of expatriates. Generally, as time passes and local workers gain experience, overstaffing prob lems disappear (see p o l y c e n t r i c a p p r o a c h t o h i r i n g ). A multinational firm could also hire persons from outside either the home or host country. For example, a French firm with a subsidiary in Brazil may transfer a British manager to work in Brazil. This is an example of using a t h i r d c o u n t r y n a t i o n a l (TCN) to fulfill em ployment needs. Although the person chosen may be the best from a management or skill point of view, the TCN may suffer from the same problems as any other expatriate and the company may run afoul of host government wishes (see g e o c e n t r i s m ). The hiring of employees for overseas oper ations is an extremely important task. Not only do employees need to have the technical abilities to carry out their jobs, but also they require the cultural knowledge to live successfully in a dif ferent country. Employee selection also may be affected by host country governments seeking to provide local benefits. Bibliography Brown, R. (1987). How to choose the best expatriates. Personnel Management, June, 67.

entrepoˆt trade Hays, R. D. (1974). Expatriate selection: Insuring success and avoiding failure. Journal of International Business Studies, 5, 25 37. Ronen, S. and Tung, R. L. (1981). Selection and training of personnel for overseas assignments. Columbia Jour nal of World Business, spring, 68 78. Tung, R. L. (1984). Strategic management of human resources in the multinational enterprise. In Human Resource Management. New York: John Wiley and Sons.

employment contract John O’Connell

Employment contracts are common in inter national business. An employment contract details the conditions of employment, including salary, benefits, overseas allowances, vacation or other release time, days and hours of work, confidentiality of information, severance pay, etc. Although not required in many companies, employment contracts should be considered when benefits, living conditions, allowances, etc., differ from those provided to domestic em ployees. A common cause of such differences is an overseas a s s i g n m e n t . Employment contracts could also be a part of the collective bargaining process in which union or other groups of employees enter into formal contracts to provide labor or other services. Bibliography Business International Corporation (1982). World Execu tive Compensation and Human Resource Planning. New York: Business International Corporation.

EMS

see e u r o p e a n m o n e t a r y s y s t e m

113

ther describe encryption systems. Similarly, under military conditions, encryption may be described as providing ‘‘privacy’’ or ‘‘security.’’

enroute expenses John O’Connell

Travel expenses between the home country and an a s s i g n m e n t location are referred to as enroute expenses. Enroute expenses include air fare and other transportation expenses, meals, hotel costs, tips, and other incidental expenses. Enroute expenses can be very high and should be reimbursed (or better yet, paid in advance) by the employer. See also compensation package (expatriate)

entering foreign markets

see m a r k e t e n t r y s t r a t e g i e s

Enterprise for the Americas Initiative (EAI) John O’Connell

The Enterprise for the Americas Initiative is a long run plan to unify North and South Ameri can countries into a hemispheric trading group. The North American Free Trade Agreement is the latest step in linking the Americas into a powerful trading bloc. In order to be successful the industrialized nations of the area must commit vast resources to further the develop ment of many Latin American countries. The goal of the EAI is very ambitious, but recent achievements in the area of trade agreements as well as movement toward more political and economic stability in Central and South America provide added hope for its success.

encryption John O’Connell

One of a number of approaches to convert ‘‘plain text’’ or data into information that is unreadable except for the intended recipients. Adjectives like ‘‘weak’’ and ‘‘strong’’ are often used to fur

entrepoˆt trade John O’Connell

Entrepoˆt is a French word meaning a place to store goods on a temporary basis for redistribution.

114

entry documents

Entrepoˆt trade takes place when goods are brought to a warehouse where they are prepared for re exporting. Preparation may include pack aging or repackaging, consolidation, or being held for auction in preparation for re exporting. Major centers for entrepoˆt trade are Hong Kong, Rotterdam, and Singapore. These ports (ocean and air) provide easy access to other modes of transportation for redistribution or transship ment of goods.

entry documents John O’Connell

When goods are imported into a country they first must pass through customs for inspection, application of duties, and formal review of docu ments required for entry. If entry documents are not made available or are incomplete, goods will not normally be allowed to enter. Entry documents which may be required include the following: 1

2

3

4

Commercial invoice. A commercial invoice is a document which is used to provide details of an international trade transaction. Infor mation normally required includes the buyer and seller’s names, types of property, value of goods, origin and destination points, and parties accepting delivery of goods. Pro forma invoice. Sometimes the commer cial invoice associated with an export/import transaction is not available when goods are ready to enter a country. The US customs authorities allow the importer to substitute a pro forma invoice until the original commer cial invoice can be presented. Customs invoice. Some countries require a customs invoice. A customs invoice must be completed on the form specified by the country. The invoice includes information which the country desires to know but which is not found on the ordinary commer cial invoice. Entry manifest or customs manifest. Some countries require that a specific form, re ferred to as an entry or customs manifest, be provided. The manifest acts as documen tation of the release of the goods.

5 Proof of right of entry (b i l l o f l a d i n g or evidence of title or possession). Documents usedtoproveownershiporlegalpossessionof goods are needed in order to allow their entry – in other words, proof that the goods are being brought to a country by a party who has the legal right to seek entry for those goods. 6 Packing list. Generally, a shipper will pre pare a form that lists the types and quantities of goods being shipped. The list is used by the shipper and the receiver of goods to verify receipt of goods. This list may also be required by some customs authorities. 7 Certificate of origin. Some countries impose tariffs on certain goods from certain coun tries. In order to determine which imported goods are subject to tariffs, a country may require a document certifying the country of origin of the goods. The certificate allows a country to properly assess applicable tariffs or to release goods in a shorter period of time if no duties are payable. 8 Certificate of health. When exporting goods which are meant for human consumption or for use in medical care of humans, all coun tries require that certification of the prod uct’s purity be provided. The document is generally required to be certified by appro priate officials of the exporting country. The intent of health certification is to reduce the chances of importing contamin ated goods which may cause disease or introduce pests into a country. 9 Surety bond. Customs authorities often re quire importers to post a bond to guarantee payment of duties or other assessments. If duties and costs are not paid the customs authority may apply to the surety for pay ment under the bond. 10 Phytosanitary inspection certificate. A phyto sanitary inspection certificate is an official government statement from the exporting country that exports of plants, animals, meat, and other commodities have been inspected and are free from disease or insects which might damage the health or agriculture of the importing country. 11 Miscellaneous documents. Customs author ities also may request special documents associated with certain types of property or for imports from certain countries.

environment and environmental ethics Importers and exporters should seek assistance from the customs authorities of each country before entering into import/export contracts. This will allow the identification of documents required to complete the transaction. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. International Chamber of Commerce (ICC) (1990). Inco terms 1990. New York: ICC Publishing. Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

entry strategies

see m a r k e t e n t r y s t r a t e g i e s

environment and environmental ethics Laura Westra

In the sense intended by environmental ethics (EE), environment refers specifically to the nat ural world of which humans are a part. It in cludes landscapes which function according to evolutionary natural processes. However, since humankind has substantially altered many nat ural systems, the environment also includes areas manipulated for human use, including landscapes where agriculture, agroforestry, and cities are located. EE appears at first to be a species of applied ethics, like business ethics or bioethics, applying ethics to the problems of human interaction with the environment. Unlike those disciplines, how ever, EE goes beyond the appropriate applica tion of familiar doctrines to a certain species of practical problems: it requires that we extend or transcend our accepted moral doctrines because it forces us to rethink the boundaries of the

115

morally considerable. Whatever our moral per suasion, we must go beyond the ‘‘anthropocen tric’’ paradigm (that is, the position that only humans are morally considerable and that they are at the ‘‘center’’ of our moral reasoning) to establish who or what might possess moral standing. EE is broader and more inclusive than other practical ethics; hence it is, in some sense, a new ethic, addressing as it does totally new problems in many areas (Callicott, 1984; Scherer, 1990; Westra, 1994a). EE requires us to confront problems that cannot be easily resolved if we cling to pure anthropocentrism; they may remain intractable even if ours is a ‘‘weak’’ anthropocentrism, that is, one which admits environmental values beyond those of economic exploitation of nature (Norton, 1991). Thus, the first question raised by EE is where do we draw the boundaries of the moral community? Is sentience necessary for the inclusion of non human animals (Singer, 1993)? Or should we consider all individual organisms equally, because of their individual teleology, their unique desire to realize themselves, which supports their intrinsic worth (Taylor, 1986)? And what of natural ‘‘wholes’’ such as ecosys tems (Rolston, 1988; Leopold, 1949; Westra, 1994a)? Many philosophers argue that all these entities are valuable, hence merit inclusion in the moral community, whereas others draw the line at sentience only, or limit themselves to individ ual rights (Regan, 1983). The approach we choose will dictate how we respond to the many environmental problems we encounter, problems of pollution, resource de pletion, animal exploitation, waste disposal, population explosion, and erosion and depletion of soils; problems involving the air we breathe, the sun that warms the earth, the water and land we need to survive, and biotic impoverishment of habitats, loss of species, climate changes – all of which affect our life support systems. Aside from the moral considerability ques tion, other novel aspects of environmental prob lems predicate the need for a new ethic. All actions in regard to the environment can now be defined as upstream/downstream, as all our activities have unprecedented effects through the future (in time) and globally (in space). Nothing we do, given our increasing techno logical powers, can be viewed as yielding limited,

116

environment and environmental ethics

spatially circumscribed consequences. Thus our actions now require new social constraints, as ‘‘traditionally broad concepts of liberty’’ are no longer appropriate (Scherer, 1990). Further, our environmental moral conflicts are no longer limited to disagreements about external constraints, or conflicts about group preferences. Internal conflicts are also unavoid able: we know that not all our preferences and choices are acceptable, as our very lifestyle has been called into question. Each one of us must thus resolve the internal conflicts between ‘‘con sumer’’ and ‘‘citizen,’’ learning to modify and restrain the former, while emphasizing the latter and our commitment to our community and to life on earth (Sagoff, 1989). A new understanding of what it means to be moral, and an ecological ethics which is ‘‘deep’’ rather than ‘‘shallow,’’ are required, and a changed lifestyle, based on re productive and consumerist restraint, a changed diet, and new intellectual or spiritual goals. EE is a relatively new field, but several con flicting approaches are already discussed in the literature. I alluded earlier to the anthropo centric/non anthropocentric dichotomy. Some argue that to view purely human concerns as central is nothing but speciesism (that is, a pos ition that is based inappropriately on the ‘‘super ior’’ value of our species over others), whereas others respond that only humans can be moral or even appreciate or discuss questions of value, hence the moral view must be human. Another conflict is that between individualists and holists. Some ask whether individual animals or plants have value or even rights. Others argue that wholes such as species, ecosystems, the land, or the biosphere might represent the most appropriate locus of value instead (Rolston, 1988; Leopold, 1949; Westra, 1994a). Yet an other debate centers on the role of science such as biology or ecology in environmental ethics. Those who accept a holistic ethics tend to allow the scientific ‘‘is,’’ uncertain and incom plete though it is, to provide the limits appropri ate to the moral ‘‘ought,’’ which dictates environmentally good actions (Rolston, 1988). Others prefer not to tie EE to the methodological difficulties and the predictive uncertainties of a young, science like ecology, with its many ap proaches and varied scalar perspectives (Shra der Frechette and McCoy, 1993).

In essence, EE is basic to social, political, and economic policy making, and represents one of the major considerations required of business operations. Nowhere can the power and the reach of business have a deadlier impact on human and non human life than through its interaction with the environment. By the same token, it is in the environmental realm that large corporate bodies, particularly multinationals, can make the greatest contribution to the public good, if their operation is seriously guided by an ecologically sound environmental ethics. Examples of destructive business behavior are unfortunately more frequent and better known than their opposites. Bhopal and Exxon Valdez are names everyone has heard, whereas efforts like the funding of buffer zones of sustainability next to Amisconde’s Man in the Biosphere pro ject in Costa Rica, by McDonald’s Corporation, have never made front page news (Lacher and Cesca, 1995). Another environmental problem connected with some business operations is only now being clearly recognized in all its im plications, although it has a long and nefarious history: that of ‘‘environmental racism.’’ Both ‘‘risky business’’ operations and hazardous waste disposal facilities tend to permit economic considerations only to guide their siting policies, and thus most often choose poor areas where house and land values are lower. Hence, they tend to choose existing ‘‘brownfields,’’ already present in and around areas inhabited primarily by persons of color (Bullard, 1994; Westra and Wenz, 1995). When business practices are hazardous to human beings, through their environmental impact, corporations may simply respond by appealing to traditional moral theories to evalu ate their activities. For instance, utilitarian doc trines will dictate that the ‘‘good’’ of the many should represent the proper goal of moral agents; and, provided that the ‘‘good’’ is defined and understood in communitarian terms, rather than as aggregate preferences or purely as eco nomic benefits, this approach may work, at least in a limited manner. Deontological emphasis on respect for human rights, if it is based on Kant’s doctrine of the absolute value of life, would not permit that human health and life be risked, no matter what other benefits might accrue to any of the parties involved. Finally, Rawlsian

environment, cultural ‘‘fairness’’ might serve (a) to limit unjust burdens imposed on some stakeholders in the interest of business development or profit; and (b) to curtail the exploitation of the weakest and most powerless, and thus perhaps to attack en vironmental racism from another direction. In fact, many of the consequences of business operations can be made environmentally sound, simply through a consideration of their possible effect on human beings (thus remaining within the ambit of traditional moral theory, for in stance the harm principle). Businesses should monitor closely their products, their processes, and their practices, in regard to both their in ternal and their external stakeholders, in order not to impose unacceptable risks, often unknown by those exposed to such risks and uncompen sated (Westra, 1994b). However, there are other, more far reaching problems (e.g., questions of siting location or waste disposal) where guidelines reaching beyond present, existing human stakeholders, to the non human environment, may provide a more inclusive perspective. In general, it is hard to quantify, specify, or argue in a court of law hazards to human health which may take years to develop. But both non human animals and the ecosystem habitat we share with other creatures may already be affected in a demonstrable, non controversial way. It is in these cases that ethics that demand respect for the environment as such might be more effective from the moral stand point and that of public policy. The same atti tude may be found increasingly in new regulations and laws. For instance, land use cases which might have been treated as a ‘‘taking’’ in earlier times, now may be dealt with under the heading of ‘‘police powers,’’ to prevent owners’ business choices and to protect some endangered and fragile ecosystems, such as wetland, for future generations, when all may depend on these ecosystems’ ‘‘services.’’ At the international level, biodiversity treat ies, or the ozone protocol, also indicate a trend to universal regulation and away from the need to demonstrate harm to a specific individual before restraints may be instituted. After all, even the Endangered Species Act demands the protection of habitats in order to insure its goals in regard to some species. Finally, even major economic players such as the World

117

Bank have also changed their practices to empha size the importance of environmental impact, which is now the major consideration in its lend ing policies (Goodland and Daly, 1995). Bibliography Bullard, R. (1994). Dumping in Dixie. Boulder, CO: Westview Press. Callicott, J. F. (1984). Non-anthropocentric value theory and environmental ethics. American Philosophy Quar terly, 21. Goodland, R. and Daly, H. (1995). Environmental sustainability: Universal and non-negotiable. In L. Westra and J. Lemons (eds.), Perspectives on Implementing Eco logical Integrity. Dordrecht: Kluwer Academic Publishers. Lacher, T. and Cesca, R. (1995). Ethical obligations of multinational corporations to the global environment: McDonald’s and conservation. In L. Westra and J. Lemons (eds.), Perspectives on Implementing Eco logical Integrity. Dordrecht: Kluwer Academic Publishers. Leopold, A. (1949). A Sand County Almanac and Sketches Here and There. New York: Oxford University Press. Norton, B. (1991). Toward Unity Among Environmental ists. New York: Oxford University Press. Regan, T. (1983). The Case for Animal Rights. Berkeley: University of California Press. Rolston, H. (1988). Environmental Ethics. Philadelphia, PA: Temple University Press. Sagoff, M. (1989). The Economy of the Earth. Cambridge, MA: Cambridge University Press. Scherer, D. (ed.) (1990). Upstream/Downstream: Issues in Environmental Ethics. Philadelphia, PA: Temple University Press. Shrader-Frechette, K. and McCoy, E. (1993). Method in Ecology. Cambridge: Cambridge University Press. Singer, P. (1993). Practical Ethics, 2nd edn. New York: Cambridge University Press. Taylor, P. (1986). Respect for Nature. Princeton, NJ: Princeton University Press. Westra, L. (1994a). An Environmental Proposal for Ethics: The Principle of Integrity. Lanham, MD: Rowman Littlefield. Westra, L. (1994b). Corporate responsibility and hazardous products. Business Ethics Quarterly, 4 (1), 97 110. Westra, L. and Wenz, P. (eds.) (1995). The Faces of Environmental Racism: Confronting the Global Equity Issue. Lanham, MD: Rowman Littlefield.

environment, cultural

see c u l t u r a l d i v e r s i t y

118

environmental analysis analysis and manipulation, but there is no substi tute for the human characteristics of alertness, curiosity, and openness to innovation which are essential in turning environmental scanning into environmental understanding.

environmental analysis

see e n v i r o n m e n t a l s c a n n i n g

environmental orientation Bibliography

John O’Connell

This is part of the training process for employees who expect to be assigned to overseas locations. In addition to the cultural aspects of the new country, employees must also be familiar with the political scene, language, monetary system, transportation and communications systems, and other aspects of the living environment. Knowledge of these items will decrease incon venience and stress for the new e x p a t r i a t e .

Brownlie, D. (1994). Environmental scanning. In M. J. Baker, The Marketing Book, 3rd edn. London: Heinemann, 139 92. Calori, R. (1989). Designing a business scanning system. Long Range Planning, 22 (113), 69 82.

EPC

see e u r o p e a n p a t e n t c o n v e n t i o n

See also expatriate training EPZ environmental scanning

see e x p o r t p r o c e s s i n g z o n e David Yorke

Environmental scanning is the process of exam ining the marketing environment, usually with the intention of identifying trends and develop ments in the environment which may require marketing strategies or tactics to be adjusted. The complexity, volatility, and potential strategic significance of environmental developments are becoming more apparent to many organizations and there is increasing attention to using infor mation and c o m m u n i c a t i o n technologies to cope with the rapidly growing volume of data concerning environmental developments. For example, there are now many commercially avail able marketing information systems (MkIS) and executive information systems (EIS) which claim to offer environmental scanning services. On closer examination, however, these systems often only scan those aspects of the environment at which they are ‘‘directed’’ (through program ming) by the systems designers and managers involved and so they risk perpetuating and legit imizing the very perceptual prejudices which they are meant to correct. Computer systems do, of course, provide a valuable aid to coping with the sheer diversity and volume of environmental data, both in terms of scanning and in terms of

equal opportunity John O’Connell

US government action intended to offer equal access to employment opportunities for all citi zens. In the beginning, equal opportunity regu lations applied only to women and minorities, but have since been expanded to include handi capped persons and others. The reason for equal opportunity regulation is not only to correct what the government felt was unfair treatment in the past but also to stop further discrimination from occurring to other groups of people. Any organization coming to a country with equal opportunity laws must strictly comply with these laws. Severe penalties apply to any organ ization found to be in non compliance. See also affirmative action; pay equity

equivalence of advantages

see r e c i p r o c i t y

escrow passwords equivalent treatment John O’Connell

When two countries agree to treat goods imported from each other as if they were local goods (i.e., the same laws and regulations which apply to local goods are applied to imported goods). Thus, imported items from countries which are part of the agreement are treated as if they were local goods when applying taxes, product standards, etc. This type of agreement is also referred to as national treatment, a reciprocal agreement, or r e c i procity.

equivocality Jeanne McNett

The international manager faces increased levels of complexity due to three conditions: m u l t i p l i c i t y , i n t e r d e p e n d e n c e , and a m b i g u i t y . Equivocality is one of the causes of this ambiguity, a condition in which different mean ings can be given to the same facts, such mean ings all being equally possible. The result of equivocality is that identifying the intended in terpretation is difficult (Lane, Maznevski, and Mendenhall, 2004). Bibliography Daft, R. L. and Weick, K. E. (1984). Toward a model of organizations as interpretation systems. Academy of Management Review, 9 (2), 284 95. Easterby-Smith, M. and Lyles, M. A. (2003). The Black well Handbook of Organizational Learning and Know ledge Management. Oxford: Blackwell. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Pascale, R., Millemann, M., and Gioja, L. (2000). Surfing the Edge of Chaos. New York: Random House. Senge, P. M. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Doubleday Currency. Waldrop, M. M. (1992). Complexity: The Emerging Science at the Edge of Order and Chaos. New York: Touchstone.

119

Weick, K. E. (1996). Sensemaking in Organizations. Newbury Park, CA: Sage. Weick, K. E. and Van Orden, P. (1990). Organizing on a global scale: A research and teaching agenda. Human Resources Management, 29 (1), 49 61. Zack, M. H. (2000). Jazz improvisation and organizing: Once more from the top. Organization Science, 11 (2), 227 34.

escape clause John O’Connell

With respect to international trade agreements between countries, an escape clause gives the ability to a country to temporarily suspend portions of the agreement if domestic industries become seriously threatened by imports. The escape clause essentially allows a country the option of reviewing its trade agreements if import strategies are not working to the mutual benefit of agreeing countries. Unfore seen increases in (or local demand for) imports of a certain industry could cause irreparable harm to local production. Escape clauses are supported by the w o r l d t r a d e o r g a n i z a t i o n (WTO) as a method of beginning the alteration of trade agreements should the need arise. Bibliography Mautner-Markhof, F. (1989). Processes of International Negotiations. Boulder, CO: Westview Press. Simmonds, K. R. and Musch, D. J. (eds.) (1992). Law and Practice Under the GATT and Other Trading Agreements, North American Free Trade Agreements, United States Canada Free Trade Agreements: Bi national Panel Reviews and Reports. Dobbs Ferry, NY: Oceana.

escrow passwords John O’Connell

These are passwords that are written down and stored in a secure location (e.g., a safe) and used by emergency personnel when privileged per sonnel are unavailable.

120

ethical decision-making across cultures

ethical decision-making across cultures Jeanne McNett

In an international context, the difficulty of ethical decision making can be great because the international manager is faced with values he or she may not understand and levels of ambiguity greater than those he or she may face in a domestic situation. In order to make and implement ethical decisions in an international context, the decision maker needs to be able to understand the environment and make sense of it at a complex systems level. This is an especially difficult challenge for the novice international manager, as suggested by table 1, a summary of stages of ethical development of international managers. Making ethical decisions in the global envir onment is a sophisticated skill found at the top of the g l o b a l c o m p e t e n c i e s f r a m e w o r k . Managers in US style organizations, because of the way these organizations develop strategy, control, and motivate, may understand ethics to

Table 1

represent a conflict between the economic and social performance of their organizations. In or ganizations that do not value ethical decision making as central to the strategy process, this perceived conflict may pressure mid level man agers to take ethical shortcuts. In the global environment, such shortcuts may be tempting to the manager who faces time pressure, frus tratingly slow progress rates, and c u l t u r e s h o c k . Global managers need also to remem ber that the implicit ethical values of other cul tures may vary considerably in how they drive organizational activities. Bibliography Buller, P. F., Kohls, J. J., and Anderson, K. (1997). A model for addressing cross-cultural ethical conflicts. Business and Society, 36 (2), 169 93. Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review, Sept. Oct., 48 62. Donaldson, T. and Dunfee, T. W. (1999). Ties that Bind: A Social Contract Approach to Business Ethics. Boston, MA: Harvard Business School Press.

Ethical development of international managers: Stages and characteristics

Manager stage

General characteristics

Stage 5 Expert

Able to read situation intuitively; understands purpose (what the business stands for)

Operational approach to ethics

The framing of an ethical approach happens automatically, based on values and knowledge of the local situation derived from experience. It is seemingly effortless Stage 4 Calculation and rational analysis Ethical analysis is less mechanistic Proficient manager seem to disappear; fluid, seemingly and increasingly more intuitive effortless performance begins to emerge Stage 3 Recognizes the complexity of Begins to think in terms of tradeoffs Competent manager business situations and deeper level values Stage 2 Can detect patterns Builds knowledge of local Advanced beginner environment’s underlying values. May see disconnect/gap between corporate codes and local needs Follows the rules; local events are Stage 1 Novice May not be able to decode fitted to corporate codes environment or foresee potential issues. Relies on organizational codes and guidelines Manager’s values: personal, organizational, and home culture Source: Hosmer (1996)

ethnocentrism Freeman, R. E. and Gilbert, D. R. (1998). Corporate Strategy and the Search for Ethics. Englewood Cliffs, NJ: Prentice-Hall. Hamilton, J. B. and Knouse, S. B. (2001). Multinational enterprise decision principles for dealing with crosscultural ethical conflicts. Journal of Business Ethics, 31, 77 94. Hosmer, L. T. (1996). The Ethics of Management, 3rd edn. Boston, MA: Irwin/McGraw-Hill. Kohls, J. J. and Buller, P. F. (1994). Resolving crosscultural ethical conflict: Exploring alternative strategies. Journal of Business Ethics, 13, 31 8. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. McNett, J. and Sondergaard, M. (2004). Making ethical decisions. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Weiss, J. (2003). Business Ethics: A Stakeholder and Issues Management Approach, 3rd edn. Mason, OH: Thompson South-Western.

ethnocentric approach to hiring John O’Connell

If one is ethnocentric in hiring practices, em ployees of a multinational company who are from the home country will be given preference. This could be because of lack of knowledge of foreign employees’ qualifications for positions or due to bias against workers from outside the home country. Ethnocentric hiring fills all important positions with employees from the home country. This reduces the potential for advancement for all other employees. This method of staffing foreign operations is ex tremely expensive. It also disregards the need to develop management talent in host countries. Ethnocentric hiring may lead to host countries instituting regulations to restrict the number of expatriates coming to the country. See also staffing Bibliography Edstron, A. and Lorange, P. (1984). Matching strategy and human resources in multinational corporations. Journal of International Business Studies, 15 (2), 125 37.

121

Heller, J. E. (1980). Criteria for selecting an international manager. Personnel, May June, 47 55. Martinez, Z. L. and Ricks, D. A. (1989). Multinational parent companies’ influence over human resource decisions of affiliates: US forms in Mexico. Journal of International Business Studies, 20 (3), 465 87.

ethnocentrism Jeanne McNett

This term is for the belief that one’s own culture is superior to others, a belief that is widely found in all cultures. As it applies to international management, an ethnocentric approach applies home country management practices in foreign environments, without consideration of l o c a l r e s p o n s i v e n e s s . Perlmutter (1969) distin guishes three general states of mind international managers can have toward their international involvement: ethnocentric (centered on home country), polycentric (centered on host coun try), and geocentric (centered on the world). Since management education has evolved in the West, and in particular in the US, many management practices taught in business schools tend to be based on Western models. Yet with the break up of the former Soviet Union, the end of apartheid in South Africa, the liberalization of India, and the opening up of China to joint ventures with Western companies, consideration of appropriate management techniques, given the local context, is increasingly important. Bibliography Bennett, C. I. (1990). Comprehensive Multicultural Educa tion: Theory and Practice, 2nd edn. Boston, MA: Allyn and Bacon. Berry, J. W., Poortinga, Y. H., Segall, M. H., and Dasen, P. R. (1996). Cross Cultural Psychology. Cambridge: Cambridge University Press. Den Hartog, D. N. (2004). Leading in a global context. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Harrison, P. R. and Moran, R. T. (1996). Managing Cultural Differences, 4th edn. New York: Gulf Publishing.

122

EU

Jackson, T. (2004). Management in action in developing countries. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Perlmutter, H. V. (1969). The tortuous evolution of the multinational corporation. Columbia Journal of World Business, 4, 9 18. Smith, T. W. (1990). Ethnic Images. (Unpublished GSS topical report No. 19.) Chicago: University of Chicago, National Opinion Research Center. Spindler, G. D. (ed.) (1987). Education and Cultural Pro cess: Anthropological Approaches, 2nd edn. Prospect Heights, IL: Waveland Press.

EU

see e u r o p e a n u n i o n

European Commission John O’Connell

The European Commission is a supranational body (a separate entity whose policies span a number of countries) created by the European Union (EU) to suggest and initiate regulations affecting all EU nations. The commission com prises representatives from each EU nation. The commission attempts to see that the implemen tation of EU directives (policies agreed to by members) is accomplished. The commission also has the power to rule on mergers of com panies which may affect competition and the distribution of goods (mainly drugs and food) which may be unfit for consumption. The com mission is the implementation body of the european union. Bibliography

European Bank for Reconstruction and Development (EBRD)

Yannopoulos, G. N. (1988). Customs Unions and Trade Conflicts: The Second Enlargement of the European Com munity. London: Routledge.

John O’Connell

A bank established in 1991 for the purpose of promoting free enterprise in the former com munist nations of Eastern Europe. The bank’s interests include providing venture capital for industry, assisting firms with privatization of former governmental operations, and assisting in solving the many environmental problems facing Eastern Europe. Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

European company John O’Connell

In line with economic integration efforts, the e u r o p e a n u n i o n (EU) has established a pro cedure for forming ‘‘European companies.’’ A European company is similar to other companies except that it is capitalized in European currency units and must comply with the rules set forth by the EU. Until legal integration occurs, European companies must comply with many of the laws of the specific country in which the company is registered. Although registered in a specific country, an EU company is an accepted legal entity in all EU member countries.

European Central Bank (ECB) John O’Connell

One of the conditions which must be met in order to achieve complete economic integration of the European Community is that a single monetary system be developed under the care of a single central bank: the European Central Bank.

European Council John O’Connell

The European Council is comprised of the heads of government of e u r o p e a n u n i o n member countries. The European Council provides a platform to discuss policy differences and

European Monetary System problems of implementing integration. Because of the high level governmental participation in the council its negotiations lead to suggestions which are generally agreed to by the e u r o p e a n c o m m i s s i o n and the Council of Ministers.

123

Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

European Economic Area (EEA) John O’Connell European Council of Ministers John O’Connell

The Council of Ministers is the highest formal governing body of the e u r o p e a n u n i o n (EU). The council is comprised of representatives of member countries and has responsibility for final action on policies proposed by the e u r o p e a n c o m m i s s i o n . The council has the right to amend or reject policies sent for its review.

The EEA is a planned expansion of the free trade area of Europe. European Economic Area membership includes the countries making up the e u r o p e a n f r e e t r a d e a s s o c i a t i o n (EFTA) and those comprising the e u r o p e a n u n i o n (EU).

European Free Trade Association (EFTA) John O’Connell

European Court of Justice John O’Connell

The European Court of Justice is charged with responsibility over interpretation of e u r o p e a n u n i o n (EU) agreements and the settlement of disputes between member countries and all others seeking EU wide opinions. The opinions handed down by the court are binding on all EU members.

European Currency Unit (ECU) John O’Connell

The European Currency Unit (ECU) was estab lished as the currency or unit of account of the e u r o p e a n m o n e t a r y s y s t e m . It was the first step toward a true national currency for the EU. The value of the ECU was based upon a weighted average of the values of all EU member country currencies. The weighting was associ ated with the economic size of each country. With economic integration, the ECU converted to Euro: 1 ECU ¼ 1 e, on January 1, 1999. Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley.

EFTA is a free trade area comprised of a number of European nations. The association sought to reduce or do away with trade b a r r i e r s be tween member countries in an expedited manner. Most members of EFTA are members of the e u r o p e a n u n i o n .

European Investment Bank (EIB) John O’Connell

The European Investment Bank is the long term lending facility of the e u r o p e a n u n i o n . The bank provides loans to member countries mainly in the area of infrastructure development (com munications, transportation, energy produc tion), as well as for industrial development. The bank also provides loans to less developed countries when the interests of its member coun tries are being served.

European Monetary System (EMS) John O’Connell

The European Monetary System was estab lished by the e u r o p e a n u n i o n (EU) to pro vide a standard system under which barriers to free flow of capital are eliminated. The monetary system developed the European Currency Unit

124

European Parliament

(ECU) as its official monetary unit which became the Euro upon economic integration, January 1, 1999. A standardized system of deter mining and stabilizing exchange rates between member countries was introduced. The Euro pean Monetary Cooperation Fund was estab lished to lend support to member countries with short term balance of payments problems. The EMS played an important role in the eco nomic integration of the EU.

European Parliament John O’Connell

The European Parliament provides advice to the e u r o p e a n c o u n c i l o f m i n i s t e r s and e u r o p e a n c o m m i s s i o n as to suggested pol icies. The parliament has no formal power to accept or reject or change policies, thus its advice may be taken or discarded as the council and commission see fit. The parliament is a demo cratically empowered body. Its members are elected by citizens in the member countries and serve to promote the best interests of the e u r o p e a n u n i o n (EU) as a whole.

at a specified price. The option can only be used on the expiration date of the option. See also American style option; options

European Telecommunications Standards Institute (ETSI) John O’Connell

ETSI was established to research, advise, and assist the e u r o p e a n u n i o n in standardizing the specifications for communications equip ment within the EU. As with other products, communications equipment specifications were not standardized between countries before the advent of the EU. Full economic integration will be assisted by continued efforts toward specifi cations which apply to all EU members. ETSI is only one of a number of research efforts and agreements to harmonize standards throughout the EU. Bibliography Sandholtz, W. (1992). High Tech Europe: The Politics of International Cooperation. Berkeley: University of California Press.

European Patent Convention (EPC) John O’Connell

The EPC is an agreement that establishes a system in which a single patent (the European Patent) is obtained and is legal and enforceable, under the same set of regulations, in all Euro pean nations. A party seeking to register a patent must apply to the European Patent Office in Munich, Germany. The application is reviewed and if approved, a patent is awarded. Under the agreement process, the patent becomes an indi vidual patent in each of the EC nations. Only one application to one agency is required.

European style option John O’Connell

A European style option gives the holder the right to buy or sell a stated amount of currency

European Union (EU) John O’Connell

The European Union (EU) is the name given to a group of European nations who have entered into agreements leading to complete economic integration. The EU is composed of: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Lux embourg, Malta, the Netherlands, Poland, Por tugal, Slovakia, Slovenia, Spain, Sweden, and the UK. Several other countries are seeking membership at this time including Turkey. The EU has succeeded in reducing most b a r r i e r s to trade and movement of goods, services, and people among member countries. Originally referred to as the European Economic Commu nity (EEC), and then the European Com munity (EC), the greatest movement towards

evolution of global organization integration came in 1992 when the majority of intercountry agreements took effect. This was some 35 years after the EU was first conceived under the Treaty of Rome (1957). The EU is governed by four major councils or divisions. 1 European Commission. The European Com mission is a supranational body (a separate entity whose policies span a number of coun tries) created by the EU to suggest and initiate regulations affecting all EU nations. The commission attempts to see that the imple mentation of EU directives (policies agreed to by members) is accomplished. The commis sion also has the power to rule on mergers of companies which may affect competition and the distribution of goods (mainly drugs and food) which may be unfit for consumption. The commission is the implementation body of the EU. 2 European Council of Ministers. The Council of Ministers is the highest formal governing body of the EU. It is comprised of represen tatives of member countries and has responsi bility for final action on policies proposed by the European Commission. The council has the right to amend or reject policies sent for its review. 3 European Court of Justice. The European Court of Justice is charged with responsibil ity over interpretation of EU agreements and the settlement of disputes between member countries and all others seeking EU wide opinions. The opinions handed down by the court are binding on all EU members. 4 European Parliament. The European Parlia ment provides advice to the European Coun cil and European Commission as to suggested policies. The parliament has no formal power to accept or reject or change policies, thus its advice may be taken or discarded as the Coun cil and Commission see fit. The parliament is, however, the closest an EU division gets to a democratically empowered body. Its members are elected by the member countries and, theoretically, serve to promote the best interests of the EU as a whole. Bibliography Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins.

125

Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. European Union website: www.EU.org Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin. Hodgetts, R. H. and Luthans, F. (1994). International Management, 2nd edn. New York: McGraw-Hill. Punnett, B. J. and Ricks, D. (1992). International Business. Boston, MA: PWS-Kent. Springer, B. (1992). The Social Dimension of 1992: Europe Faces a New EC. New York: Greenwood Press. Toyne, B. and Walters, G. P. (1993). Global Marketing Management. Boston, MA: Allyn and Bacon.

evaluation of international managers

see p e r f o r m a n c e e v a l u a t i o n

evolution of global organization John O’Connell

This is the growth path commonly exhibited by organizations as they move from domestic to international operations, and then on to becom ing a global organization. In their article ‘‘Developing leaders for the global enterprise,’’ authors Rhinesmith, Wil liams, Ehlen, and Maxwell postulate that busi nesses go through four stages of development as they begin to enter and are finally absorbed into international trade or other international activ ity. Each stage is more complex than its prede cessor. The stages are: 1

2

Domestic enterprise. An organization operat ing only within the boundaries of a single country. All activities and resources used in its operations are derived from the local economy. Exporter. As an organization finds success locally it may extend its product distribution to include other countries. Generally, this is accomplished by entering into agreements with parties in other countries who act as distributors or purchasers of the organiza tion’s goods or services. The exporter organ ization has little knowledge of (and probably

126

3

4

ex quay

sees little need to know about) international trade, political events, economics, or cultural differences between countries. As exports increase, however, the need to know be comes more important and evident to the organization’s management. International or multinational organization. The organization has grown to the point that its personnel and facilities are forced outside of its home country. Failure to move will result in the organization becom ing unable to take advantage of economies or efficiencies available in other parts of the world. The organization also realizes that it must become more a part of the actual world in which its products or services are being distributed. Although the organization may work through joint venture partners or other agreements, it still maintains control over its operations. Local activities or facilities may be independent but still respond to home office strategic plans and goals. Global enterprise. This organization is a nat ural evolution of the continued growth and expansion of the international organization. There is no place in the world which is not a potential market, source of a partner, or a facilities location. Efficiency and com petition become the driving force instead of a linkage to any particular country or culture.

ex ship

see d e l i v e r e d e x s h i p

ex works (named place) (EXW) Jeanne McNett

This is a trading term which describes the seller’s obligation to make goods available to the buyer at the seller’s location or any other named place, such as a warehouse or factory. Ex works represents the minimum obligation for the seller, since under ex works terms the seller is not responsible for anything except making the goods available to the buyer at the seller’s location. The buyer is responsible for: inland freight charges in the seller’s country; costs of loading the vessel/air carrier; ocean or air freight charges; securing and paying for export insurance; unloading the vessel at its des tination; import duties; and any inland freight charges in the buyer’s country. Ex works is an incoterm. Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/preambles. asp. (30 July, 2004).

Bibliography Daniels, J. D. and Radebaugh, L. H. (1993). International Dimensions of Contemporary Business. Boston, MA: PWS-Kent Publishing. Hodgetts, R. H. and Luthans, F. (1994). International Management, 2nd edn. New York: McGraw-Hill. Phatak, A. V. (1989). International Dimensions of Manage ment, 2nd edn. Boston, MA: PWS-Kent Publishing. Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill. Walter, I. and Murray, T. (1988). Handbook of Inter national Management: International Corporate Planning. New York: John Wiley.

ex quay

see d e l i v e r e d e x q u a y

exchange controls John O’Connell

When a government seeks to modify the results of market forces which establish the value of a currency, the government normally establishes what are referred to as exchange controls. Ex change controls attempt to regulate either the supply of foreign exchange or the parties to which foreign exchange is allocated. Restrictions on the c o n v e r t i b i l i t y of currency or limita tions on the amounts of currency which may be taken from a country are examples of exchange controls. Although use of exchange controls is in disfavor, some countries still apply controls in attempts to solve balance of payments problems. Controls, however, cause additional problems

exclusionary duty because foreign exchange is what is used to pur chase imports. Thus, import transactions will also be affected if exchange controls are instituted. Bibliography Ellsworth, P. T. (1990). The International Economy. New York: Harper and Row.

127

exchange permit John O’Connell

In countries having foreign e x c h a n g e c o n t r o l s , persons seeking to convert currency must make application to the monetary author ity. If the application is approved an exchange permit is issued.

exchange rate exchange exposures

John O’Connell John O’Connell

Exchange exposures are the ways an organiza tion can suffer losses due to changes in the rates of exchange between currencies. The exposure essentially is due to the fact that payables, recei vables, or investments denominated in other currencies may change in value over time. There are two categories of business activity that expose a business to losses due to fluctu ations in exchange rates. 1 Transaction exposure. This exposure arises when a business enters into transactions in which foreign currency payments are expected to be made ‘‘to’’ the business at some time in the future or in which foreign currency payments are to be made ‘‘by’’ the business at some time in the future. As time passes, currency values may change. If for eign currency values fall, the business will be paid in lower value currency. If foreign cur rency values increase, the company will have to use more of its domestic currency to pur chase foreign currency with which to pay debt. 2 Translation exposure. Translation exposure is an accounting measure. If an organization has assets valued in a foreign currency, it faces the possibility that the currency will fall in value. If this occurs, the decrease in value ‘‘translates’’ into reduced value of business assets. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

An exchange rate is the cost of a currency ex pressed in another currency. For example, if one British pound sterling may be exchanged for 1.82 US dollars the exchange rate is $1.82 US/ £1 sterling.

exchange risk

see e x c h a n g e e x p o s u r e s

exchange risk management

see f o r e i g n e x c h a n g e r i s k m a n a g e m e n t

exchange spread John O’Connell

This term describes the difference between the price being offered for a currency (bid price) by a buyer and the price being requested for a cur rency (ask price) by a seller.

exclusionary duty John O’Connell

This d u t y is aimed directly at stopping the importation of certain items or punishing a coun try for u n f a i r t r a d e practices. The suggested US 100 percent duty on Japanese luxury auto mobiles in 1995 is an example of an exclusionary

128

exclusive agent

duty, imposed to punish Japan for what the US believed were unfair trade practices.

exclusive agent John O’Connell

This term refers to the relationship between a principal (e.g., a manufacturing company) and an agent (e.g., a manufacturer’s representative) in which the principal grants the agent exclusive rights (e.g., to sell a particular product in a particular country or region). Thus, the exclu sive agent is the only party who can represent the manufacturer in selling products in a specific geographic region. Anyone seeking the product will have to work through the exclusive agent. In return for the grant of exclusivity, the agent usually agrees to some minimum level of repre sentation and performance. Bibliography Clark, J. B. (1990). Marketing Today. Englewood Cliffs, NJ: Prentice-Hall.

common for multinational companies to send home country nationals to represent the com pany overseas. While in the host country and away from their home country, these employees are referred to as expatriates. Expatriates also include employees from outside of the home country who are transferred to a third country. See also expatriate training; selection of expatriates Bibliography Bird, A. and Dunbar, R. (1991). Getting the job done over there: Improving expatriate productivity. National Productivity Review, spring, 145 56. Howard, C. G. (1991). Expatriate managers. Proceedings of the International Academy of Management and Marketing. Washington, DC: Howard Publication International Academy of Management. Kobrin, S. J. (1988). Expatriate reduction and strategic control in American multinational corporations. Human Resource Management, 27 (1), 63 75. Mendenhall, M. and Oddou, G. (1985). The dimensions of expatriate acculturation: A review. Academy of Man agement Review, 10 (1), 39 47. Napier, N. K. and Peterson, R. B. (1990). Expatriate reentry: What do repatriates have to say? Human Re source Planning, 14, 19 28.

exim bank expatriate allowance

see e x p o r t i m p o r t b a n k

see e x p a t r i a t e d i f f e r e n t i a l exit visa John O’Connell

Exit visas are often required of commercial v i s a holders who have been permitted to work in a foreign country. The exit visa allows immigration authorities to keep track of work permit holders as well as verifying that all local income and other taxes which may be due are paid before the com mercial visitor is allowed to leave the country.

expatriate John O’Connell

An expatriate is a person who is transferred to a foreign country by his or her employer. It is

expatriate assignment Mark E. Mendenhall

An expatriate assignment is a job transfer that takes the employee to a workplace that is outside the country in which he or she is a citizen. There are differences between an ex patriate assignment and other job assignments of an international nature. Expatriate assign ments are longer in duration than other types of international assignments (e.g., business trips) and require the employee to move his or her entire household to the foreign location. Thus, in an expatriate assignment, the employee’s home base of business operations is in the for eign country.

expatriate differential Expatriate assignments offer unique chal lenges to expatriate employees. Virtually all ex patriates run into situations where the home office wants them to do one thing, while local situations dictate that another thing should be done instead. For example, in Japan, local con ditions dictate that market share growth should be the main criterion of a subsidiary’s perform ance, while the home office may force the sub sidiary managers into focusing on quarterly profits as the main criterion of organizational performance. The expatriate assignment requires expatriate managers to face a number of complex issues that their domestic counterparts either do not face, or face with less intensity. Examples of such issues are the integration of large international acquisitions, understanding the meaning of per formance and accountability in a globally inte grated system of product flows, building and managing a worldwide logistics capability, de veloping multiple country specific corporate strategies, managing products and services around the world with differing competitive dy namics in each market, forming and managing collaborative agreements (OEM contracts, licensing, joint ventures), balancing the need for global integration while simultaneously responding to local demands, and managing a multicultural workforce within foreign environ ments. Expatriates usually find an expatriate assign ment to be one of the biggest challenges of their entire career. Increasingly, firms are investing in c r o s s c u l t u r a l t r a i n i n g programs to prepare expatriates to operate successfully in their expatriate assignment. Additionally, most companies offer a variety of support systems to employees as part of the expatriate assignment. One of the principal barriers to cross cultural adjustment is the lack of a way for expatriates – especially non working spouses of employees – to become members of a social network. Many firms offer programs of one sort or an other that are geared to helping expatriates de velop friendships with other expatriates and host nationals, and to provide support with the day to day realities of living in a foreign culture (housing, schooling, transportation, shopping, and so forth) (see e x p a t r i a t e s u p p o r t s y s t e m ).

129

Expatriate assignments are much more costly than simply hiring local nationals to work in a foreign subsidiary; however, there are advan tages to using expatriates over local nationals. Expatriates know how the parent company op erates and can pass on this knowledge to local employees. By working overseas they learn how foreign markets operate, and how foreign con sumers and clients react to the products or ser vices the company offers. Also, they gain skills in cross cultural management and develop a global perspective. Expatriate assignments, then, can be a powerful strategic tool in developing global business skills within the senior ranks of a firm’s management. Bibliography Black, J. S., Gregersen, H. B., and Mendenhall, M. (1992). Global Assignments: Successfully Expatriating and Repatriating International Managers. San Francisco: Jossey-Bass. Black, J. S., Mendenhall, M., and Oddou, G. (1991). Toward a comprehensive model of international adjustment: An integration of multiple theoretical perspectives. Academy of Management Review, 16, 291 317. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell. Prahalad, C. K. (1990). Globalization: The intellectual and managerial challenges. Human Resource Manage ment, 29, 27 37.

expatriate differential John O’Connell

Companies often pay (or make available as a benefit) an extra amount of compensation to expatriates to make up for the inconvenience and extra problems associated with living out side of an individual’s home country. The dif ferential makes up for higher housing costs, education for children, leasing an automobile, or other costs. The differential ceases to be paid when the expatriate returns to the home country. Sometimes this causes problems with living standards because often the same amount of money purchases so much more overseas than in the employee’s home country. The expatriate literally suffers a reduced standard of living when returning to the home country.

130

expatriate premium

Bibliography Golding, J. (1993). Working Abroad: Essential Financial Planning for Expatriates and Their Employers. Plymouth: International Venture Handbooks. Harris, J. E. (1989). Moving managers internationally: The care and feeding of expatriates. Human Resources Planning, 12, 49 53.

expatriate premium

meals, transportation systems, driver’s license, healthcare, and many other aspects of the new country. It must include programs to ease em ployees’ re entry to the home country, to help them cope with the fact that they are now differ ent and that being different is fine. This com ponent should also involve other employees who must interact with a returning colleague. As employees accept the new cultural diversity paradigm and learn how to cope with it, the ESS should be deactivated.

see e x p a t r i a t e a l l o w a n c e expatriate training expatriate selection

John O’Connell

see s e l e c t i o n o f e x p a t r i a t e s

expatriate support system R. Ivan Blanco

The expatriate support system (ESS) is a set of programs developed by a company to develop and promote multicultural skills among employ ees who must travel abroad on long term assign ments. The system’s effectiveness is measured by its ability to smooth out an employee’s tran sition from their home country to a different country’s cultural environment. The system may not eliminate all the pains created by this cultural transition, but it should reduce them to a minimum. The most effective ESS is that which allows employees to become open minded, to learn how to adapt to a new environ ment, and even enjoy the cultural transition as a valuable learning experience. The support system should also address the needs of the employee’s spouse and children. An ESS includes all or any combination of the following: educational programs to develop em ployees’ multicultural skills; a mentorship or buddy program in the foreign country to help employees during the first weeks abroad; short travel programs to the country of destination prior to the actual assignment to help the em ployee get acquainted with the country; and supplying employees with information about schools, churches, recreational activities, native

e x p a t r i a t e training means providing employ ees going on foreign assignment with the know ledge and techniques necessary to be successful on their assignments. Training may take place both prior to and after the actual assignment transfer has been made. The types and exten siveness of training should be based upon both the duration and the importance of the foreign a s s i g n m e n t . It is logical that an employee sent overseas for 60 days will need different types of training than an employee sent overseas for three years. An employee sent to do a specific job within an organization facility in another country needs different training than the em ployee sent to develop new markets or to negoti ate contracts with foreign partners or governments. Differences in what is expected of employees must be factored into the duration and type of training offered to each employee. Failure to properly train expatriates will almost guarantee their failure to either complete the foreign assignment or to meet employer expect ations in cases where the full assignment period has been achieved. Training an expatriate’s family members to recognize the problems and inconveniences of foreign assignment is also extremely important. Family members face the same problems as the expatriate in terms of language differences, cul tural adaptation, living condition changes, and other possible sources of problems. What many people do not realize, however, is that the expatriate still has the organization as a base from which to work (fellow employees, familiar

export agent products, communication with home office, etc.), whereas family members may be virtually uprooted with few if any ties with their former home. A sound expatriate training program in cludes the training of family members as well as the employee. Expatriate training is commonly divided into three approaches: 1 Information giving approach. This is the most widespread of all of the approaches. Unfor tunately, many companies offer only this approach. Included in this approach is infor mation about the new country’s culture, geography, living conditions, lifestyles, and language. Commonly used methods to pro vide this type of training include seminars, films, audio tapes, books, and brochures. This approach offers information only, with out the chance to apply the new information or to test its assimilation. 2 Affective approach. This approach attempts to apply training in a more experiential manner. Real examples of problems are set forth for discussion: role playing activities take place; stress reduction and change man agement techniques are taught. This type of training prepares the expatriate on a more realistic and practical level. Affective approaches seek to allow the individual to become more self confident; what is being taught will actually increase his or her ability to carry out the assignment more effectively. 3 Immersion approach. This approach seeks to place the employee in a similar condition to that actually prevailing in the foreign coun try. Immersion may include visits to the new country to allow the employee to explore and learn on a first hand basis. Immersion training involves extensive simulation of common problem situations in which the employee can learn without being exposed to failure while actually on the overseas as signment. The approach seeks to teach the employee to be sensitive to other cultures and act accordingly. This approach is nor mally very time consuming and expensive. It relies on a low student to instructor ratio and a substantial commitment of resources by the organization.

131

All of these approaches focus on allowing the employee to overcome problems associated with overseas assignments. It may even be ne cessary to use one or more of these approaches when sending an employee to a different part of the same country. Bibliography Hays, R. D. (1974). Expatriate selection: Insuring success and avoiding failure. Journal of International Business Studies, 5, 25 37. Mendenhall, M. E., Dunbar, E., and Oddou, G. (1987). Expatriate selection, training, and career pathing: A review and critique. Human Resource Management, 26, 331 45. Ronen, S. and Tung, R. L. (1981). Selection and training of personnel for overseas assignments. Columbia Jour nal of World Business, spring, 68 78. Torbiorn, J. (1982). Living Abroad. New York: John Wiley.

export agent John O’Connell

A party who assists in moving goods between buyers and sellers, but never takes title to the goods. This is an extremely important function in international trade. It is carried out by a large number of specialists in a variety of areas. Agents locate and bring together products, manufactur ers, markets, buyers, and sellers of goods. The agent could work on behalf of either the seller (exporter) or buyer (importer). The following is a list of agents with a variety of responsibilities. A particular type of agent listed may be just another name for one of the other categories. They are still listed and briefly identified be cause the alternate name may not be known by the international business person. 1

2

Broker. A broker is a person who brings together a buyer and a seller. An export broker brings together exporters and import ers for a fee. A broker generally does not have any further involvement in the trade trans action (although some brokers can and do provide additional services). Buying agent. When a company does not have employees stationed overseas to

132

3

4

5

export agent

purchase goods, a buying agent may be employed to represent the company. Buying agents know the foreign market for goods and how to negotiate in foreign markets. They can be of great assistance in completing foreign transactions. The authority of the agent should be carefully spelled out in the contract between the agent and the company to make certain the company’s interests are appropriately represented. Cargo broker. A person who acts as a middle man between cargo owners and shipowners. By locating ships for hire, the cargo broker earns a commission. The commission is often referred to as an address commission. Cargo brokers play an important role in international trade, especially when one con siders the inexperience of many cargo owners in transporting goods overseas. Combination export manager (CEM). Com bination export managers are in the business of purchasing goods from a number of com panies and then combining those goods to meet existing orders or to place on the export market. Often, manufacturers of goods do not produce sufficient quantities to take ad vantage of the most efficient modes of trans portation or discounts for shipment of large lots. A CEM can take advantage of such efficiencies and/or discounts by combining the production of many companies. Al though CEMs do occasionally work on a commission basis for manufacturers, they more commonly buy and sell as a separate entity involved in the export business. It is very common for CEMs to specialize in par ticular goods or industries. In this way they become familiar to both producers and buyers of particular goods. Commission agent. It is common for com panies involved in foreign trade to work through representatives or agents who sell goods on behalf of the companies. These agents usually work for a percentage of the goods sold (a commission). In many coun tries these people are referred to as manufac turers’ representatives. Commission agents usually specialize in certain types of products or industrial output in order to build their relationships with both buyers and sellers. In order to monitor their activities, commission

6

7

8

agents are required by many countries to be registered and bonded. Confirming house. A United Kingdom trade intermediary who performs financing and other functions for exporters. The confirm ing house, unlike other export agents, actu ally finances exports by allowing the exporter to be paid from its funds when the exports are shipped. The confirming house also usu ally handles the contracts for both the seller and buyer and may arrange transportation if necessary. Customhouse broker. Importers often feel that their tasks are complete when arrangements have been made to pay for and take delivery of imported items. However, another obs tacle may lie in the path of the successful completion of the transaction: the customs authority of a country. Obtaining customs approval to bring goods into a country (clearing customs) is not always a simple task. Appropriate papers must accompany imports and all requirements of the importing country must be met. Privately owned and operated consultants called cus tomhouse brokers, are ready to assist import ers in clearing goods through customs. All necessary papers will be obtained, clear ances, certificates (country of origin, health, etc.), and other documents will be checked by the broker in order to speed the customs clearing process. For this service they charge a fee. Customhouse brokers are licensed by the appropriate government agency. These people generally know how to get goods cleared quickly and are usually worth the expenditure. Distributor. A distributor is an intermediary who acts on behalf of others to distribute goods. Distributors are very common in international trade. Instead of attempting to enter foreign markets directly (normally a very time consuming and expensive prop osition) an exporter may instead enter into a relationship with an importer to become a ‘‘distributor’’ for the exporter. A distributor does more than just import goods. A dis tributor also packages or repackages if neces sary, advertises the goods, distributes them, and may even provide service after the sale. For all of this activity the distributor usually

export agent

9

10

11

12

retains a portion of the sales and is com monly granted exclusive rights to distribute the product in a specified region. Hiring a distributor to handle goods in a foreign country is one of the simpler methods of entering a foreign market. Exclusive agent. This term denotes the rela tionship between a principal (e.g., a manu facturing company) and an agent (e.g., a manufacturer’s representative) in which the principal grants the agent exclusive rights (e.g., to sell a particular product in a particular country or region). Thus, the exclusive agent is the only party who can represent the manufacturer in selling prod ucts in a specific geographic region. Anyone seeking the product will have to work through the exclusive agent. In return for the grant of exclusivity, the agent usu ally agrees to some minimum level of repre sentation and performance. Export broker. A broker is a person who brings together a buyer and a seller. An export broker brings together exporters and importers for a fee. A broker generally does not have any further involvement in the trade transaction (although some brokers can and do provide additional services). Export commission house. An export com mission house is an agent of the buyer of goods. Export commission houses are lo cated in the country which produces the exports. As an agent for the export buyer, the export commission house seeks out manufacturers of products requested by importers. The commission house handles the majority of the transaction, thereby re lieving both the exporter and the importer from a great deal of work. Commission houses are compensated through commis sions paid by the buyer of goods. Export trading company (ETC). An export trading company is an organization estab lished for the purpose of facilitating the export of goods and services. The com pany’s ownership may be domestic, foreign, or any combination of the two. Its clients are producers of goods, importers of all types, and governments of different coun tries, all of whom are interested in exporting or importing items.

133

13 Freight forwarder. A freight forwarder is a trade intermediary who arranges for the transportation of goods. Freight forwarders can also offer additional services to exporters and importers because of the expertise they gain in dealing with the trade transaction. 14 Import broker. Many persons who are in volved in exporting activities do not have the knowledge or contacts to successfully conduct trade activities. An import broker is hired by exporters to locate buyers (im porters) for the exporter’s goods. Typically, the import broker receives a commission for services rendered. 15 Intermerchant. An intermerchant works for exporters and importers to solve problems with converting soft currencies to hard cur rencies. Some currencies are more readily convertible than others. The so called hard currencies are regularly traded and gener ally pose no problems in the exchange pro cess. Soft currencies, however, are often difficult to exchange. An intermerchant is a person specializing in solving problems associated with hard and soft currency ex change. The intermerchant makes neces sary arrangements for paying for goods sold between countries with hard curren cies and those with soft currencies. 16 Manufacturer’s export agent. This trade intermediary acts on behalf of producers who desire to offer goods for export. The agent, who finds buyers for the producer’s goods, does not purchase for his own account and is paid strictly on a commission basis. 17 Resident buyer. This intermediary repre sents foreign buyers of locally produced goods. Most resident buyers are employees of the foreign firms they represent. Resi dent buyers look to establish long term re lationships with producers of goods by handling all of the details of purchase, ship ping, and delivery to the foreign buyer. 18 Resident buying agents. Most organizations conducting international trade do not use their own employees to either buy or sell goods in various countries. The differences between business practices, language, and cultural problems usually make employee arrangements difficult at best. Instead of using employees, organizations may turn

134

Export and Import Bank of Japan

to intermediaries in each country to secure goods needed by the organization in its home country (or other country of produc tion). Intermediaries who purchase goods for a foreign company (to be shipped to that foreign company) are referred to as resident buying agents. 19 Resident selling agents. Most international enterprises do not have actual production taking place in each of the countries. They also normally do not have their own em ployees in each country because the costs would be prohibitive for all but the largest of organizations. It is very common under these circumstances to use the services of an intermediary to sell a company’s goods in overseas markets. Intermediaries who act on behalf of an organization to sell its prod ucts in a given country are referred to as resident selling agents. 20 Wholesaler/distributor. Wholesalers/distri butors purchase large quantities of goods from suppliers and resell them on inter national markets. Often, individual import ers do not have the ability to secure certain products from overseas suppliers or they find that suppliers will sell only in c o n t a i n e r lots or other large bulk quan tities. The inability to secure small amounts of goods at fair prices has led to the develop ment of wholesale international traders and distributors. Wholesale international traders purchase large quantities of goods from sup pliers, break them into smaller lots, and resell the goods to others. By working through the international wholesaler/dis tributor the smaller business may have access to a larger number of goods than would otherwise be (economically) available.

Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

Bibliography

See also export agent

Czinkota, M. R., Rivoli, P., and Ronkainen, I. A. (1989). International Business. Chicago, IL: Dryden Press. Grosse, C. U. and Grosse, R. E. (1988). Case Studies in International Business. Englewood Cliffs, NJ: PrenticeHall. Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. Maruca, R. F. (1994). The right way to go global: An interview with Whirlpool CEO David Whitman. Har vard Business Review, March April, 134 45.

Export and Import Bank of Japan (EIBJ) John O’Connell

This is an important financial institution with respect to the development of Japanese export trade, as well as a source of funding for develop ment banks for various economic development projects. The EIBJ supports exports by provid ing loans to the buyers of Japanese goods as well as to Japanese manufacturers of goods in order to generate increased supplies for export. Bibliography Ludlow, N. H. (1988). A Practical Guide to the Develop ment Bank Business: How to Identify It, Market to It, and WinIt.Washington,DC:DevelopmentBankAssociates.

export barriers

see b a r r i e r s

export broker John O’Connell

A broker is a person who brings together a buyer and a seller. An export broker brings together exporters and importers for a fee. A broker gen erally does not have any further involvement in the trade transaction (although some brokers can and do provide additional services).

export commission house John O’Connell

An export commission house is an agent of the buyer of goods. Export commission houses are located in the country which produces the

export duty exports. As an agent for the export buyer, the export commission house seeks out manu facturers of products requested by importers. The commission house handles the majority of the transaction, thereby relieving both the ex porter and the importer from a great deal of work. Commission houses are compensated through commissions paid by the buyer of goods.

135

Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

Export Credit Guarantees Department (ECGD) John O’Connell

Bibliography United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

export contact list

The ECGD is a UK government department established to promote exports of UK goods. The ECGD promotes trade by providing sub sidization for bank loans to UK exporters, as well as other financial guarantees for exporters. The ECGD also offers insurance on UK foreign investments.

John O’Connell

One of the difficulties of entering successfully into international trade activities is developing the contacts (buyers, persons providing advice, etc.) to assist in the start up phase of exporting. The United States International Trade Admin istration (ITA) offers mailing lists of foreign firms and government agencies that may be interested in various US products. Lists are available from the ITA. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

export documents John O’Connell

The type of documents necessary for exporting goods depends upon the nature of the goods and the countries from which the goods are shipped and the country of destination. The documents are essentially the same as those required for entry into various countries. See also entry documents Bibliography

export credit John O’Connell

Two meanings are attached to this term, one for a buyer of goods and one for a seller. Export credit to a purchaser of goods comes in the form of loans or other financing mechanisms to purchase exports. Export credit to a seller of exports comes in the form of loans or other financing provided to domestic producers of goods in order to increase the availability of goods for export purposes. Export credits of both kinds can be found through export development agencies or banks in various countries.

International Chamber of Commerce (ICC) (1990). Inco terms 1990. New York: ICC Publishing. Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

export duty John O’Connell

Governments of developing nations sometimes feel the need to tax items being exported from their countries. These taxes are referred to as export duties. Reasons for the taxes include a need for revenues by the government or a need

136

export financing

for the goods to remain inside the country, with the tax acting as incentive to keep goods within the national borders.

5 export financing John O’Connell

There are a number of methods of paying for goods and services imported from other coun tries. The methods are relatively common and are much the same as those used in the financing of other goods and services. Eight common methods are reviewed below. Acceptance financing. A method of financing imports and exports through a short term line of credit. The lending bank may include specific documentation requirements to show evidence of title to the merchandise. The required documentation normally con sists of either a warehouse receipt or a b i l l of lading. 2 Collection. Collection involves the payment by an importer for goods sold by an exporter. Collection papers are the documents speci fied in the sales contract which must be provided to the buyer (or the buyer’s bank) in order for payment to be made. 3 Consignment. Consignment is a process through which an owner of goods (con signor) transfers them to an agent (consignee) who is then responsible for sell ing the goods to others. In international trade, consignment is actually a method of financing import transactions. The exporter of goods (consignor) transfers goods to an importer (consignee) who then sells the goods. When the goods are sold the proceeds are divided between the agent (a commission for selling the goods) and the exporter (the balance of the amount paid). 4 Documentary credit. This is the formal name for a l e t t e r o f c r e d i t . A seller under a letter of credit is paid by a bank upon pres entation of the shipping papers and other documents specified in the letter of credit. Unless it is irrevocable, a letter of credit does not guarantee that the credit might not be revoked by the bank prior to presentation of

6

1

7

8

the documents. Specific types of letters of credit are available to provide additional as surances to the seller that payment will be made upon presentation of the proper docu ments. Factoring foreign accounts receivable. With regard to financing a company’s operations, factoring refers to the use of accounts receiv able as a source of borrowed funds or as an asset to be sold to others. Banks will often grant credit based upon the value of the accounts receivable of a company. As the receivables are collected the bank is repaid. Foreign accounts receivable purchases. Factoring is also accomplished by parties who purchase the foreign receivables of an exporter at a discount. The company re ceives immediate payment and the factor receives payments from the debtors. Open account. A method of arranging pay ment for exports which provides a stated number of days in which the importer must make payment. Open accounts are normally used only when the importer is well known to the exporter. Payment in advance. When an exporter has no dealings with an importer or those deal ings were less than satisfactory, payment in advance may be required. Payment in ad vance may also be required when the order is for specially designed or custom made goods which no other importer could use.

Bibliography Bowker, R. R. (1993). International Handbook of Financial Reporting. London: Chapman and Hall. Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

export insurance John O’Connell

Export insurance is coverage purchased by the exporter to protect against the failure of

export processing zone the foreign purchaser to pay for goods ordered and delivered. Failure to pay may be because of an action of the government (p o l i t i c a l r i s k) or a failure of the business (c o m m e r c i a l r i s k – a buyer’s inability or refusal to pay). Insurance is available for both the commer cial risk and political risk.

137

governmental unit responsible for export control and record keeping. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

Bibliography Rejda, G. E. (1995). Principles of Risk Management and Insurance, 5th edn. New York: HarperCollins.

export management company (EMC) John O’Connell export license John O’Connell

An export license (or permit) allows an exporter to transport goods to locations outside of a country. The license is secured from the appro priate government agency in the country of export. Export licenses allow the government to keep track of the types, amounts, and destin ations of exports from a country. It is very im portant to check the requirements of each country, as differences exist. There are three categories of export licenses: 1 General license. Although referred to as a license, a general license is actually a broad government statement allowing goods to be exported. Thus, exporters have ‘‘license’’ to send goods abroad. 2 Individually validated licenses (IVLs). Cer tain types of goods (armaments, super tech nology, etc.) or shipments to certain countries may require prior governmental approval. Government approval is shown by the issuance of a license to the specific exporter which allows specified goods to be exported to a stated destination. Additional documents are usually required for the issu ance of IVLs, as well as during the export process itself. Exact documentation needs will be provided by the appropriate govern ment department. 3 Special licenses. A special license may be re quired for the export of services, to supply goods on a continuing basis for a specified project, or other situations outlined by the

Export management companies provide services to local companies seeking to export goods. Ser vices vary from acting as the agent of the ex porter, to arranging sales, to purchasing the goods in the name of the EMC for reselling. More commonly, however, an EMC acts as an external export department for companies who are new to exporting and do not have the in house expertise to carry out the entire export transaction. Hiring a specialized company to perform export related activities is often the least time consuming way to enter the export market. EMCs may be compensated on a com mission, fee, or other basis as agreed under con tract with the exporter.

export permit

see e x p o r t l i c e n s e

export processing zone (EPZ) John O’Connell

EPZs are a form of free trade zone which pro vide incentives for industrial or commercial export activity. Export processing zones are located in developing countries and are usually in defined areas, industrial parks, or facilities which provide free trade zone benefits and usu ally offer additional incentives, such as exemp tion from normal tax and business regulations. Sometimes referred to as Special Economic Zones or Development Economic Zones.

138

export quotas

export quotas John O’Connell

Controls placed on the quantity of a particular type of export. Quantitative restrictions may be imposed to ration the export of goods necessary in the home economy or to limit the amount of specific goods going to a particular destination.

export sales subsidiary

subsidies still occur under the guise of various assistance programs. Less developed countries may be able to secure an exemption from GATT’s subsidy ban in order to develop their economies more quickly. Bibliography Simmonds, K. R. (ed.) (1991). Law and Practice Under the GATT and Other Trading Agreements: The Association of South East Asian Nations (ASEAN). Dobbs Ferry, NY: Oceana.

John O’Connell

An export sales subsidiary essentially removes the export function from the parent company and places the function in a separate wholly owned subsidiary. The export subsidiary pur chases goods from the parent company, then resells and exports the goods. Subsidiaries per form much the same function as an export de partment except that the subsidiary usually has better (and simpler) access to export financing, is able to add products from outside the parent company in order to round out its product line, and is able to segregate costs and expenses more effectively than an internal department. Bibliography Griffin, J. (1994). International Sales and the Middleman: Managing Your Agents and Distributors. London: Mercury.

export structures

see m a r k e t e n t r y s t r a t e g i e s

export subsidies John O’Connell

Government payments or services to promote exports of domestic goods. Such payments or services act to reduce the cost of production of goods for producers. This in turn allows goods to be exported at lower costs, thereby enhancing their competitive position. Government subsid ies of export goods are banned by the General Agreement on Tariffs and Trade (GATT) but

export tariff

see e x p o r t d u t y

export trading company (ETC) John O’Connell

There are two distinct definitions of this term: 1 An export trading company is an organiza tion established for the purpose of facilitat ing the export of goods and services. The company’s ownership may be domestic, for eign, or any combination of the two. Its clients are producers of goods, importers of all types, and governments of different coun tries, all of whom are interested in exporting or importing items. 2 A specially recognized (under the Export Trading Act of 1982) company organized for the purpose of exporting US goods and services. ETCs are eligible for special busi ness and financial assistance through govern ment and private sources and are exempt from many of the provisions of US antitrust laws (because their operations involve mainly foreign transfer of goods).

Export Import Bank (EXIM) John O’Connell

The Export–Import Bank is a US government agency providing financial services related to

extra-territorial application of employment law international transactions. Services provided by the EXIM Bank include furnishing development loans and financial guarantees to foreign coun tries and large organizations seeking to under take development projects in other nations; various guarantees and insurance programs for p o l i t i c a l r i s k exposures; credit guarantees for foreign trade financing through commercial banks; and discounted loans to banks to assist banks in offering loans to US exporters.

139

expropriation John O’Connell

This form of p o l i t i c a l r i s k involves a government seizing a foreign organization’s property. Compensation is not guaranteed. If forthcoming, compensation after expropriation may be delayed and be in amounts far less than the actual value of the assets taken. Expropri ation in one form or another has taken place in most industrialized and developing nations. Bibliography

exporting John O’Connell

This is one of the simplest methods of foreign market entry. The product is exported to a buyer who then distributes it to the foreign market. Market entry of the product is achieved without considerable investment of either time or capital. The key to exporting is knowing the components of the export transaction very well. If knowledge is not present there are a number of export agents available to assist the exporter of products. See also export agent; market entry strategies Bibliography Hampton, D. R., Summer, C. E., and Weber, R. A. (1987). Organizational Behavior and the Practice of Management. Glenview, IL: Scott, Foresman.

exposure John O’Connell

Exposure describes the extent to which an or ganization’s financial condition is affected by various factors. Factors include fluctuations in exchange rates, market price changes during the export transaction, government action causing p o l i t i c a l r i s k , and others.

exposure risks

see c o m m e r c i a l r i s k ; c o u n t r y r i s k ; e x change exposures; political risk

Morgan, L. L. (1977). The Case for the Multinational Corporation. New York: Praeger.

Extranet (EXT) John O’Connell

A group of websites belonging to independent entities that are combined in order to share in formation. This is in contrast to an intranet, which is a private site that is only accessible for employees of the entity. Extranets are used in supply chains to allow for more effective communications along the supply chain. They are replacing proprietary standard net works that are considerably more expensive to establish and therefore were only used in large organizations.

extra-territorial application of employment law Terry L. Leap

The application of equal employment opportun ity (EEO) laws such as Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) in multinational en terprises (MNEs) has generated a degree of un certainty in the USA. Foreign employers doing business in the United States must generally abide by US EEO law (Sumitomo Shoji America vs. Avigliano, 28 FEP Cases 1753, 1982; Mac Namara vs. Korean Airlines, 48 FEP Cases 980, 1988). The US Supreme Court ruled in Boureslan

140

extra-territorial application of employment law

vs. Aramco, 55 FEP Cases 449 (1991) that Title VII did not apply to American citizens working abroad for American employers. This ruling was overturned by the Civil Rights Act of 1991. Section 701 of Title VII now provides language similar to that contained in the ADEA and the ADA. Thus, US citizens working in foreign countries for US companies are protected from various types of employment discrimination based on race, sex, religion, national origin, color, age, and disability status. There is an ex emption if compliance with Title VII or the ADA

would cause the employer to violate the law of a foreign country where the employee is working. Section 702 of Title VII also states that the law ‘‘shall not apply to an employer with respect to aliens outside of any State’’ (Bureau of National Affairs, 1991). Bibliography Bureau of National Affairs (1991). Fair Employment Practices. Washington, DC: Bureau of National Affairs.

F facilitating intermediary John O’Connell

In international trade a facilitating intermediary is someone who assists in expediting the trade transaction, but who does not take possession of the goods being moved. Examples of facilitating intermediaries are banks, various agents or brokers who bring together buyers and sellers, insurance companies, and others.

factor John O’Connell

In general a factor is someone who carries out business activities. It is also a person or entity that sells or transfers property for a commission. In accounts receivable financing a factor is an entity that finances trade by purchasing the for eign accounts receivables of an exporter. Since collection of receivables entails some risk, recei vables are purchased at a discount to cover the additional risk taken on by the factor. In some countries (e.g., Great Britain) a factor is an export intermediary charged with selling the exporter’s goods or services. The factor actually takes title and possession of goods for resale to foreign markets in the factor’s own name.

factor mobility John O’Connell

This term, when applied to the factors of pro duction (capital, labor, and materials), is the degree to which those factors are allowed to move freely between countries. The intent of

economic integration is to allow factors of pro duction to move freely between countries.

factoring John O’Connell

With regard to financing a company’s oper ations, factoring refers to the use of accounts receivables as a source of borrowed funds or as an asset to be sold to others. Banks will often grant credit based upon the value of the accounts receivables of a company. As the receivables are collected the bank is repaid (in theory). Factoring is also accomplished by parties who purchase the foreign receivables of an exporter at a discount. The company receives immediate payment and the factor receives payments from the debtors. Bibliography Arpan, J. S. and Al Hashim, D. D. (1984). International Dimensions of Accounting. Boston, MA: Kent Publishing.

failure rates John O’Connell

Although not a pleasant task, determining the rate of failure of employees assigned to overseas positions is important to an organization. Records can show the trends over time as well as offer comparisons with other companies. If the human relations department keeps such records along with the reasons for failure, pro grams may be instituted to increase e x p a t r i a t e success. For example, if a common reason

142

family status

for failure is language unfamiliarity, intensive language education could be instituted for all future expatriates.

countries have similar standards related to trans actions in foreign currency. Bibliography

See also expatriate training

Ferris, K. R. (1993). Financial Accounting and Corporate Reporting: A Casebook, 3rd edn. Homewood, IL: Irwin.

Bibliography Black, J. S. (1988). Work role transitions: A study of American expatriate managers in Japan. Journal of International Business Studies, 19 (2), 277 94.

FAZ

see f o r e i g n a c c e s s z o n e family status John O’Connell

When an employee is sent on an overseas a s s i g n m e n t and is accompanied by his or her spouse and/or children, the employee has a family assignment status. a s s i g n m e n t s t a t u s is one of the determining factors of the numbers and types of compensa tion allowances and benefits available to the employee.

FCA

see f r e e c a r r i e r

FCIA

see f o r e i g n c r e d i t i n s u r a n c e a s s o c i ation

field experience FAO

John O’Connell

see f o o d a n d a g r i c u l t u r e o r g a n i z a tion

FAS

see f r e e a l o n g s i d e s h i p

FASB 52 John O’Connell

This is an important accounting standard in the United States with regard to foreign financial transactions. The Financial Accounting Stand ards Board statement 52 explains how foreign exchange transactions must be accounted for on the books of US organizations. A tax expert is strongly recommended when dealing with for eign currency transaction accounting. Many

This term has two common meanings: 1 A training method in which an individual is exposed to cultural and other differences found in a new country by actually traveling to and living in that country. The purpose of this type of training is to place the future e x p a t r i a t e in the e n v i r o n m e n t in which he or she is expected to function. This will give information to both the em ployee and the employer as to the potential success of the move. 2 Actual job experience in the field. Many people are hired on the basis of their field experience (e.g., actual sales positions held for a potential sales manager; or work on an oil rig for a potential oil company manager) because of the understanding it gives them of the basic functions of the business. See also tacit knowledge

financial repatriation and multinational firms financial infrastructure John O’Connell

The internal monetary and financial system of a country. The infrastructure is comprised of the major financial institutions: banks, financial or ganizations, and insurance companies.

financial repatriation and multinational firms Michael H. Moffett and Dale L. Davison

The return on any investment, whether a stock, bond, or construction of a manufacturing facil ity, is determined by the cash flows returned over time. Multinational firms must, in order to pursue the maximization of stockholder wealth, return cash flows from foreign affiliates to the parent in order to ultimately justify the investment. The way in which cash flows are repatriated to the parent firm will have, how ever, a significant impact on the profitability of the foreign affiliate, the parent, and the tax li abilities of both. A number of recent cases of multinational firms earning substantial returns on their foreign affiliates, but not via dividend distributions, has raised the level of concern of host and home country governments over the repatriation policies and decisions of their multi nationals. This entry provides some preliminary evidence on a national basis of the methods employed by US based firms in the repatriation of earnings from foreign affiliates.

Repatriation of Earnings Versus Foreign Income The repatriation of earnings is distinctly different from what is often termed foreign income. The US Department of Commerce (the primary source of data for this analysis) defines foreign income as the total of distributed earnings (divi dends paid to the US based firm), reinvested earnings (retained earnings of the foreign affili ate of the US based firm), and net interest income from the foreign affiliate. (The use of the terms parent and affiliate is a little trouble some in the following analysis, given the data collected by the US Department of Commerce.

143

The cash flows reported to the Department of Commerce are for foreign firms in which a US based firm – incorporated within the United States – holds a 10 percent or greater voting equity interest. The US firm, therefore, may not be a true parent – holding controlling or exclusive interest – but simply a major equity holder.) Both distributed earnings and net interest are net of withholding taxes by the host country government. Repatriated earnings, which we wish to distinctly differen tiate from foreign income, occur in four major forms: 1

Distributed earnings or dividends. Dividends, or distributed earnings, are profits from for eign affiliate operations arising from either current period or prior period earnings, in cluding capital gains/losses, which are paid to the owners of the affiliate (either foreign or domestic). (Unless otherwise noted, we refer here to the net payment resulting from the series of cash flows between affiliate and parent. It is not unusual for payments to be made both to the parent from the affiliate, and to the affiliate from the parent – interest payments, for example.) 2 Royalties and license fees. Fees paid for the use, sale, or purchase of intangible property, such as technological techniques, patents, brand names, and so forth. 3 Net interest. Interest paid by the foreign affiliate resulting from credit extended by the parent to the foreign affiliate for its cap italization and ongoing funding needs, as well as interest payments on capital leases. 4 Distributed charges. Charges imposed by the parent on the foreign affiliate for services provided. This category includes allocated expenses (allocated expenses or reimburse ments for management, professional, tech nical, or other services that normally would be included in ‘‘other income’’ in the income statement of the provider of the service), rentals for the use of tangible property (rentals for operating leases of one year or less and net rent on operating leases of more than one year; net rent is equivalent to the total lease payment less the return of capital (depreciation) component), and film and television tape rentals.

144 5

firewall

Intra firm debt is a potential fifth method of repatriating earnings. Whereas net interest payments implicitly measure the return on intra firm debt, the ability to restructure the repayment schedule on prin cipal does allow the individual multinational firm significant discretion. However, the US Department of Commerce data does not consider this a repatriation of earnings, and we will omit this potential form of repatri ation for the purposes of this entry. (The subject is an important one. Many US based multinational firms have in the past made loans from their foreign affiliates to the US parent with no interest charges and no debt maturity stated. The US tax authorities have subsequently reclassified these financial structures as dividends for all intents and tax purposes.)

The distinction between foreign income and repatriation of earnings recognizes that distributed earnings (dividends) represent a distribution of part of foreign income, whereas the other three primary conduits of cash flow are charges or rents for services or technologies or capital used by foreign affiliates and are deducted on determining foreign income. All of these cash flows are separate from the business risk of the foreign affiliate (i.e., determined and fixed by contract), whereas dividend distributions are normally a function of foreign income available to be distributed.

Recent Repatriation Amounts and Trends Table 1 provides a methodological comparison of foreign income and repatriation of earnings to US based firms from foreign affiliates, as well as empirical estimates of total net cash flows for US based firms in 1993. As shown, the relation ship between income and repatriation is a loose one, with three of the four cash flows of repatri ation – royalties, charges, and net interest – acting as costs within the income statement of the foreign affiliate. The value of foreign income itself includes both reinvested earnings and dis tributed earnings, whereas repatriation’s total value is largely determined by the dividend dis tribution decision by/for the foreign affiliate. Table 2 (p. 146) provides an overview of re patriation from foreign affiliates for the 1989–93

period. The first and foremost observation is the relative growth of royalties as a proportion of total repatriated funds, rising from 18 percent to 31 percent, while dividends dropped precipit ously from 74 percent in 1989 to about 56 percent in 1993. A second point is that total repatriated cash flows – in nominal dollars – remained rela tively constant over this period: approximately $50 billion per year. It is fairly clear, however, that dividends are in recent periods increasingly less dominant as the method employed for the repatriation of cash flows from the foreign affiliates of US based firms. Dividends – the distributed profits of foreign affiliates – are, of course, the most obvious and historically the largest in terms of repatriation. Dividends are, however, an increasingly smaller proportion of total earnings repatriated to US resident firms. Although total repatriated earn ings and total foreign income are of a very similar magnitude over this period, the distinction is significant. For example, in both 1991 and 1992, total repatriated earnings exceeded the total amount of foreign income for that year by all foreign affiliates of US based multinational firms. It appears that, even in this recent period, there are changing patterns of earnings remit tance by US multinationals.

Summary Multinational firms must continually balance the needs of their shareholders for current income, and the needs of their foreign affiliates for profitability and reinvestment, with the com plexities of international taxation, currency risk, and country risk. The method by which US based multinational firms repatriate their profits has been changing in recent years. It appears that for the present, a number of alter native repatriation methods, such as royalties and license fees, may continue to grow as con duits for the repatriation of foreign earnings.

firewall John O’Connell

A logical or physical discontinuity in a network to prevent unauthorized access to data or resources.

first mover advantage

145

Table 1 Comparison of foreign income and repatriation of earnings: foreign affiliates of US based firms, 1993 (millions of US dollars) Income of foreign affiliate

Repatriation of earnings from foreign affiliate Net receipt With tax Net remittance ($) ($)

Gross earnings including capital gains Less royalites and license fees Less distributed charges Earnings before interest and taxes Less interest Earnings before taxes Less corporate taxes Earnings after tax Reinvested Distributed (dividends)

14,926

(746)

4,908

(0)

14,179 (1) Royalties and license fees from affiliate 4,908 (2) Distributed charges from affiliate

1,398

(169)

1,229 (3) Interest earnings from affiliate

56,117 29,565 26,552

(947)

25,605 (4) Net distributed earnings from affiliate (dividends) Sum of four ¼ total repatriated earnings ¼ 14,179 þ 4,908 þ 1,229 þ 25,605 ¼ $45,921

Income ¼ earnings before capital gains plus capital gains income plus net interest after withholding taxes less withholding taxes on distributed earnings ¼ 56,117 þ 1,398
169
947 ¼ $56,399

1 Data abstracted from ‘‘US direct investment abroad: reconciliation with international transactions accounts,’’ Table 2, U.S. direct investment abroad: detail for historical-cost position and balance of payments flows, Survey of Current Business, US Department of Commerce, August 1994, p. 128. 2 All values are net cash inflows received by US-based firms; receipts from foreign affiliates less payments to foreign affiliates. 3 All cash flows repatriated to the United States are net of withholding taxes. Withholding tax rates for royalties, interest, and dividends are normally determined by bilateral tax treaty. Currently, there are no withholding taxes on charges to foreign affiliates by host country governments. 4 A foreign affiliate may owe interest, royalties, and other payments to un-affiliated firms (other than the US-based firm which may or may not be its parent). This analysis focuses on those cash flows due the US-based firm alone.

FIRP

see f o r e i g n i n c o m e i n f o r m a t i o n r e turns program

first mover advantage John O’Connell

Refers to the advantage gained by the first com pany that enters a certain market. There are a number of reasons this advantage exists. A com

pany that is able to increase sales quickly is able to reduce the average cost of the product over other competitors. This allows the company to have more flexibility in pricing, either reducing the price to make it less attractive for new entrants (increasing barriers to entry) or increasing the margin and therefore profit while price remains fixed – this additional profit can then be used for further innovation. The first mover can also take advantage of the ‘‘learning curve’’ effect. First mover advantage can be further successful if the company is able to achieve ‘‘lock ins’’ of its ‘‘in stalled base.’’ Once lock in occurs it is more

146

first world country

Table 2 Repatriated earnings of US based firms from all foreign affiliates, 1989–1993 (millions of US dollars, percentage of total repatriation) Cash flow

1989

1990

1991

1992

1993

Royalties and license fees

$9,158

$12,381

$12,970

$14,284

$14,179

(18%) 4,341

(22%) 4,460

(25%) 4,434

(27%) 4,880

(31%) 4,908

(8%) 57

(8%) 1,663

(9%) 1,045

(9%) 1,004

(11%) 1,229

(0%) 37,793

(3%) 37,123

(2%) 32,716

(2%) 33,081

(3%) 25,605

(74%)

(67%)

(64%)

(62%)

(56%)

$51,349 $52,628

$55,632 $57,150

$51,165 $50,687

$53,249 $48,561

$45,921 $56,399

Charges for services Net interest received Distribution (dividends)

Total repatriation Foreign income

Source: Data abstracted from ‘‘U.S. direct investment abroad: reconciliation with international transaction accounts,’’ Survey of Current Business, US Department of Commerce, annually.

difficult for other marketers to attract those cus tomers away from the first marketer.

first world country

have been paid. This is referred to as a fiscal clearance document. If tax debts have not been satisfied, exit will usually be denied.

fixed exchange rate systems John O’Connell

First world countries are those that are highly industrialized, have high per capita incomes in relation to most other countries, high levels of education, and other economic and social attri butes one might expect from nations such as Australia, Canada, France, Germany, Great Britain (in fact, virtually all of Western Europe), Japan, the United States, and a few other coun tries. These countries are also referred to as the highly industrialized countries.

John O’Connell

Fixed exchange rates are the result of government action which allows for no variation between cur rencies to occur. Fixing of exchange rates requires agreements between countries to ‘‘peg’’ or link the value of their currency to some common com modity or other value. For example, if currencies are linked to the value of gold, even though gold may rise or fall in value, the relative value of each currency (the exchange rate) remains unchanged. See also floating exchange rate

fiscal clearance John O’Connell

In order to exit a host country, an e x p a t r i a t e or other foreign resident may have to submit a document verifying that all local income taxes

flag of convenience John O’Connell

Vessels are often ‘‘flagged’’ or registered in coun tries other than that in which they are owned.

forecasting political risk Although country of registry sometimes appears to be an insignificant point, it can be very import ant for a number of reasons. Different countries treat shipping interests differently with respect to taxation. Flagging in one country versus an other could save considerable amounts in tax pay ments. Some countries have restrictions as to how many foreign sailors may be used to staff ships, while other countries do not have such regula tions. A shipowner may desire to flag a ship in a country allowing less expensive, foreign staffing of ships. Neither of these reasons for registering a ship outside of the home country is particularly notable as long as the shipowner insures compe tent staffing takes place. Another area, however, deserves some attention. Not all countries which register vessels have the same degree of safety and inspection requirements for vessels or their crew. Before chartering, shipping, or traveling on vessels of foreign registry it is best to determine the standards used to register the vessel. Most of the industrialized nations have registry re quirements which are very strict. That is one of the reasons for the flight to other foreign regis tries. The registry practices of some countries may provide minimal standards for safety. Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

floating exchange rate John O’Connell

When the exchange rate between currencies is determined by market forces, it is said to be subject to a floating exchange rate. Floating rates are allowed to fluctuate in terms of their relationship to other currencies.

flooding

147

FOB

see f r e e o n b o a r d

Food and Agriculture Organization (FAO) John O’Connell

One of the United Nation’s most ambitious pro grams seeks to end hunger in all nations of the world. In order for this to occur, food produc tion must be increased and distribution channels developed to move food where it is needed. The Food and Agriculture Organization is an agency of the United Nations whose sole responsibility is to move toward the achievement of the ‘‘end hunger’’ goal. In this capacity the FAO coordi nates world agricultural development and spon sors research programs related to improving agricultural output and distribution.

force majeure John O’Connell

In legal terms, a force majeure is an act of a superior power or one which is irresistible (unable to be controlled). Such acts include nat ural disasters (floods, earthquakes, hurricanes, tornadoes, tsunamis, etc.) or acts of persons or nations (bankruptcies or wars, etc.). The import ance of this term becomes apparent when ap plied to contractual relationships. A force majeure clause excuses a party to a contract from complying with its terms if the non compliance was caused by factors outside of that party’s control. Not all contracts have force majeure clauses, but such clauses are common in foreign trade and transit contracts.

forecasting political risk John O’Connell

Llewellyn D. Howell

An attack that attempts to cause failure in (espe cially, in the security of) a computer system or other data processing entity by providing more input than the entity can process properly.

p o l i t i c a l r i s k is the term that is used in describing the possibility that political or social actions or characteristics in a host country will negatively affect a foreign investment.

148

forecasting political risk

Specifically, they could affect the business such that investors will lose income, capital, plant, or equipment, in part or in entirety, or simply have a reduced profit margin. The best approach to understanding the concept of political risk and the role and methods of forecasting it is to exam ine exactly what is at risk and what risk means in applied business terms. The critical questions are as follows: What exactly constitutes a loss that is political or social in its origins and not commercial? How is risk or probability of that loss calculated? How is that probability pro jected into the future (a forecast) so that it can be applied in a practical business context? The US government’s o v e r s e a s p r i v a t e i n v e s t m e n t c o r p o r a t i o n (OPIC) pays claims for losses by American companies occur ring from four causes that are defined as resulting from political sources: these are e x p r o p r i a t i o n , inconvertibility, war damage, and civil strife damage. Expropriation is an act of govern ment. Inconvertibility is also the result of a gov ernmental decision. War and civil strife damage are the results of either government decisions (including the military leadership) or responses to those government decisions by opponents. The m u l t i l a t e r a l i n v e s t m e n t g u a r a n t e e a g e n c y (MIGA) of the World Bank and private insurers such as AIG also cover, under political risk insurance, breach of contract for political reasons. The latter include such matters as unilateral termination of a contract by a government, government regulations that prevent execution of a contract, embargoes by other governments, war circumstances that result in contract repudiation, and other similar causes. Politically motivated strikes, corruption, and government interference in personnel policy are among other sources of loss for foreign investors that can be considered to be socio political. Losses with political or social origins come in many other forms than those routinely covered by OPIC, MIGA, or private insurers such as AIG. For example, political turmoil is a response to government actions and decisions, and is probably not even directed at the business that might suffer through disruption; equity restric tions would be a government decision or a deci sion by a segment of the government, such as a ministry; personnel/procurement interference

occurs in many political systems; taxation dis crimination, directed at particular companies or particular nationalities, is the result of a decision of someone in government and may reflect social issues or prejudices; repatriation restrictions, ex change controls, tariff imposition, non tariff barrier imposition, and fiscal/monetary expansion, all of which may affect businesses negatively, are the result of government decisions. Labor cost expan sion may result indirectly from government decisions. Payment delays and bureaucratic slug gishness may be a function of government policy or simply government inefficiency, but both have to do with the way in which the government operates. Many businesses lose profits through politic ally motivated strikes. Others find a drain through corruption, which may be a significant problem because of government tolerance or by virtue of social acceptance. In many countries, corruption has simply gotten out of hand and the government is unable to control it (a comment on the state of the government) or is unwilling to control it (having to do with the ideology or the ethics of the government). Kidnapping of execu tives for political reasons (including raising money for dissident political groups) is very common in some of the major emerging markets. There are many means by which companies suffer detrimental consequences that have their sources in the actions of the government or the nature of the society represented by that government. A forecast links the act resulting in loss (e.g., civil strife damage) to the causes of the act (e.g., an ethnic dispute dissolving into open con flict) or predictors of the cause. Based on histor ical memory, an argument is made that the presence of ethnic tension has a good probability of resulting in civil strife. The existence of an attribute is followed by an event a certain per centage of the time. This question can be tested empirically (i.e., is there a correlation between ethnic tension and losses to foreign businesses?) if appropriate data are available. Forecasting has taken four basic forms in the models that have been in recent use. For a variety of reasons, all are linear projections with multiple indicators from which the forecasts are made. Type I is a correlation from current attributes of countries. A list of attributes that are deemed

forecasting political risk significant correlates of future trouble is scored to create an index (score) that should project to an equivalent level of danger (and loss) to the firm. The attributes are seen in the present; losses are expected to follow in time. An example of a Type I forecast is that pro vided in a 1986 article in the Economist. In the article a list of factors was presented that were described as economic, political, and social; and a scheme was provided for weighting their indi vidual impacts and relative roles (measures of ‘‘risk’’ contribution). An additive method was offered for combining the risk scores and ranking them in such a way as to advise the reader of useful directions to take in investment. An index of risk was created, based on 100 points. Of those 100, 33 were attributed to economic factors, 50 to politics, and 17 to ‘‘society.’’ For the political risk portion of the index, the Economist chose six political variables and four social variables: bad neighbors (3 negative points), authoritarianism (7 points), staleness (5 points), illegitimacy (9 points), generals in power (6 points), war/ armed insurrection (20 points), urbanization pace (3 points), Islamic fundamentalism (4 points), cor ruption (6 points), and ethnic tension (4 points). Type II forecasts are those that ask experts to project the attributes out into the future. If this approach were applied in the case of the Econo mist, the question to the expert would be: ‘‘What will the level of ethnic tension be five years from now in country X?’’ rather than: ‘‘What is the level of ethnic tension now?’’ That having been done, there would be no time lag between the attribute and the problem for the business. The Business Environment Risk Intelligence (BERI) Political Risk Index is an example of a Type II forecast. Like the 1986 ratings in the Economist, the BERI Index is based on scores assigned to ten ‘‘political’’ variables by experts; and, also simi larly, the BERI PRI is clearly identified as being ‘‘sociopolitical.’’ The ten variables are divided into three categories: internal causes of political risk, external causes of political risk, and symp toms of political risk. The internal causes are: 1 fractionalization of the political spectrum and the power of these factions; 2 fractionalization by language, ethnic, and/or religious groups and the power of these factions;

149

3 restrictive (coercive) measures required to retain power; 4 mentality, including xenophobia, national ism, corruption, nepotism, and willingness to compromise; 5 social conditions, including population density and wealth distribution; 6 organization and strength of forces for a radical left government. The external causes are: 7 dependence on and/or importance to a hos tile major power; 8 negative influences of regional political force. Two symptoms of political risk are: 9 societal conflict involving demonstrations, strikes, and street violence; 10 instability as perceived by non constitu tional changes, assassinations, and guerrilla wars. Type III forecasting is to project the losses or the actions which account for the losses them selves out into the future. For example, it is easy to understand how a war going on today could be damaging infrastructure necessary for successful business activity. But will there be a war going on five years from now, or – a more difficult question – will there be bureaucratic inefficiency five years or ten years from now? As difficult as this type of projection might be, it does skip the intervening stage of trying to project first to whether there will be ethnic tension five years from now and then whether that ethnic tension will result in civil strife that could damage phys ical plant five years from now. An example of the Type III forecast also comes from BERI in its Operations Risk Index (ORI). In Operations Risk, the analyst assesses the likely occurrence, five years hence, of nationalization, bureaucratic delays, currency convertibility, enforceability of contracts, availability of communications and transportation infrastructures, and availability of capable local management and partners. Sev eral of these are precisely the actions against which OPIC, MIGA, and AIG insure. Type IV provides a distinct approach. In this method, future governments are projected by

150

foreign access zone

the analyst (stage 1), and then the behaviors of those governments toward businesses are simi larly projected (stage 2). The only current example of Type IV forecasting is that of Polit ical Risk Services (PRS) and their use of the PRINCE model. Ordinarily, the PRS experts forecast the three most likely governments (or regimes) to be in power 18 months or five years from the present, and then predict how they will behave toward businesses at that time. The behavior variables employed in the PRS analysis represent a differ ent stage than those used by the Economist and BERI PRI. While the former examine societal and system attributes, PRS – with one exception – examines direct government actions or eco nomic functions. It is thus somewhat like the BERI Operations Risk Index except that PRS adds the dimension of the combined effect of likely governments at the future points. If three potential governments have likelihoods of 60 percent, 30 percent, and 10 percent, each of their possible behaviors are included in the fore cast at the level of their likelihood of being in a position to carry out that behavior. These PRS action variables include equity restrictions, personnel/procurement interference, taxation discrimination, repatriation restrictions, ex change control imposition, tariff imposition, non tariff barrier imposition, payment delays, fiscal/monetary expansion, and labor cost ex pansion. Each of the types of forecast listed above has its advantages and disadvantages. Some are better than others in their forecasting ability. Some are more digestible by users than others, while sometimes also being less capable. What should be known is that there are reasonably sophisticated models within each category, that the use of appropriate models can aid businesses in avoiding or managing risk, and – most im portantly – that the use of any of these forecast ing techniques will assist the firm in identifying risks to businesses in an increasingly complex and dangerous political environment.

national Business: New Directions for Research, Manage ment, and Public Policy. New York: Praeger, 3 12. Coplin, W. D. and O’Leary, M. K. (1976). Everyman’s PRINCE: A Guide to Understanding Your Political Problems, revd. edn. North Scituate, MA: Duxbury. Coplin, W. D. and O’Leary, M. K. (1983). Introduction to Political Risk Analysis: Learning Packages in the Policy Sciences. Policy Studies Associates. Howell, L. D. (1986). Area specialists and expert data: The human factor in political risk analysis. In J. Rogers (ed.), Global Risk Assessments, Vol. 2. Riverside, CA: GRA, 47. Howell, L. D. (1992). Political risk and political loss for foreign investment. International Executive, 34 (6), 485 98. Howell, L. D. (1994). An introduction to country and political risk analysis. In W. D. Coplin and M. K. O’Leary (eds.), The Handbook of Country and Political Risk Analysis. East Syracuse, NY: Political Risk Services, 3 9. Howell, L. D. and Chaddick, B. (1994). Models of political risk for foreign investment and trade: An assessment of three approaches. Columbia Journal of World Business, winter, 70 90. Wagner, D. (1990). Why political risk insurance will grow in the 1990s. Risk Management, October, 34 9.

Bibliography

foreign affiliate

Anonymous (1986). Countries in trouble. Economist, December 20, 25 8. Brewer, T. L. (1985). Politics, risks, and international business. In T. L. Brewer (ed.), Political Risks in Inter

foreign access zone (FAZ) John O’Connell

A term adopted by Japan for its form of free trade zone. The FAZ is an outgrowth of Japan’s effort to improve its trade balance and to stimu late regional economic areas. FAZ is intended to be established around airports and seaports, with facilities (warehouses, cargo sorting, distribu tion, import processing, wholesale, design in centers, exhibition halls) on an international scale. The FAZ concept – which emphasizes imports rather than processing and job creation – extends from the July 1992 Law on Extraor dinary Measures for the Promotion of Imports and the Facilitation of Foreign Direct Invest ment in Japan.

John O’Connell

When an organization in one country owns or controls an organization in another country, the

Foreign Corrupt Practices Act second organization is referred to as a foreign affiliate.

foreign assignment

151

A three-culture test. Journal of International Business Studies, summer, 17 31.

foreign corporation John O’Connell

John O’Connell

International organizations generally require some employees to assume positions outside of their home country. Any position which requires an employee to live in another country to carry out his or her work related duties is considered a foreign assignment. Foreign assignments are usually for a matter of months or years. Thus, the occasional business trip does not usually fall into the foreign assignment category in most organizations.

In most countries (with the major exception of the United States) a foreign corporation is one which is formed in another country. Thus, a Korean company doing business in Mexico is considered a foreign corporation by Mexico. In the United States, however, the term ‘‘foreign corporation’’ refers to a corporation formed in a different ‘‘state’’ of the US. Thus, a Delaware corporation doing business in California is considered a foreign corporation. The United States reserves the term a l i e n c o r p o r a t i o n for a company formed outside of the country.

See also assignment Bibliography Brislin, R. W. (1981). Cross Cultural Encounters. New York: Pergamon.

Foreign Corrupt Practices Act (FCPA) John O’Connell foreign bills

see b i l l o f e x c h a n g e

foreign branch John O’Connell

One of the ways of conducting business in an other country is to establish a foreign branch office. An organization with foreign branches has its own employees in the branch offices to represent the company at the local level in for eign countries. Foreign branches are often staffed by local employees (host country nation als) as well as expatriates from any other of the company’s locations. See also expatriate Bibliography Kelley, L., Whatley, A., and Worthley, R. (1987). Assessing the affects of culture on managerial attitudes:

A United States law (1977) which prohibits a US company from making payments to foreign gov ernment officials to influence those officials to make decisions beneficial to the company. The FCPA is essentially a US law against bribing foreign officials to act on behalf of a US com pany. Under the act, no bribe, contribution, transfer of funds, or other payment can be made to or on behalf of a foreign government official for the purpose of benefiting a US com pany. US firms doing business overseas are re quired to keep detailed records of expenditures related to overseas activities and make those records available to the s e c u r i t i e s a n d e x c h a n g e c o m m i s s i o n and/or the US Department of Justice. Bibliography Cash, M. M. (1988). Strategic Intervention In Organiza tions: Resolving Ethical Dilemmas in Corporations. Newbury Park, CA: Sage. Gillespie, K. (1987). Middle East response to the US Foreign Corrupt Practices Act. California Management Review, summer, 9 30.

152

foreign credit insurance

US Congress (1977). Foreign Corrupt Practices Act of 1977. The United States Code of Congressional and Administrative News, 95th Congress, First Session 1977, Vol. 1, 91 stat., Public Law 95 213 1494 500. Wood, D. J. (1994). Business and Society, 2nd edn. New York: HarperCollins.

foreign credit insurance

see c r e d i t r i s k i n s u r a n c e

Foreign Credit Insurance Association (FCIA) John O’Connell

One of the risks of entering into foreign trade transactions is that the buyer of goods will not pay for them. Although a similar risk exists with domestic sales, foreign sales are particularly risky for several reasons. Foreign buyers are sometimes thousands of miles away, and normal credit worthiness checks are difficult if not im possible to accomplish; foreign payments may be withheld because of a foreign government’s actions (non convertibility of currency, or others); and when foreign companies or govern ments default it may be very expensive and time consuming to take collection action. The FCIA is an agent of the Export–Import Bank of the United States. Exporters may purchase credit insurance from the FCIA, which also has special insurance programs for banks, foreign commer cial lease payments, and others. Bibliography Trieschman, J. S. and Gustavson, S. G. (1993). Risk Management and Insurance, 9th edn. Cincinnati, OH: Southwestern College Publishing.

foreign currency accounting Jayne M. Godfrey

Accounting regulations for foreign currency vary internationally. Foreign currency account ing regulations are contained in Statement of Financial Accounting Standard No. 52, ‘‘Foreign Currency Translation’’ (1981) (SFAS

52) in the USA; Statement of Standard Ac counting Practice No. 20 (SSAP 20) in the UK; CICA 1650, ‘‘Foreign Currency Transla tion,’’ in Canada; AASB 1012 and AAS 20, ‘‘Foreign Currency Translation’’ in Australia; International Accounting Standard IAS 21, ‘‘The Effects of Changes in Foreign Exchange Rates’’; standards issued by the Business Ac counting Deliberation Council in Japan; recom mendations issued by Sweden’s Authorized Accountant Association; the Plan Comptable Ge´ne´ral in France, and other forms of regulation in various countries. Not all countries’ regula tions regulate all foreign currency accounting issues; nor do all countries’ regulations concur. It is noteworthy that the European Community’s (EC) Fourth and Seventh Directives are both silent concerning foreign currency accounting, requiring merely the disclosure of exchange rates used to translate foreign currency balances.

Offshore Investments To incorporate a firm’s equity investment in operations with foreign currency denominated accounts into the firm’s own group accounts, it is necessary to translate the foreign operation’s accounts into the investor’s reporting currency. Of the following translation methods the current rate and temporal methods are those most fre quently adopted. The current rate method was used by British accountants in the nineteenth century and has been followed by UK, European, Asian, Austra lian, and New Zealand firms. It is currently permitted for self sustaining operations under international, US, Canadian, UK, European, Australian, and Asian accounting standards. All the foreign operation’s assets and liabilities are translated at the exchange rate ruling on balance date. Profit and loss statement items are trans lated using exchange rates ruling at the times of the transactions or approximations thereto. Be cause a self sustaining operation operates inde pendently of the investor, the investor’s currency risk is limited to its ‘‘net investment.’’ Most international standards therefore require that the net investment in self sustaining oper ations (i.e., assets less liabilities) be translated using the current rate method. A claimed advantage of the current rate method is that it preserves the relativity of meas

foreign currency accounting 153 ures in the foreign operation’s accounts. A claimed disadvantage is that when assets valued at other than current values are translated using a current exchange rate, the resultant measure is devoid of economic meaning. The temporal method is sometimes required by international, US, Canadian, UK, European, and Australasian countries’ accounting stand ards, and generally is to be applied only where the foreign investment is ‘‘integrated’’ (i.e., where the overseas firm frequently exposes the reporting firm to currency risk because of financial and/or operating interdependencies). Under the temporal method, assets and liabil ities are translated using exchange rates corres ponding to their valuation: historical cost valued items are translated using historical exchange rates; items at current or revalued amounts are translated using exchange rates ruling at their (re)valuation. Revenues and expenses are trans lated using exchange rates at the time of the transactions. The current rate and temporal methods often produce translation differences of the opposite sign. Because all assets and liabilities are trans lated at current rates under the current rate method, and assets generally exceed liabilities, the accounting exchange rate exposure arises from net assets. In contrast, the temporal method generally yields an exposure from net liabilities since liabilities are more frequently measured at current values than are assets. While the temporal method retains the subsidi ary’s measurement system, the current rate method yields exchange rate gains or losses con sistent with the parent entity’s economic cur rency exposure from the subsidiary’s net assets and does not distort the relationships of items in the offshore operation’s accounts. The monetary–non monetary method trans lates monetary items using balance date ex change rates and non monetary items using historic exchange rates, yielding effects similar to the temporal method if assets are not revalued. Where revaluations are common, as in some European and most Australasian countries, the differences can be material. The current–non current method entails trans lating current assets and liabilities at balance date exchange rates; non current items are trans lated at historic rates. The method was common

when rates moved gently, as within a stabiliza tion system like the e u r o p e a n m o n e t a r y s y s t e m . It was advocated on the grounds that current items were likely to be settled at rates approximating the current rate. In contrast, ex change rates might have returned to prior levels by the time long term items were settled.

Translation Policies Under Hyperinflation For subsidiaries in countries with high inflation, a particular problem arises due to two economic relationships: 1 Purchasing power parity, whereby an inverse relation between currency strength and infla tion rates insures that asset values in countries with different exchange rates remain rela tively constant in terms of either currency. 2 The ‘‘Fisher effect,’’ where there is an in verse relation between interest rates and cur rency movements, so that as a currency strengthens relative to another, the interest rate weakens. Over extended periods, both effects tend to op erate. Translating the accounts of an operation in a hyperinflationary country can therefore dis tort the accounts relative to the parent’s. US and UK standards respond differently to the prob lem: US Statement of Financial Accounting Standard (SFAS) 52 requires temporal transla tion if prices more than double in three years; while Statement of Standard Accounting Prac tice (UK) (SSAP) 20 requires inflation adjust ments to the foreign operation’s accounts before using the current rate method. International Ac counting Standard (IAS) 21 permits either method.

Treatment of Translation Gains and Losses Translation gains or losses (differences) can pass through earnings or go directly to reserves such as a foreign currency translation reserve. Inter nationally, regulations require different prac tices for different translation methods. In turn, the extent of integration of the investor and investee operations determines the translation method. The current rate method is required for self sustaining operations and combines

154

foreign currency accounting

with taking translation gains and losses to re serves; the temporal method combines with taking translation differences to earnings for in tegrated operations.

Foreign Currency Transactions of the Reporting Firm Foreign currency transactions are recorded at exchange rates ruling when the transactions occur. When resultant debts or receivables are settled before balance date, realized gains or losses are recorded in earnings: there appears to be no international or national accounting regu lation requiring that they be taken directly to reserves. At balance date, any unsettled monetary assets or liabilities are translated using the balance date exchange rate. Most countries’ accounting standards require the unrealized gains or losses to be taken to earnings if the item is short term (current). For long term monetary items there has been greater diversity. IAS 21 and US, UK, Australian, and New Zealand standards require unrealized gains or losses on long term monetary items that are not hedges to be recognized as income or expenses of the period when the ex change rate moves. The Canadian accounting standard recently adopted this practice. Previ ously, it required them to be deferred to a balance sheet account and amortized the related items’ lives. Deferral and amortization policy was once required under Australian regulations also.

Foreign Currency Hedges Countries vary considerably in their treatment of foreign currency hedges, and many countries’ standards do not cover hedge accounting. Inter national Accounting Standard (IAS) 21 does not deal with hedge accounting except to require equity classification of exchange differences from monetary items forming part of an enter prise’s net investment in a foreign subsidiary or hedging a net investment until the investment is disposed. Then, these differences are recognized as income or expenses (IAS 21, para. 17). US Statement of Financial Accounting Standard (SFAS) 52 requires identical treatment, as do UK Statement of Standard Accounting Practice (SSAP) 20, paras 51, 57, AASB 1012, para. 31 (Australia) in AASB 1012, para. 31 and CICA 1650.50 (Canada).

Where foreign currency transactions such as forward contracts hedge an identifiable, specific foreign currency commitment such as a pur chase or sale commitment, Australian, New Zealand, and US accounting standards require the unrealized gains or losses on the hedge trans action to be deferred and included in measuring the hedged commitment (AASB 1012 (XXV); as in New Zealand; SFAS 52, para. 21). The Can adian approach defers the gain or loss until monetary item settlement (CICA 1650.54). The treatment of premiums or discounts on forward contracts can depend upon the purpose of the contracts. Under Australian, New Zea land, and US regulations, if the purpose is not to hedge a specific identifiable foreign currency commitment, the premiums or discounts are deferred to the balance sheet and amortized over the lives of the contracts. If a contract hedges a specific identifiable commitment, the portion related to the commitment may be in cluded in measuring of the commitment (AASB 1012, Commentary; SSAP 21, para. 5.5; SFAS 52, para. 19). International, UK, and Canadian standards are silent on the treatment.

Disclosure Almost all countries with foreign currency ac counting standards require disclosure of the amount of exchange rate differences included in the period’s net profit or loss; net exchange differences classified as a separate component of equity; and a reconciliation of amounts at the start and end of the period. Additional disclos ures sometimes required include details of changes in the classification of significant foreign operations and the financial impact of the changes (IAS 21, para. 44); and the amounts and currencies of payables and receivables (AASB 1012, para. 60).

Reactions to Proposed and Actual Accounting Standards Most research investigating reactions to pro posed and actual foreign currency accounting standards emanates from the USA. Research indicates that firms increased foreign exchange risk management to reduce exposure to earnings variability subsequent to the introduction of Statement of Financial Accounting Standard, the predecessor to SFAS 52 (SFAS) 8. Further

foreign exchange studies of lobbying and changes in financing or operating activities in response to SFAS 8 indi cate managerial risk aversion to increased reported income variability and that managers adopted the new standard when it had the most potential to reduce their contracting and political costs. While their results have been mixed, re searchers have generally found negative stock price reactions to SFAS 8 and positive reactions to SFAS 52 and that the share price effects are associated with the extent to which the SFAS induced earnings variability affected firms’ earn ings based contracts and political vulnerability.

Foreign Currency Accounting Policy Choices In one of the few publications to examine firms’ voluntary foreign currency accounting policies, Taylor, Tress, and Johnson (1990) note that most Australian firms prefer current rate trans lation. They investigate why firms varied in taking the consequential translation differences to reserves, operating earnings, or extraordinary earnings and find that the selected policies facili tated risk sharing between shareholders and managers. Godfrey (1992) finds evidence that voluntary policies were optimal in sharing risk between Australian lenders, shareholders, and managers. She finds that Australian companies’ policies for translating accounts of overseas sub sidiaries and for foreign currency long term debt combined to yield an accounting hedge if the firm hedged its economic exchange rate risk, and did not give an accounting hedge if the firm did not hedge the economic risk. Godfrey (1994) investigates whether, prior to regulation of accounting for foreign currency long term debt, Australian managers used ac counting policies to reflect firms’ underlying exchange rate risk exposure, or whether the pol icies were used opportunistically to influence reported earnings levels. Policies included taking all currency differences to current earnings; de ferring and amortizing them over the life of the debt; or recognizing them in earnings only when the debt was repaid. She finds that managers chose methods that reflected the firms’ under lying economic exposures to currency risk. In particular, when foreign debt hedged currency exposure for foreign currency export earning

155

assets, managers selected the method that best reflected the results of the hedging objective. Generally, research indicates that Australian firms’ voluntary reporting practices reflected the underlying nature of the firms’ foreign cur rency exposures and that alternative practices imposed costs on the firms and their share holders. Bibliography Financial Accounting Standards Board (1995). Original Pronouncements Accounting Standards as of June 1995, Vol. 1. New York: John Wiley and Sons. Godfrey, J. M. (1992). Foreign currency accounting policies: Reporting the exchange rate/asset value correlation. Accounting and Finance. Godfrey, J. M. (1994). Foreign currency accounting policies: The impact of asset specificity. Contemporary Accounting Research, spring. Taylor, S., Tress, R. B., and Johnson, L. W. (1990). Explaining intraperiod accounting choices: The reporting of currency translation gains and losses. Ac counting and Finance.

foreign distributors

see d i s t r i b u t o r

foreign exchange John O’Connell

Foreign exchange is the currency of one country located in a second country. A country generally uses the foreign currency it has on hand to pay debts owed in the issuing country. Foreign ex change may also refer to the actual process of exchanging one currency for another. Foreign exchange markets have been established throughout the world for such exchanges to take place. Bibliography Agenor, P. R. (1992). Parallel Currency Markets in De veloping Markets: Theory, Evidence, and Policy Implica tions. Princeton, NJ: Princeton University Press. Miletello, F. C. and Davis, H. A. (1994). Foreign Exchange Management. Morristown, NJ: Financial Executives Research Foundation.

156

foreign exchange arbitrageur

Peters, C. C. and Gitlin, A. W. (eds.) (1993). Strategic Currency Investing: Trading and Investing in the Foreign Exchange Markets. Hinsdale, IL: Probus.

foreign exchange arbitrageur John O’Connell

A person who purchases the currency of two or more countries simultaneously in hope of profiting from differences in exchange rates of the purchased currencies.

foreign exchange broker John O’Connell

An intermediary who brings together buyers and sellers of currency. Foreign exchange brokers may represent banks, private companies, gov ernments, and individuals seeking to exchange currencies.

foreign exchange dealers John O’Connell

Persons who buy and sell currency on the foreign exchange market. The majority of for eign exchange dealers are employed by banking institutions, although they may also work for large organizations with frequent exchange needs.

foreign exchange loans John O’Connell

If a company takes out a loan in other than the currency of its home country, the loan is con sidered a foreign exchange loan. Foreign ex change loans are commonly made to companies which want to take advantage of lower interest rates or other favorable loan terms offered in a foreign country. The major drawback to such loans is that if exchange rates change, all advan tages from the better terms may be wiped out.

foreign exchange markets Ismail Erturk

Foreign exchange markets are the institutional frameworks within which currencies are bought and sold by individuals, corporations, banks, and governments. Trading in currencies no longer occurs in a physical marketplace or in any one country. London, New York, and Tokyo, the major international banking centers in the world, have the largest share of the market, accounting for nearly 60 percent of all transac tions. The next four important centers are Singapore, Switzerland, Hong Kong, and Germany. Over half of transactions in the for eign exchange markets are cross border, that is between parties in different countries. Trading is performed using the telephone network and electronic screens, like Reuters and Telerate. More and more, however, trading is conducted through automated dealing systems which are electronic systems that enable users to quote prices, and to deal and exchange settlement details with other users on screen, rather than by telex machine or telephone. Counterparties in foreign exchange markets do not exchange phys ical coins and notes, but effectively exchange the ownership of bank deposits denominated in dif ferent currencies. In principle, a tourist who makes a physical exchange of local currency for foreign currency is also a participant in the for eign exchange market and indeed for some cur rencies seasonal flows of tourist spending may alter exchange rates, though in most markets rates are driven by institutional trading. Other currencies may not be officially converted except for officially approved purposes and the cur rency rate is then determined by a parallel mar ket which is more indicative of market trends than officially posted rates by the central bank or by the commercial bankers (Kamin, 1993). According to the Bank for International Settlement’s latest triennial survey of the global foreign exchange market, around US$880 billion worth of currencies are bought and sold daily. This represents a 42 percent growth in size com pared to the previous survey and makes the foreign exchange market the world’s biggest and most liquid market. The time zone positions of major international financial markets make the foreign exchange market a 24 hour global

foreign exchange markets market. Unlike the different stock exchanges and securities markets around the world, the foreign exchange market is virtually continu ously active with the same basic assets being traded in several different locations. Through out the day, the center of trading rotates from London to New York and then to Tokyo. Less than 10 percent of the daily turnover in foreign exchange transaction is between banks and their customers in response to tangible international payments. The remaining transactions are mostly between financial institutions themselves and are driven by international financial invest ment and hedging activities that are stimulated by the increasing deregulation of financial markets and the relaxation of exchange controls. Trading activity in foreign exchange markets shows few abnormalities and with the exception of late Friday and weekends, day of the week distortions are minimal. Trading activity in most centers is characterized by a bimodal distribu tion around the lunch hour. New York, how ever, has a unimodal distribution of activity, peaking at the lunch hour which coincides roughly with high activity in London and Frank furt at the end of the business day in those locations (Foster and Viswanathan, 1990).

Currencies Although its share is a declining trend, the US dollar remains predominant in foreign exchange turnover. About 83 percent of all foreign ex change transactions involve the US dollar, with main turnover between the US dollar and the deutsche mark, Japanese yen, British pound, and the Swiss franc. This small group of currencies accounts for the bulk of interbank trading. Sig nificant amounts of trading occur in other Euro pean currencies and in the Canadian dollar, but these can be considered second tier currencies in that they are not of worldwide interest, mostly because of the limited amount of trade and fi nancial transactions denominated in those cur rencies. In the third tier would be the currencies of smaller countries whose banks are active in the markets and in which there are significant local markets and some international scale trading. The Hong Kong dollar, the Singapore dollar, the Scandinavian currencies, the Saudi rial, and Kuwait dinar are such currencies. Finally, the fourth tier would consist of what are called the

157

exotic currencies, those for which there are no active international markets and in which trans actions are generally arranged on a correspond ent bank basis between banks abroad and local banks in those centers to meet the specific trade requirements of individual clients. This group includes the majority of the Latin American currencies, the African currencies, and the remaining Asian currencies. A currency needs to be fully convertible to be traded in inter national foreign exchange markets. If there are legal restrictions on dealings in a currency, that currency is said to be inconvertible or not fully convertible and sales or purchases can only be made through the central bank, often at different rates for investment and foreign transactions.

Transactions A spot transaction in the currency market is an agreement between two parties to deliver within two business days a fixed amount of cur rency in return for payment in another at an agreed upon rate of exchange. In forward trans actions the delivery of the currencies, the settle ment date, occurs more than two business days after the agreement. In forward contracts short maturities, primarily up to and including seven days, are dominant. There are two types of for ward transactions: outright forwards and swaps. Outright forwards involve single sales or pur chases of foreign currency for value more than two business days after dealing. Swaps are spot purchases against matching outright forward sales or vice versa. Swap transactions between two forward dates rather than between spot and forward dates are called forward/forwards. Spot transactions have the largest share in total for eign exchange transactions, accounting for just under half of the daily turnover. However, for ward transactions have increased in volume faster and now nearly match the share of spot transactions. Activity in currency futures and options, which approximately represents 6 per cent of the market, accounts for the rest of the turnover.

Market Efficiency Market efficiency is of special interest to both academics and market participants with respect to the foreign exchange markets. Modern finance theory implies that prices in the foreign

158

foreign exchange markets

exchange markets should move over time in a manner that leaves no unexploited profit oppor tunities for the traders. Consequently, no for eign exchange trader should be able to develop trading rules that consistently deliver profits. This assertion seems to be supported by the traders’ performance in real life. However, pub lished research results, so far, show evidence of ex post unexploited profit opportunities in the currency markets. Dooley and Shafer (1983) also reported that a number of filter rules beat the market even in the ex ante sense. Some authors have argued that the filter profits found in ex change markets are explicable in the light of the speculative risk involved in earning them and may perhaps not be excessive or indicative of inefficiency. A filter rule refers to a trading strategy where a speculator aims to profit from a trend by buying a currency whenever the exchange rate rises by a certain percentage from a trough and selling it whenever it falls by a certain percentage from a peak. If foreign exchange markets were efficient, the forward rate today would be an optimal predictor of future spot rate and by implication would be the best forecaster. The empirical evidence suggests that the forward rate is not an optimal predictor of the future spot rate (i.e., it is a biased predictor). The rejection of forward market efficiency may be attributable to the irrationality of market partici pants, to the existence of time varying risk pre miums, or to some combination of both of these phenomena (Cavaglia, Verschoor, and Wolff, 1994). Crowder (1994) is one of those who argue that once allowance is made for fluctu ations in the risk premium, efficiency is pre served. Currently, there is no consensus among the researchers on the existence of market inefficiency or on the explanations for the inefficiency.

Participants The major participants in the foreign exchange markets are banks, central banks, multinational corporations, and foreign exchange brokers. Banks deal with each other either directly or through brokers. Banks are the most prominent institutions in terms of turnover and in the pro vision of market maker services. The interbank market accounts for about 70 percent of transac

tions in the foreign exchange markets. Banks deal in the foreign exchange market for three reasons. First, banks sell and buy foreign cur rency against customer orders. Second, banks operate in the market in order to meet their own internal requirements for current transac tions or for hedging future transactions. Third, banks trade in currencies for profit, engaging in riskless arbitrage as well as speculative transac tions. In carrying out these transactions the banks both maintain the informational efficiency of the foreign exchange market and generate the high level of liquidity that helps them to provide effective service to their commercial customers. According to the BIS survey in April 1992 in London, the top 20 banks out of 352, acting as foreign exchange market makers, account for 63 percent of total market turnover. In all inter national markets there is a continuing trend to wards a declining number of market making banks as a result of both mergers among banks and of the withdrawal of some smaller banks who have inadequate capital to trade at the level needed for profitability in such a highly com petitive business. Non financial corporations use the foreign exchange market both for trade finance and to cover investment/disinvestment transactions in foreign assets. In both activities the objective of the corporation is to maximize its profits by obtaining the most advantageous price of foreign exchange possible. Although small in scale, the corporations’ involvement in foreign exchange markets extends to management of their foreign exchange exposure through derivative products and, in the case of larger corporate entities, to actively seeking profit opportunities that may exist in the market through speculative transactions. In their role of regulating monetary policies, central banks of sovereign states are often in the position of both buying and selling foreign ex change. The objective of central banks’ involve ment in the foreign exchange markets is to influence the market determined rate of their currencies in accordance with their monetary policy. Central banks often enter into agree ments, with one central bank lending the other the foreign exchange needed to finance the pur chase of a weak currency in the market to main tain the value of their currencies within a

foreign exchange markets mutually agreed narrow band of fluctuations. Stabilization is intended to prevent wild fluctu ations and speculations in the foreign exchange market, but central banks are increasingly cau tious about signaling a commitment to a fixed intervention rate. Even the Exchange Rate Mechanism (ERM) of the European Union, in which currencies were contained within narrow bands of their central rate, was unable, in spite of the committed support of all European central banks, to prevent a concerted market adjust ment. In September 1992 the Bank of England lost many millions of foreign currency reserves in a short and unsuccessful defense of sterling. Both sterling and the Italian lira were on that occasion forced out of the ERM bands.

Risks Counterparty credit risk, settlement risk, and trading risk are the three major risks that are faced by market participants in the foreign ex change markets. Credit risk relates to the possi bility that a counterparty is unable to meet its obligation. Settlement risk arises when the coun terparty is able and willing but fails to deliver the currency on settlement day. The settlement of a foreign exchange contract is not simultan eous; therefore, counterparties are usually not in a position to insure that they have received the countervalue before irreversibly paying away the currency amount. In the foreign exchange markets there are unequal settlement periods across countries. Different time zones may expose the party making the first payment to default by the party making the later payment. In 1974 US banks paid out dollars in the morn ing to a German bank, Bankhaus Herstatt, but did not receive German marks through the German payment system when German banking authorities closed at 10.30 a.m. New York time. Herstatt received the dollars in the account of its US correspondent but did not pay out the marks. Market risk refers to the risk of adverse movements in the rate of foreign ex change. A market participant in the foreign exchange market risks loss when rates decline and it has a long position (owns the asset) or when rates rise and it has a short position (has promised to supply the asset without currently owning it).

159

Quotation and Transaction Costs The exchange rate quoted for a spot transaction is called the spot rate and the rate that applies in a forward transaction is called the forward rate. If a currency is trading at a lower price against another currency on the forward market than on the spot market, it is said to be at a discount. If, however, the currency is more expensive for ward than spot, it is said to be at a premium. What determines whether a currency trades at a premium or discount is the interest rate differ ential in money markets. The currency with higher/lower interest rate will sell at a dis count/premium in the forward market against the currency with the lower/higher interest rate. However, some research has shown a small bias in the forward rate explained by a time varying risk premium. Traders in the foreign exchange markets always make two way prices, that is they quote two figures: the rate at which they are prepared to sell a currency (offer) and the rate at which they are willing to buy a currency (bid). The difference is called the spread and represents the market maker’s profit margin. The spread is conventionally very narrow in stable curren cies with a high volume of trading. Liquidity is usually extremely good for major currencies and continuous two way quotations can be obtained. However, in unstable, infrequently traded cur rencies, it can become a good deal wider. It widens with uncertainty – spreads on inter nationally traded currencies such as the British pound, US dollar, or deutsche mark will widen if the international financial markets are in tur moil. The evidence from foreign exchange markets, however, does not support an unequivocal relationship between the market liquidity and the transaction costs. Bid–ask (offer) spreads are not necessarily lowest when the liquidity is high. More trading by informed risk averse participants brings about higher costs. Bollerslev and Domowitz (1993) report that small traders (banks) in foreign exchange markets tend to increase both the quoted spread and market activity at the beginning and at the end of their regional trading day, because they are more sensitive with respect to their inventory positions at the close than larger banks and have less information based on retail order flow at the

160

foreign exchange markets

beginning than larger banks that operate con tinuously. Another factor which may effect the transaction cost in foreign exchange markets is unobservable news. News events which change traders’ desired inventory positions result in order imbalances, changing the relative demand and supply for the currency, with the potential of changing the spreads (Bollerslev and Domowitz, 1993).

Exchange Rate Systems From the end of World War II until 1971 the leading industrialized countries under the he gemony of the US economy committed them selves to a fixed exchange rate system. This period in the international monetary system is known as the Bretton Woods system and aimed to preserve a fixed exchange rate between cur rencies until fundamental disequilibrium appeared, at which point through devaluation or revaluation a new fixed parity was established. The Bretton Woods system was based on the strength of the US economy whereby the US government pledged to exchange gold for US dollars on demand at an irrevocably fixed rate (US$35 per ounce of gold). All other participat ing countries fixed the value of their currencies in terms of gold, but were not required to ex change their currencies into gold. Fixing the price of gold against each currency was similar to fixing the price of each currency against each other. With the increasing competitiveness of the continental European economies and the Japan ese economy against the US economy, the USA had become unable to meet its obligations under the Bretton Woods system and the fixed ex change rate system gave way to the floating exchange rate system in 1973. Under the floating exchange rate system, currencies are allowed to fluctuate in accordance with market forces in the foreign exchange markets. However, even in systems of floating exchange rates where the going rate is determined by supply and demand, the central banks still feel compelled to intervene at particular stages in order to help maintain stable markets. The Group of Seven (G7) coun cil of economic ministers has in the past at tempted coordinated interventions in the foreign exchange markets with a view to stabiliz ing exchange rates. The exchange rate system

that exists today for some currencies lies some where between fixed and freely floating. It re sembles the freely floating system in that exchange rates are allowed to fluctuate on a daily basis and official boundaries do not exist. Yet it is similar to the fixed system in that governments can and sometimes do intervene to prevent their currencies from moving too much in a certain direction. This type of system is known as a managed float. Economists are not in agreement as to which of the exchange rate systems, fixed or floating, can create stability in currency markets and is a better means for ad justments to the balance of payments positions (Friedman, 1953; Dunn, 1983). A fixed ex change rate system is unlikely to work in a world where the participating countries have incompatible macroeconomic policies and the economic burden of adjustments to the exchange rates usually falls on the deficit countries. The floating exchange rate system, on the other hand, has not delivered the benefits that its advocates put forward. The exchange rate volatility during the floating rate period is severe and is not con sistent with underlying economic equilibria due to the activities of short term speculators. The European Union’s aim is not to create a fixed exchange rate system, but to create a monetary union where the exchange rate fluctuations are eliminated with adoption of a single currency by the member countries. However, to reach this goal a transitional period where a stability in exchange rates through conversion of member countries’ macroeconomic performances to a specified desirable level is necessary. Since the Maastricht Treaty of 1989 the European Union countries have not been successful in achieving these macroeconomic targets, thus raising ser ious concerns about the monetary union. Bibliography Bank of England (1992). The foreign exchange market in London. Bank of England Quarterly Bulletin, November, 408 17. Bollerslev, T. and Domowitz, I. (1993). Trading patterns and prices in the interbank foreign exchange market. Journal of Finance, 48, 1421 43. Cavaglia, S. M., Verschoor, W. F., and Wolff, C. C. (1994). On the biasedness of forward foreign exchange rates: Irrationality or risk premia? Journal of Business, 67, 321 43.

foreign income information returns program Committeri, M., Rossi, S., and Santorelli, A. (1993). Tests of covered interest parity on the Euromarket with high quality data. Applied Financial Economics, 3, 89 93. Copeland, L. S. (1994). Exchange Rates and International Finance, 2nd edn. Wokingham: Addison-Wesley. Crowder, W. J. (1994). Foreign exchange market efficiency and common stochastic trends. Journal of Inter national Money and Finance, 13, 551 64. Dooley, M. P. and Shafer, J. R. (1983). Analysis of short run exchange rate behaviour: March 1973 to November 1981. In D. Bigman and T. Taya (eds.), Exchange Rate and Trade Instability. Cambridge, MA: Ballinger, 187 209. Dunn, R. M. (1983). The Many Disappointments of Flex ible Exchange Rates. Princeton Essays in International Finance. Princeton, NJ: Princeton University Press. Eichengreen, B., Tobin, J., and Wyplosz, C. (1995). Two cases for sand in the wheels of international finance. Economic Journal, 105, 162 72. Foster, D. and Viswanathan, S. (1990). A theory of intraday variations in volumes, variances and trading costs. Review of Financial Studies, 3, 593 624. Friedman, M. (1953). The case for flexible rates. Essays in Positive Economics. Chicago: University of Chicago Press. Group of Ten Deputies (1993). International Capital Movements and Foreign Exchange Markets. Rome: Bank of Italy. Kamin, S. B. (1993). Devaluation, exchange controls, and black markets for foreign exchange in developing countries. Journal of Development Economics, 40, 151 69. Krugman, P. (1991). Target zones and exchange rate dynamics. Quarterly Journal of Economics, 51, 669 82. Tucker, A. L., Madura, J., and Chiang, T. C. (1991). International Financial Markets. St Paul, MN: West Publishing.

161

right but not the obligation to make the purchase at a preset price before a stated future date. If it is advantageous, the option is exercised, if not the option is allowed to expire. Bibliography Daigler, R. T. (1993). Managing Risk with Financial Futures: Pricing, Hedging, and Arbitrage. Hinsdale, IL: Probus. Kenyon, A. (1990). Currency Risk and Business Manage ment. Cambridge, MA: Blackwell.

foreign exchange swaps John O’Connell

This is the purchase of a foreign currency (left on deposit with a bank) combined with a forward sale of the same currency. The forward sale date and the maturity date of the original sale are the same. Also referred to as a bank swap.

foreign exchange traders John O’Connell

Employees of an organization whose job it is to purchase and sell foreign currency for that organization.

foreign income John O’Connell foreign exchange risk management John O’Connell

Companies that realize the potential for loss associated with various transactions involving f o r e i g n e x c h a n g e may seek to limit their losses. A number of strategies are available to manage the foreign exchange risk. One strategy is to purchase currency forward contracts. For ward contracts allow the purchase of specified amounts of currency at a set rate on a future date. Even if currency rates fluctuate, the forward price remains static. Another strategy is to purchase currency options. Options give the purchaser the

Income that is obtained from sources that are outside the home country. A Pepsi subsidiary in Amsterdam sending its profits back to the US would be an example of foreign income.

foreign income information returns program John O’Connell

This is an agreement between the United States and certain foreign countries (generally those with which the US has reciprocal tax agree ments) under which US citizens working in

162

foreign investment

those countries will have their tax records for warded to the United States Internal Revenue Service (IRS). The IRS uses this information to coordinate tax payments as specified in tax agreements and under US tax law.

Bibliography International Intellectual Property Alliance Staff (1992). Copyright Piracy in Latin America: Trade Losses Due to Piracy and the Adequacy of Copyright Protection in 16 Central and South American Countries. Washington, DC: International Intellectual Property Alliance.

See also withholding tax Bibliography Nexia International Staff (1994). International Handbook of Corporate and Personal Taxes. New York: Chapman and Hall.

foreign manufacture’s agent

see e x p o r t a g e n t

foreign national

foreign investment

John O’Connell

John O’Connell

Investments made in a country by citizens of another country. Foreign investments are com monly classified as being either direct or port folio investments. Direct foreign investment describes situations in which the investor gains a considerable amount of control of the company or enterprise in which the investment was made. Portfolio foreign investment is the purchase of stock, etc. with little or no control of the com pany being acquired.

An employee of an organization who comes from another country. When hiring takes place on a geocentric basis (from employees throughout the world) it is very common to have employees of several countries in a company’s home or re gional offices. Foreign nationals are citizens of countries other than the one to which they are assigned. See also employee categories; staffing

Bibliography Houthakker, H. S. and Williamson, P. J. (1994). The Economics of Financial Markets. New York: Oxford University Press.

foreign payoffs

see b r i b e r y

foreign sales agent (FSA)

foreign investment codes John O’Connell

Many countries have laws against foreign invest ors owning or controlling certain industries. These laws were passed during times when public and political sentiment moved against foreign acquisitions of formerly domestic busi nesses. Laws usually restrict foreign ownership of certain industries such as munitions or other government related defense production. Foreign investment codes may also be the place to look for information regarding a country’s i n t e l l e c t u a l p r o p e r t y right protections as well as r e p a t r i a t i o n o f p r o f i t s regulations.

see e x p o r t a g e n t

foreign service premium

see e x p a t r i a t e d i f f e r e n t i a l

foreign source income John O’Connell

When a person receives income from a source outside of his or her own country it is considered

FOREX broker

163

foreign source income. Depending upon the countries involved and the duration of stay (if any) in another country, taxes may have to be paid in either or both of the countries involved. It is very important to determine the conse quences of receiving income from foreign sources before entering into contracts or other relationships overseas.

Bibliography

Bibliography

Foreign trade zone is the term used in the United States to refer to specific geographic area(s) within a country in which foreign goods enter and are eventually re exported without payment of local duties or tariffs. A country can take advantage of employment opportunities offered by foreign producers of products by allowing those products to enter FTZs for as sembly, processing, transshipment, or other ac tivities needed to forward the export to its final destination. Foreign trade zones allow exporters to take advantage of low cost labor or other services provided by the FTZ without duties/ tariffs further increasing the final sale price of the goods. As long as foreign goods do not move into the country housing the FTZ, no duties/ tariffs are paid. That is, all goods must be re exported in order to remain duty/tariff free. Duties/tariffs are collected by the country to which the goods are finally exported. FTZs are also commonly located in inter national airports. Travelers may purchase for eign goods, duty free at these locations. Airport FTZs are normally referred to as duty free ports (DFPs) or duty free zones (DFZs). Foreign trade zones are also referred to as free economic zones (FEZs), export processing zones (EPZs), or special economic zones (SEZs).

Langar, M. (1992). Tax Exile Report: How To Escape Confiscatory Taxes in the US and Other High Tax Coun tries. Rolands Castle: Scope International.

foreign sourcing

see s o u r c i n g

foreign subsidiaries John O’Connell

Often, a company will see fit to establish a separate corporation in a foreign country to handle the parent company’s activities in that country. The corporation established in the for eign country is referred to as a foreign subsid iary. Foreign subsidiaries may be formed to take advantage of foreign tax laws and rates, or as a business decision to establish themselves locally in all of the parent company’s foreign markets.

Ferris, K. R. (1993). Financial Accounting and Corporate Reporting: A Casebook, 3rd edn. Homewood, IL: Irwin.

foreign trade zone (FTZ) John O’Connell

foreign tax credit John O’Connell

Some countries allow their citizens a credit on their income taxes for taxes paid to foreign countries. For example, if a US citizen worked in Europe and paid income taxes on the foreign income, he or she would be allowed to offset US taxes payable on that same income. Tax credits recognize that taxes must be paid, but they also recognize that it is unfair in most cases to have to pay them twice.

FOREX John O’Connell

The abbreviation for f o r e i g n e x c h a n g e . Whenever this term is used, one can substitute the words ‘‘foreign exchange.’’

FOREX broker

see f o r e i g n e x c h a n g e b r o k e r

164

forfaiting

forfaiting

forward covering John O’Connell

John O’Connell

Forfaiting is a method of financing export debt. A bank or other financial institution purchases foreign receivables from an exporter at a dis count. The amount of the discount depends upon the financial institution’s perceived risk of foreign buyers not paying their debts. The purchase is on a non recourse basis, thus the exporter takes the money and is not responsible for any unpaid debts.

International transactions often obligate a com pany to pay a debt or other obligation at some future date in a foreign currency. Risk of cur rency value fluctuations accompanies such con tracts. Thus, if the organization had to borrow the money or sell assets to secure f o r e i g n e x c h a n g e , a loss could occur based upon the decreased value of the currency at the time it was acquired. Forward covering is a way to reduce the risk of currency fluctuations. By purchasing a forward contract at the same time the debt obligation was made, the company locks in a value of the currency which will eventually be used to pay the debt. The forward contract matures at the same time as the debt and foreign currency is available to make payment.

Bibliography Kim, T. (1984). Changing International Banking: Proceed ings of the 1984 International Banking Conference. Glendale, AZ: American Graduate School of International Management Faculty Publication.

Bibliography

fortress Europe John O’Connell

Fortress Europe was a term used by people who felt that the plans of the e u r o p e a n u n i o n after 1992 might include shutting out foreign interests. EU plans to restrict operations of com panies which did not have actual physical pres ence in one or more EU countries by 1992 were of great concern to those foreign organizations not yet ready to move some of their operations to Europe. The market would become inaccessible to foreign companies – in other words a fortress protecting Europe from economic invasion. For tunately, these fears seemed to be unfounded. Europe remains today an active and growing world marketplace.

Mathis, F. J. (1990). International risk analysis. In R. T. Moran (ed.), Global Business Management in the 1990s. Washington, DC: Beacham.

forward exchange rate John O’Connell

An exchange rate quoted today for currency to be delivered at a specific time in the future.

forward market

see f o r e i g n e x c h a n g e

forwarding company forward contract

John O’Connell John O’Connell

A contract in which a buyer purchases or a seller sells a specified amount of currency, securities, or even commodities at an agreed price for a fixed payment amount. Forward contracts lock in a price today for items to be delivered at a later date.

A forwarding company arranges transportation for goods. Also known as a f r e i g h t f o r w a r d e r , the forwarding company can also offer a variety of other services, including advis ing of documentation required for exports/ imports, processing items through customs, and offering other advice as needed.

free carrier – named place foul bill of lading John O’Connell

A b i l l o f l a d i n g for goods which were re ceived by the carrier in damaged condition. A notation on the bill indicates the existence of damage. See also clean bill of lading

FPAAC

see f r e e o f p a r t i c u l a r a v e r a g e ; g e n eral average

FPAEC

see f r e e o f p a r t i c u l a r a v e r a g e

165

free alongside ship named port of shipment (FAS) Jeanne McNett

Under this trading term, the seller is responsible for delivering goods to a place where they can be loaded directly onto a vessel (alongside). The charge for delivery alongside is paid by the seller and included in the purchase price. The seller is also responsible for export clearance. (This is a change from previous i n c o t e r m s versions.) The buyer is responsible for costs to move the goods onto the ship; freight charges; securing and paying for export insurance; costs of unloading the vessel; import duties; and any inland freight charges in the buyer’s country. Title to the goods transfers when the goods are placed alongside the vessel. FAS is an INCOTERM. Bibliography Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/ preambles.asp. (30 July, 2004.)

franchise agreement John O’Connell

This is an agreement in which a company hold ing the rights to a product, trademark, process, etc. allows another company to make and dis tribute the product or use the trademark under a contractual agreement. The franchise agreement spells out the details, which usually include the geographic area in which the franchise is good and the fees to be paid to the franchisor, as well as any other requirements the franchisor is able to place in the contract. A franchise agreement is a method of entering a foreign market by having a local business (hopefully an established and highly reputable business) distribute and/or produce a foreign firm’s product. This builds name recognition and provides a good founda tion from which to add more foreign franchisees or to begin the company’s own operation over seas.

free carrier

named place (FCA) Jeanne McNett

See also market entry strategies

This trading term indicates that the seller’s re sponsibility ends when the goods are delivered to a carrier, cleared for export, at a specified place. A carrier is nominated by the buyer, such as a trucking firm, an ocean carrier, an air carrier, or any other form of transportation, including intermodal. Under FCA the the buyer is respon sible for costs of loading a vessel; ocean/air, etc. freight charges; securing and paying for export insurance; costs of unloading the vessel; import duties; and any inland freight costs in the buyer’s country. The seller is responsible for securing the export license and the buyer is responsible for securing the import license. Title to goods transfers when the goods reach a named carrier at a specified point. FCA is an i n c o t e r m .

Bibliography

Bibliography

Prahalad, C. K. and Doz, Y. L. (1987). The Multinational Dimension: Balancing Local Demands and Global Vision. New York: Free Press.

Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/ preambles.asp. (30 July, 2004.)

166

free of all average

free of all average

Bibliography

John O’Connell

A clause in a marine insurance policy which states that only losses resulting in total loss will be covered. There is no coverage for partial or average losses.

Preamble to Incoterms (2000). International Chamber of Commerce (ICC). www.iccwbo.org/incoterms/ preambles.asp. (30 July, 2004.)

free out Bibliography

John O’Connell Rodda, W. H., Trieschmann, J. S., and Hedges, B. A. (1978). Commercial Property Risk Management and In surance. Malvern, PA: American Institute for Property and Liability Underwriters.

A trade term meaning that the seller of goods pays all costs of transportation, insurance, etc. until the goods reach the port of destin ation. See also INCOTERMS

free of particular average (FPA) John O’Connell

A marine contract provision in which the insurer is not responsible for partial losses unless certain conditions are met. FPA clauses are nor mally one of two types: Free of particular average – American Conditions (FPAAC): Excludes partial losses except when caused by specified sources of loss (burning, collision, sinking, or stranding). The American conditions also restrict coverage to all but larger ships. Free of particular average – English Conditions (FPAEC): Excludes partial losses except when caused by burning, collision, sinking, or stranding of the ship. English conditions have no restrictions on ship size.

free on board (FOB)

free trade area (FTA) John O’Connell

A free trade area is established when several countries agree to initiate actions to reduce and eventually abolish all b a r r i e r s to trade be tween the countries. Countries which are signa tories of such agreements will enjoy freedom of trade with all other members of the FTA. A free trade area is not necessarily a c o m m o n m a r k e t because common markets normally seek a greater degree of integration between countries than do FTAs. FTAs may well lead to closer relationships and common markets in the future. The newest example of a free trade area is comprised of Canada, Mexico, and the United States, which were signatories to the North American Free Trade Agreement (NAFTA). Bibliography

Jeanne McNett

Free on board is a trade term that means that the seller delivers when the goods go over the ship’s rail at the named place of shipment. The seller clears good for export. The buyer bears all costs and risks from that point forward. FOB is used only for sea or inland waterway transport; otherwise the term FCA is used. FOB is an incoterm.

Simmonds, K. R. and Musch, D. J. (eds.) (1992). Law and Practice Under the GATT and Other Trading Agree ments, North American Free Trade Agreements, United States Canada Free Trade Agreements: Binational Panel Reviews and Reports. Dobbs Ferry, NY: Oceana.

free trade zone

see f o r e i g n t r a d e z o n e

frozen assets Freedom of Commerce and Navigation Treaty

see f r i e n d s h i p , c o m m e r c e , a n d n a v i g a tion treaty

freight John O’Connell

Freight comprises any kind of goods, raw mater ials, finished products, commodities, or other items shipped by a carrier. Freight, in a different context, refers to the charges made by a carrier for hauling goods from one point to another.

freight broker

see c a r g o b r o k e r

freight forwarder John O’Connell

A freight forwarder is a trade intermediary who arranges for the transportation of goods. Freight forwarders can also offer additional services to exporters and importers because of the expertise they gain in dealing with trade transactions. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

167

fringe benefits John O’Connell

Items of indirect compensation provided to em ployees. Fringe benefits include insurance (life, health, disability, dental, legal services, and other types), company sponsored education pro grams, scholarship programs for employee chil dren, vacation time, employer paid or subsidized lunches, company car, sick leave, retirement programs, and many others depending upon the country of employment and the agreement with the employer. Fringe benefits are provided for a number of reasons, including the following: (1) incentives for persons to begin and continue employment; (2) to increase morale; (3) due to local customs; (4) union agreements. Many fringe benefits also receive favored tax treatment for both the employer and the employee. For example, in the United States, employer paid insurance premiums are generally not taxed as income (subject to some specific exceptions) to employees and are deducted as a business ex pense by the employer. Fringe benefits which are not taxable or taxable at a lower rate for employees (e.g., employer paid life insurance in the United States) are referred to by some people as perqs or p e r q u i s i t e s . Bibliography Teagarden, M. B., Butler, M. C., and Von Glinow, M. A. (1992). Mexico’s maquiladora industry: Where strategic human resource management makes a difference. Organizational Dynamics, winter, 34 47. Von Glinow, M. A. and Chung, B. J. (1989). Comparative HRM practices in the US, Japan, Korea and the PRC. Research in Personnel and HRM, A Research Annual.

friendship, commerce, and navigation treaty (FCN) John O’Connell

FCN treaties are very important to world trade. They often form the basis for countries being able to use one another’s airspace, waterways, communications systems, and other important domestic infrastructures which are essential to successful international trade. FCN treaties also may include important agreements with respect to property rights and other legal questions commonly considered in the context of inter national trade.

frozen account

see b l o c k e d a c c o u n t

frozen assets John O’Connell

Frozen assets are those that the government of a country has seized pending the solution to a legal or political problem. Assets of foreign

168

FTA

governments have been frozen in times of war. Assets of foreign business ventures have been frozen pending criminal trial resolution. If the solution to the problem includes return of some or all of the assets to their owners, the government will consider releasing them.

functional intermediary John O’Connell

A functional intermediary is a person, or firm, who has actual physical involvement in a trade transaction. Examples of functional intermedi aries are freight consolidation firms, ocean ship ping companies, railroad carriers, and lighter firms which offload cargo from larger ships.

FTA

see f r e e t r a d e a r e a

furnishing allowance John O’Connell

functional currency John O’Connell

A multinational company (MNC) may have earnings and disbursements in a large number of currencies. When it comes to reporting the results of its transactions in various accounting reports, the currency unit used in the reports is the currency of its country of incorpora tion. Thus, a firm whose home country is in Australia may do business in 40 countries, but when its accounting reports are issued all values are expressed in Australian dollars. The Australian dollar is the company’s functional currency.

An amount of money made available to an e x p a t r i a t e to furnish the apartment or home selected in the host country. See also compensation package (expatriate)

futures John O’Connell

A contract in which a buyer agrees to pay a specified amount for a financial instrument or a commodity with delivery taking place at a future date.

G Gaijin John O’Connell

The name given to foreigners working in Japan. Its literal meaning is ‘‘outsider.’’

product than would normally be expected and new ways of competing may have to be con sidered. When gaps are found in a market, action can be taken to fill them. Bibliography Terpstra, V. (1993). International Dimensions of Market ing. Belmont, CA: Wadsworth.

gap analysis John O’Connell

Gap analysis is a marketing tool that allows an organization to determine if there are portions of a market which are not being served. Gap analysis seeks to explain why sales are lower in a market than first expected. The reasons are usually re lated to how products are used, the types of prod ucts being distributed in the market, the distribution system itself, and the competitive climate. Gap analysis can be used to compare markets within a country or between countries in order to determine which markets hold the most opportunities. Gap analysis provides a useful (albeit somewhat standardized) basis for cross country comparisons of marketing opportunities. Gap analysis involves a study of the needs of the market and the specific attributes of a prod uct. The analysis attempts to match product features with consumer wants and needs. If con sumers are using less of the product than expected, advertising or other information gathering steps may be in order. If the product line being offered does not meet the needs of the market, changes in the line (new products, pack aging, etc.) or a realignment of products in different markets may be necessary. The distri bution system in effect may not be getting the product to those who are most likely to make purchases or it is too slow. Competitors may be found to be selling more of the same type of

General Agreement on Tariffs and Trade (GATT) John O’Connell

The General Agreement on Tariffs and Trade is a treaty related to development of free trade throughout the world. GATT came into being in 1948 as a temporary multilateral trade treaty pending the formation of the United Nation’s International Trade Organization (ITO). The ITO was never approved and the temporary GATT functioned for almost 50 years. GATT was originally authorized to seek reductions in tariff and non tariff b a r r i e r s to trade, as well as establish a mechanism for settling international disputes related to trade. Agreements under GATT developed during extended meetings of members.Thesemeetingsarecalledrounds.Thus far there have been nine GATT rounds. Each round is referred to by a different name (e.g., Geneva Round,1947; Uruguay Round, 1986–94). The first several rounds of negotiations in volved reductions or elimination of tariffs between countries. Rounds seven and eight, how ever, added new dimensions to negotiations. The Tokyo Round added discussions of governance of GATT and procedural questions related to the functioning of the agreement. Non trade barriers were also added for discussion. The Uruguay

170

general average

Round added discussion about i n t e l l e c t u a l p r o p e r t y rights, trade in services, and further procedures for dispute resolution. Probably the most significant action coming out of the most recent GATT rounds was the establishing of the World Trade Organization (WTO). 3 See also World Trade Organization Bibliography Bowker, R. R. (1994). Results of the Gatt Uruguay Round of Multilateral Trade Negotiations: Executive Summary. Chester, PA: Diane. Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin. Leaffer, M. A. (1990). International Treaties on Intellectual Property. Washington, DC: BNA Books. Simmonds, K. R. (1991). Law and Practice Under the GATT and Other Trading Agreements: The Association of South East Asian Nations (ASEAN). Dobbs Ferry, NY: Oceana.

general average John O’Connell

General average is a maritime term used to de termine who is responsible for payment of costs incurred to save a vessel in imminent peril of destruction. Essentially, general average clauses state that all financial interests in the voyage will proportionately share in this type of cost. (An example of general average will be given after a review of the circumstances which must be pres ent for this clause to apply to a loss or cost incurred.) General average applies if the following three circumstances occur: 1

2

The vessel is in peril: the vessel is in high seas and is taking on water more quickly than the pumps can handle; a rudder is lost and the ship cannot be steered; cargo shifts causing the vessel to list (tilt to one side); cargo breaks free and causes damage to the ship; and many other situations. The master of the vessel takes steps to save the vessel and these steps incur costs or losses of prop erty: the vessel is listing, so cargo on the low side of the vessel is thrown overboard (jetti

soned) in an attempt to stabilize the vessel; the ship’s steering goes out in high seas and an ocean going tugboat is called to rescue the ship before it runs aground; a cargo of flam mable goods is thrown overboard when a fire breaks out in another part of the ship. The actions of the ship’s master are successful in saving the voyage: the ship is no longer listing because the jettisoned cargo righted the ship; the tugboat successfully kept the ship from running aground; the fire was successfully put out.

The above losses to cargo or additional costs to save the voyage will be paid for by contributions from all property interests in the voyage. Thus, the shipowner contributes and each of the cargo owners contributes to the cost of loss. Contribu tion is proportionate. Thus, if the cost of loss of property value was $100,000, the ship’s value $10,000,000, and the total cargo value $20,000,000, the loss would be paid as follows: ship value ($10,000,000)/total value ($30,000,000)
loss ¼ 1/3; cargo value ($20,000,000)/total value ($30,000,000)
loss ¼ 2/3. In this case the shipowner is responsible for one third of the costs and the cargo owners will share in the remaining two thirds of the losses. This sharing occurs under general average be cause if it was not for the incurred losses all property would have been lost. General average losses are normally covered by ocean m a r i n e i n s u r a n c e contracts. Bibliography Rodda, W. H., Trieschmann, J. S., and Hedges, B. A. (1978). Commercial Property Risk Management and In surance. Malvern, PA: American Institute for Property and Liability Underwriters.

general license John O’Connell

Although referred to as a license, a general license (US) is actually a broad government statement allowing goods to be exported. Thus, exporters have ‘‘license’’ to send goods abroad. Some export transactions (certain types of

geocentrism goods) may require actual written certificates or permits. Exporters must check with the appro priate government agency of each country from which exports will be taken, to insure licensing requirements are met. Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

171

category. If a visitors for pleasure category is not available under a general visa, visitors will have to apply for what is normally referred to as a tourist visa. Even though general visas are for broad cat egories of visitors, each country has its own eligibility criteria. Care must be taken to obtain the correct type of visa for the activities being undertaken in another country.

generalized system of preferences (GSP) general visa

John O’Connell John O’Connell

A general v i s a allows entry to a country for any purpose (business or pleasure). A general visa essentially combines a tourist visa with a com mercial visa. A general visa normally limits a pleasure visit to six or twelve months and a business visit to a time period close to that expected to carry out the business but normally not more than three or six months. General visa holders must be coming to a country for a tem porary visit after which they will depart the country. Visitors also must normally maintain a foreign residence during their time in the host country and prove that they have sufficient fi nancial resources to support themselves while visiting. Normally, visitors cannot engage in productive work for which payment is provided by any organization in the host country. Business visitors using a general visa are nor mally restricted as to activities or earnings in the host country. The business visitor must also normally be engaged (with some exceptions) in trade or other international activities of which the visitor’s activities benefit a foreign entity or the visitor themselves. Allowable activities of a business visitor include sales calls, purchasing goods for export, consulting work, attending professional meetings, research, and other activ ities. If a general visa is not used in a country, business visitors have to apply for what is com monly called a commercial visa. Visitors for pleasure may come to a country as tourists, attend non business conventions, make a shopping trip, or visit relatives or friends. Any person working in the host country is technically ineligible for the general visa’s pleasure visitor

The GSP refers to agreements made by the more industrialized countries to allow imports from less developed countries (LDCs) to enter with lower import duties than the same goods coming from more developed countries. The intent of the agreements is to make goods from LDCs more competitive in order to increase LDC production and speed up their economic development. Thus, LDCs are granted preferences over other coun tries. Industrialized nations essentially accepted any injuries to domestic companies due to less expensive imports as justifiable if the economic development of LDCs is enhanced.

geocentric approach to hiring John O’Connell

Under this approach to hiring, people are viewed in the context of how well they can accomplish a particular job or task rather than on the basis of their home country, religion, culture, or other factors. Employees are selected from throughout the organization without regard to nationality with a resulting workforce that is quite diverse. This approach to hiring is truly global in nature. See also staffing

geocentrism John O’Connell

Viewing one’s business as being truly global. Decisions related to the best interests of the

172

geographic structure

organization are carried out without respect to home country domination or s t a f f i n g . A geo centric approach to international business sees the entire world as its market and all of its employees as able to substantially contribute to the organization’s goals and objectives regardless of their country of origin. Products will be pro duced on a standardized basis with modifications (if necessary) for local market conditions.

in an integrated way and who wants a single point of contact with the supplier. Industries in which GAM has established itself include tele communications equipment manufacturers, auto component manufacturers, banking, insur ance, chemicals, computers and industrial prod ucts, and, increasingly, consumer products giants such as Wal Mart, Tesco, and Carrefour. Birkinshaw and DiStefano (2004) suggest that successful design and implementation of GAM results from a set of interrelated factors:

geographic structure

. John O’Connell

Geographic structure refers to the organization of a company to coincide with the geographic areas in which the company operates. A multi national firm may have a Far Eastern, a North American, and a European Division. See also regional structure

.

. .

global account management (GAM) Jeanne McNett

This coordinated approach to meeting a single customer’s needs in multiple countries is grow ing rapidly as a result of globalization. It is a simple concept: there is one relationship with the customer and it is managed on a global level by one manager or management team. From the customer’s viewpoint, there is one relationship to manage and the customer can be assured of consistency in product quality and service. From a vendor’s viewpoint, the imple mentation of global account management often creates significant organizational challenges. Global account management imposes an add itional organizational layer on top of or beside an existing structure. Such structural changes shift responsibilities and power balances within the organization. Such shifts are likely to lead to conflict between country sales managers and global account managers over who owns the account. The most significant driver of global account management is the emergence of the global cus tomer who is purchasing inputs on a global basis

. .

A strategy that focuses on relationships that add to value for both customer and supplier on several dimensions in addition to the fi nancial. A structure organized to accept both the complexity and ambiguity required of GAM. Key problems and opportunities of the global accounts identified. Administrative systems designed to provide measurements, information, and rewards to support the global account managers and customers. Executive leadership that supports global account managers. A corporate culture of openness and bias toward action.

The multiplicities and interdependence inherent in GAM are legion. They include networks of relationships to be maintained, geographies and functions to be integrated, and costs and revenues to be allocated. GAM requires organ izations ready for continuous learning, conti nuous realignment, and the recognition of ambiguities and balancing of contradictions and dualities. Bibliography Birkinshaw, J. and DiStefano, J. (2004). Global account management. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complex ity. Oxford: Blackwell. Birkinshaw, J., Arnold, D. and Toulan, O. (2000). How to manage your global customers. London Business School Working Paper. Birkinshaw, J., Toulan, O., and Arnold, D. (2001). Global account management in multinational corporations:

global companies Theory and evidence. Journal of International Business Studies, 32 (2), 231 48. Lane, H. W., DiStefano, J. J., and Maznevski, M. L. (2000). International Management Behavior: From Policy to Practice. Oxford: Blackwell. McDonald, M., Millman, T., and Rogers, B. (1997). Key account management: Theory, practice and challenges. Journal of Marketing Management, 13, 737 57. Momani, F. and Richter, T. (1999). Standardization versus differentiation in European key account management: The case of Adidas-Salomon AG. Thexis, 4, 44 7. Montgomery, D. and Yip, G. (2000). The challenge of global customer management. Marketing Management, winter, 22 9. Montgomery, D., Yip, G. and Villalonga, B. (2000). An industry explanation of global account management. Stanford Business School Working Paper. Nahapiet, J. (1994). Servicing the global client: Towards global account management? Paper presented at 14th Annual Strategic Management Society Conference. Groupe HEC, Jouy-en-Josas. Napolitano, L. (1998). Global account management: The new frontier. NAMA Journal, 34 (3). Shapiro, B. and Moriarty, R. (1984). Support Systems for National Account Programs: Promises Made, Promises Kept. Cambridge, MA: Marketing Science Institute. Thexis (1999). Global Account Management Special Issue, 4. Weilbaker, D. C. and Weeks, W. A. (1997). The evolution of national account management: A literature perspective. Journal of Personal Selling and Sales Management, 17 (4). Yip, G. and Madsen, T. (1996). Global account management: The new frontier in relationship marketing. International Marketing Review, 13 (3), 24 42.

173

new markets when the name of your product is well known in surrounding markets. Coca Cola is probably the best known product that uses global branding. Global branding, however, may cause some problems as well. A product which suffers problems because of consumer injuries from its use, for example, may put the company’s entire product line in question throughout the world. There are also potential problems related to words having different meanings in different countries. Advertising print, product names, and distribution materials must be carefully reviewed for words, colors, or even numbers which may be offensive in certain cultures. Global brands may also infer support for a particular political view (British Airways, American Express, etc.) which may be unaccept able in some countries. Bibliography Pradeep, A. R. and Preble, J. F. (1987). Standardization of marketing strategy by multinationals. International Marketing Review, autumn, 18 28.

global cash management

see c a s h m a n a g e m e n t ; g l o b a l c o m panies

global companies John O’Connell global alliances

see s t r a t e g i c a l l i a n c e s

global branding John O’Connell

The use of the same brand name for products everywhere they are sold in the world. Global branding has the advantages of building name identification, new products take on the good name of established products, and there are economies in developing packaging, advertising, trademarks, etc. It is also simpler to move into

The term global company has in the past re ferred to a company that spans the world with operations on all continents and in most coun tries. Names like Coca Cola, McDonald’s, Ford, General Electric, and others are considered global because of the extent of their international presence. In today’s world, the term global company is taking on a new meaning. A global company is one that views the world as one market. Every country offers possibilities for sales, placement of facilities, and sources of employees, as well as other potential benefits. A global company seeks to standardize its products for sale through a coordinated worldwide distribution network.

174

global competencies framework

Although the term global company still denotes the vast assets of a General Motors or Mitsu bishi, it now also describes a way of management thinking and action. Bibliography Ricks, D. A. (1974). International Business Blunders. Columbus, OH: Grid.

global competencies framework Jeanne McNett

These are the specific skills, attitudes, and be havioral repertoire required for effective global management. In addition to the e f f e c t i v e n e s s c y c l e , international managers require a wide range and depth of various types of compe tencies and knowledge in order to work effect ively (Bird and Osland, 2004). The identification of such a core set of competencies has proved challenging to managers and researchers. Basic global knowledge functions as the foun dation. Managers need basic global knowledge; it

is a resource rather than a competency. On this foundation sit the Level 1 threshold traits that separate out those who have international man agement potential: integrity, humility, inquisi tiveness, and hardiness. Level 2 consists of the attitudes and orientations of the global mindset: cognitive complexity and cosmopolitanism. At Level 3 are the interpersonal skills of mindful communication and creating and building trust. The system level skills at Level 4 focus on abil ities to manage people and the systems in which they work. They include abilities to span bound aries, build community through change, and make ethical decisions. The different levels of the model represent a progression from traits to attitudes, to interper sonal skills, and finally, to systems skills. The systems skills involve complex understandings and relationships. The framework’s triangle sug gests a cumulative progression, from left to right and from bottom to top. Knowledge can be ac quired, but alone, it is insufficient. The core set of t h r e s h o l d t r a i t s cannot be easily ac quired or changed; these traits facilitate the

System Skills Make Ethical Decisions Span Boundaries

Manage Change Build Community Manage Learning

Interpersonal Skills Intercultural Create & Communication Build Trust Self Awareness Mindfulness

Attitudes & Orientations Global Mindset Cosmopolitanism Cognitive Complexity Threshold Traits Integrity

Humility

Inquisitiveness Global Knowledge

Figure 1 The building blocks of global competency (Bird and Osland, 2004)

Hardiness

global complexity long term development of global managerial abilities. The g l o b a l m i n d s e t of Level 2 enables managers to think outside of a narrow, single cultural view. Level 3 represents the inter personal skills needed to function effectively as a global manager. These interpersonal skills are predicated on an awareness of self and ability to build trust across cultural borders. The system skills of Level 4 involve managing the systems of business. Effective global managers can span boundaries, manage change to build commu nities, and make decisions and take actions that conform to a high ethical standard. Bibliography Bird, A. and Osland, J. (2004). Global competencies: An introduction. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complex ity. Oxford: Blackwell. Black, J. S., Morrison, A. J., and Gregersen, H. B. (1999). Global Explorers: The Next Generation of Leaders. London: Routledge. Burke, L.A. and Miller, M. K. (1999). Taking the mystery out of intuitive decision-making. Academy of Man agement Executive, 13 (4), 93. Caligiuri, P. M. (2000). The Big Five personality characteristics as predictors of expatriates’ desire to terminate the assignment and supervisor-rated performance. Per sonnel Psychology, 53, 67 88. Cullen, J. B. (2000). Multinational Management: A Stra tegic Approach. Cincinnati, OH: South-Western Thomson Learning. McCall, M. and Hollenbeck, G. P. (2002). Developing Global Executives. Cambridge, MA: Harvard Business School Press. Maddi,S.R.andKobasa,S.C.(1984).TheHardyExecutive: Health and Stress. Homewood, IL: Dow-Jones-Irwin. Mendenhall, M., Kuhlmann, T., and Stahl, G. (eds.) (2000). Developing Global Leadership Skills: The Chal lenge of HRM in the Next Millennium. New York: Quorum. Mendenhall, M. and Osland, J. S. (2002). An overview of the extant global leadership research. Symposium presentation, Academy of International Business, Puerto Rico. Spitzberg, B. (1989). Issues in the development of a theory of interpersonal competence in the intercultural context. International Journal of Intercultural Relations, 13, 241 68. Stahl, G. (1999). Deutsche Fu¨hrungskra¨fte im Auslandseinsatz: Probleme und Problem lo¨se erfolg in Japan und den USA. Die Betriebswirtschaft, 59, 687 703.

175

global complexity Jeanne McNett

This term denotes the increasing m u l t i p l i c i t y , i n t e r d e p e n d e n c e , and a m b i g u i t y that increasingly characterize globalization. Multiplicity refers to the increasing numbers of culturally different people, governments, and organizations, any of which may be tightly net worked via technology. Interdependence is a result of the easy movement of people, capital, and information. Distributed units are no longer isolated; they are connected via increasingly complex interdependencies, both internally and externally. Ambiguity is lack of clarity and un certainty of meaning. These characteristics com bine to create a dynamic, global complexity. As organizations increase interdependence, their vulnerability increases. Increasing com plexity leads to a decrease in buffers, slack re sources, and internal autonomy. There is less time to respond and ambiguity makes planning and problem diagnosis difficult, and managerial control is reduced (Lane, Maznevski, and Men denhall, 2004). The response to such complexity involves a focus on processes and people. Weick and Van Orden (1990) observe that ‘‘globalization re quires people to make sense of turbulence in order to create processes that keep resources moving to locations of competitive advantage.’’ Managers need a g l o b a l m i n d s e t , charac terized by cognitive complexity and cosmo politanism. Processes critical to managing global complexity include collaborating (cooper ation), discovering (learning and creating), architecting (aligning and balancing), and systems thinking (seeing interrelationships and anticipating consequences of changes within the system). Bibliography Bartlett, C. A. and Ghoshal, S. (1998). Managing Across Borders: The Transnational Solution, 2nd edn. Boston, MA: Harvard Business School Press. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

176

global enterprise

Porter, O. and Steger, U. (eds.) (1998). Discovering the New Pattern of Globalization. Ladenburg: Ladenburg Kolleg, Daimler Benz Foundation. Prahalad, C. K. (1990). Globalization: The intellectual and managerial challenges. Human Resource Manage ment, 29 (1), 30. Prahalad, C. K. and Doz, Y. L. (1987). The Multinational Mission: Balancing Local Demands and Global Vision. New York: Free Press. Prahalad, C. K. and Lieberthal, K. (1999). The end of corporate imperialism. Harvard Business Review, July Aug., 69 79. Rugman, A. and Moore, K. (2001). The myths of globalization. Ivey Business Journal, Sept. Oct., 64 8. Sachs, J. (2000). International economics: Unlocking the mysteries of globalization. In P. O’Meara, H. D. Mehlinger, and M. Krain (eds.), Globalization and the Chal lenges of a New Century: A Reader. Bloomington: Indiana University Press. Waldrop, M. M. (1992). Complexity: The Emerging Sci ence at the Edge of Order and Chaos. New York: Touchstone. Weick, K. E. and Van Orden, P. (1990). Organizing on a global scale: A research and teaching agenda. Human Resources Management, 29 (1), 49 61.

global enterprise John O’Connell

A global enterprise is an organization which is not bound by a country’s borders, thrives in multinational settings, is flexible in style and application, responds to change as part of its everyday itinerary, and pictures the entire world as its home and market. Although there are relatively few truly global enterprises, expan sion of international trade and travel, and the breakdown of controlled systems of government, are moving more organizations toward achieving true global status. Bibliography Morrison, A. J. (1990). Strategies in Global Industries: How US Businesses Compete. New York: Quorum Books.

global innovation management Jeanne McNett

Global innovation management is the process of devising, introducing, and managing innovation

for a global marketplace. Traditionally, com panies have rolled out innovations that were devised for home markets and then introduced them internationally. Today’s global firms need to innovate at the global level to capture know ledge and other resources that exist in every part of their globally dispersed operations and in their surrounding environments. This process requires unique knowledge man agement integration skills, so that the valuable resources that reside in various parts of the global firm and the firm’s networks can be directed and applied across national and cultural borders. Increasingly, an ability to create innova tive solutions can function as a firm’s sustainable competitive advantage. Often, these innovations are achieved through leveraging social capital that is created among networks of people who have access to particular knowledge in different parts of the world. McDonough, Spital and Athanassiou (2004) suggest that managers involved in global innov ation encourage and accept innovation from parts of the organization that are willing to take charge of the process, recognizing that innov ation need not come from a formal ‘‘new product development’’ department. Such managers may also gain from efforts to build social capital net works that span national borders and serve the firm’s global objectives to fuel and protect the innovation process. Being able to transform ini tial introductions and connections into enduring relationships that can be leveraged to achieve organizational objectives is a critical capability. Those relationships – along with the knowledge they create – can provide competitive advantage. Bibliography Afuah, A. (2003). Innovation Management: Strategy, Im plementations, and Profits, 2nd edn. New York: Oxford University Press. Almeida, P., Anupama, P., and Grant, R. M. (2003). Innovation and knowledge management: Scanning, sourcing and integration. In M. Easterby-Smith and M. A. Lyles (eds.), Blackwell Handbook of Organiza tional Learning and Knowledge Management. Oxford: Blackwell. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17 (1), 99 120. Bartlett, C. A. and Ghoshal, S. (2000). Transnational Management. New York: Irwin McGraw-Hill.

global leadership Christensen, C. M. (2000). The Innovator’s Dilemma. New York: Harper Business. Katz, R. (1997). The Human Side of Managing Techno logical Innovation. New York: Oxford University Press. McDonough, E. F., Spital, F., and Athanassiou, N. (2004). Managing complexity in the global innovation process: A networks and social capital solution. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

177

2004). The interdependence may be economic, as companies obtain funds in one part of the world to finance activities in others; it may be along the value chain, as companies locate their activities among various geographic locations; it may be in alliances, as companies enter formal and committed relationships with one another to build partnerships and benefit from integrated solutions. Bibliography

global integration Jeanne McNett

This is the process by which global firms syn thesize their resources and activities that are located in multiple markets around the world. Successful integration is a key skill in order to achieve competitive advantage. Bibliography Almeida, P., Anupama, P., and Grant, R. M. (2003). Innovation and knowledge management: Scanning, sourcing and integration. In M. Easterby-Smith and M. A. Lyles (eds.), Blackwell Handbook of Organiza tional Learning and Knowledge Management. Oxford: Blackwell. Kobrin, S. (1991). An empirical analysis of the determinants of global integration. Strategic Management Jour nal, 12 (special edition), 17 31. Prahalad, C. K. and Doz, Y. (1987). The Multinational Mission. New York: Free Press. Roth, K. and Morrison, A. J. (1990). An empirical analysis of the integration-responsiveness framework in global industries. Journal of International Business Stud ies, 21 (4), 541 64.

Athanassiou, N. and Nigh, D. (1999). The impact of company internationalization on top management team advice networks: A tacit knowledge perspective. Strategic Management Journal, 19 (1), 83 92. Athanassiou, N. and Nigh, D. (2000). Internationalization, tacit knowledge and the top management team of MNCs. Journal of International Business Studies, 31 (3), 471 88. Bartlett, C. A. and Ghoshal, S. (2000). Transnational Management. New York: Irwin McGraw-Hill. Cooperrider, D. and Dutton, J. E. (1999). Organizational Dimensions of Global Change: No Limits to Cooperation. Thousand Oaks, CA: Sage. Ghoshal, S. (1987). Global strategy: An organizing framework. Strategic Management Journal, 8, 425 40. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Prahalad, C. K. (1990). Globalization: The intellectual and managerial challenges. Human Resource Manage ment, 29 (1), 30. Thompson, J. D. (1967). Organizations in Action. New York: McGraw-Hill

global leadership Caren Siehl global interdependence Jeanne McNett

Unlike the simple relationships found in pooled (AþBþC) and sequential (A!B!C) interde pendence, the interdependence of globalization is complex and it is reciprocal. Interdependence is the second condition of globalization’s com plexity, along with m u l t i p l i c i t y and a m b i g u i t y (Lane, Maznevski, and Mendenhall,

Handy (1996) noted that a German senior man ager described organizations in Germany as ‘‘or ganizations largely run by engineers. Such people think of the organization as a machine, something that can be designed, measured, and controlled – managed, in other words.’’ Today, our metaphors for organizations are changing from a machine image to more organic images such as organizations as networks, communities, or knowledge systems. With such change has

178

global leadership

come a renewed focus on leadership being crit ical to organizations. In the past, most studies of leadership were based on the assumption that leadership derives from position: leaders became leaders by virtue of their roles in the organization. As com panies change from hierarchy based manage ment structures to more delayered, empowered systems, our conceptions of leadership also need to change (Hesselbein, Goldsmith, and Beck hard, 1996). The more widely distributed know ledge becomes, the more that leadership needs to be distributed among a variety of individuals in the organization. For example, employees in customer interface roles must be leaders in their interactions with customers and in disseminating the knowledge which they gain in these interactions to other parts of the organization. In addition to the challenge of distributing leadership due to the shift to distributed know ledge, organizations today are facing the chal lenge of developing leaders who will be effective in global organizations that span numerous cul tures. Companies are focusing on developing the set of leadership competencies which enable in dividuals to lead across cultures. Although there may be some born global leaders, this set is too small to meet the needs of today’s global organ izations. For the most part, global leadership must, and can, be learned (Ashkenas et al., 1995). What does this leadership look like? Leaders of knowledge based, global organizations will behave and lead in a variety of ways, but they share a focus on several key issues (Drucker, 1996): . They begin with the question: ‘‘What needs to be done?’’ . They follow with: ‘‘What can and should I do to make a difference?’’ . They focus on performance and results. . They are supportive of diversity in people and do not seek to reinforce mirror images of themselves. . Relatedly, they develop their followers and are not fearful of strong, competent follow ers (Kouzes and Posner, 1995). . They test themselves against high standards of leadership and role model the behaviors

and qualities which they wish to see in others. They are doers. In summary, global leaders share a common focus on articulating a vision which leads to measurable results and by leading through action, notably personal action. Much of the research on leadership has focused on transformational leadership, or lead ership which leads to changes in followers of organizations and in leaders themselves (Kouzes and Posner, 1995). Change and global leadership are inextricably linked. The key change chal lenges which face global leaders are linked to the changes that are occurring as organizations move from being bureaucratic machines to being knowledge based networks. Specifically, leaders must guide their organizations to produce results today, even as they push for transform ation which will positively impact the future. Finally, the work of Ulrich generates some useful thoughts about the importance of cred ibility and capability. Ulrich argues that success ful leaders must be both personally credible and must be able to create organizational capability. Credible leaders engender trust and commit ment from those who follow their vision. Organ izational capability results from a leader who shapes a stronger organization through develop ment, systems, and processes. To conclude, organizations are changing rap idly. Global leaders are faced with the challenge of leading this transformation even as the role of leadership is being transformed. Often, leaders are finding that they themselves need to change personally and to develop new abilities. The future promises to be a time of exciting, rapid change, with the effective leaders being those individuals who can transform and be trans formed in the midst of this change. Bibliography Ashkenas, R., Ulrich, D., Jick, T., and Kerr, S. (1995). The Boundaryless Organization. San Francisco: JosseyBass. Drucker, P. (1996). Leading the organizations of the future. In F. Hesselbein, M. Goldsmith, and R. Beckhard (eds.), The Leader of the Future. San Francisco: Jossey-Bass. Handy, C. (1996). The new language of organizing and its implications for leaders. In F. Hesselbein, M. Gold-

global sourcing smith, and R. Beckhard (eds.), The Leader of the Future. San Francisco: Jossey-Bass. Hesselbein, F., Goldsmith, M., and Beckhard, R. (eds.) (1996). The Leader of the Future. San Francisco: JosseyBass. Kouzes, J. and Posner, B. (1995). The Leadership Chal lenge. San Francisco: Jossey-Bass.

global mindset Jeanne McNett

This is an ability to think outside the confines of a narrow, cultural view and is characterized by cognitive complexity, an ability to operate within complex environments, and cosmopolitanism, a positive openness to the world (Boyacigiller et al., 2004). Cognitive complexity allows managers to see the complexity of markets, management issues, technology, and political events, and make con nections between and among their seemingly disparate pieces. Cognitive complexity is com posed of abilities to differentiate and integrate, that is, to use many dimensions or constructs to describe a situation, and also to synthesize these various elements. It is associated with the balan cing of contradictions, ambiguities, and trade offs. A cosmopolitan orientation supports a general orientation to the outside world, with a focus on profession over organization and concern for world events rather than an exclusive focus on the local environment. It suggests a global per spective, knowledge of many foreign cultures, and interactions with people of many cultures. Bibliography Adler, N. J. and Bartholomew, S. (1992). Managing globally competent people. Academy of Management Execu tive, 6 (3), 52. Black, J. S., Gregersen, H. B., Mendenhall, M. E., and Stroh, L. K. (1999). Globalizing People through Inter national Assignments. Reading, MA: Addison Wesley. Black, J. S., Morrison, A. J., and Gregersen, H. B. (1999) Global Explorers: The Next Generation of Leaders. New York: Routledge. Boyacigiller, N., Beechler, S., Taylor, S., and Levy, O. (2004). The crucial yet illusive global mindset. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global

179

Management: A Guide to Managing Complexity. Oxford: Blackwell. Dalton, M. and Ernst, C. (2003). Developing leaders for global roles. In C. McCauley and E. Van Velson (eds.), The Center for Creative Leadership Handbook of Leader ship Development, 2nd edn. San Francisco: Jossey-Bass. Flango, V. E. and Brumbaugh, R. B. (1974). The dimensionality of the cosmopolitan local construct. Adminis trative Science Quarterly, 19, 198 210. Gouldner, A. W. (1957). Cosmopolitans and locals: Toward an analysis of latent social roles I. Adminis trative Science Quarterly, 2, 281 306. Gouldner, A. W. (1958). Cosmopolitans and locals: Toward an analysis of latent social roles II. Adminis trative Science Quarterly, 2, 444 80. Govindarajan, V. and Gupta, A. K. (2001) The Quest for Global Dominance. San Francisco: Jossey-Bass. Hannerz, U. (1996). Cosmopolitans and locals in world culture. In Transnational Connections: Culture, People, Places. London: Routledge, 102 11. Mendenhall, M., Kuhlmann, T., and Stahl, G. (eds.) (2000) Developing Global Business Leaders: Policies, Pro cesses, and Innovations. Westport, CT: Quorum Books. Merton, R. K. (1957). Patterns of influence: Local and cosmopolitan influentials. In Social Theory and Social Structure. Glencoe, IL: Free Press, 368 80. Murtha, T., Lenway, S., and Bagozzi, R. P. (1998). Global mindsets and cognitive shift in a complex multinational corporation. Strategic Management Journal, 19 (2), 97 114.

global sourcing John O’Connell

Sourcing is the acquiring of goods, labor, and materials necessary to produce a product. An origination that seeks the resources to produce its goods from any place that may have an avail ability of resources is said to employ a global sourcing strategy. Global sourcing has come about because of differences in supply and price of various resources. When sufficient sup plies are not available locally or the cost of any resource is very high locally, firms begin to seek resources elsewhere. Global sourcing is not without its problems: increased transportation costs, increased possibilities of interruption of supplies (natural disaster, political problems, etc.), delays in shipment (weather, strikes, etc.) (see s o u r c i n g ), and becoming too reliant on foreign sources of supply, all add to the risks of doing business through foreign sourcing.

180

global strategy

Bibliography Swan, A. C. and Murphy, J. F. (1991). Cases and Materials on the Regulation of International Business and Economic Relations. New York: Mathew Bender.

global strategy John O’Connell

A company’s plans to meet goals and objectives with respect to how that company has defined its overall position in the global marketplace. It is important to recognize that a strategy is a plan to achieve specific goals and objectives. Sound global strategy is based upon a realistic appraisal of a company’s strengths and weakness as well as the opportunities and threats posed by the global environment.

Such teams may be formed to develop global strategies, to implement them, or both. Global R&D teams allow companies to garner expertise that is spread around the world. Functional teams such as marketing, composed of members distributed around the world, gain from a diver sity of perspectives and talents, so that clients’ needs may be met, wherever the clients are located. Specific team processes include task, social, coordinating, and e m e r g e n t s t a t e s . These processes build trust, allow the team to differen tiate and then integrate, manage conflict, and create and share knowledge (Davison and Eke lund, 2004). Performance management in global teams requires special attention because team members are likely to bring different views of appropriate ways to reward and develop global team members (Kirkman and Den Hartog, 2004).

See also strategic management Bibliography Bibliography David, K. (1991). ‘‘Field Research’’ in the Cultural Envir onment of International Business. Cincinnatti, OH: South-Western.

global teams Jeanne McNett

Global teams are teams with members located in multiple locations, from multiple national cultures, with multiple and dissimilar economic and political conditions, both native and non native speakers of the working language. Global team members, in addition to their professional expertise and communication skills, also need cross cultural competence and flexibility because their tasks usually involve crossing organizational and national boundaries. The team members may have limited informal interaction and their interaction is usually via technology. They often work across multiple time zones. Global teams face consider able complexity, the dimensions of which have been outlined by Gluesing and Gibson (2004): task, context, people, time, and tech nology.

Bell, B. S. and Kozlowski, S. W. J. (2002). A typology of virtual teams: Implications for effective leadership. Group and Organization Management, 27 (1), 14 49. Cohen, S. G. and Bailey, D. E. (1997). What makes teams work: Group effectiveness research from the shop floor to the executive suite. Journal of Management, 23, 239 90. Davison, S. C. and Ekelund, B. Z. (2004). Effective team processes for global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Earley, P. C. and Gibson, C. B. (2002). Multinational Work Teams. Mahwah, NJ: Lawrence Erlbaum Associates. Gluesing, J. C. and Gibson, C. (2004). Designing and forming global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gluesing, J., Alcordo, T., Baba, M., Britt, D., Harris Wagner, K., McKether, W., Monplaisir L., Ratner, H., and Riopelle, K. (2002). The development of global virtual teams. In C. Gibson and S. G. Cohen (eds.), Virtual Teams That Work: Creating Conditions for Vir tual Team Effectiveness. San Francisco: Jossey-Bass. Kirkman, B. L. and Den Hartog, D. N. (2004). Performance management in global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

government procurement codes McDonough, E. F., III and Cedrone, D. (2000). Meeting the challenge of global team management. Research Technology, 43 (4), 12 17. Mohrman, S. A. (1999). The contexts for geographically dispersed teams and networks. In C. L. Cooper and D. M. Rousseau (eds.), Trends in Organizational Be havior, Vol. 6: The Virtual Organization. New York: John Wiley and Sons. Waldrop, M. M. (1992). Complexity: The Emerging Sci ence at the Edge of Order and Chaos. New York: Touchstone. Weisband, S. P., Schneider, S. K., and Connolly, T. (1995). Computer-mediated communication and social information: Status salience and status differences. Academy of Management Journal, 38 (4), 1124 51.

181

Prahalad, C. K. and Doz, Y. L. (1987). The Multinational Mission: Balancing Local Demands and Global Vision. New York: Free Press. Prahalad, C. K. and Lieberthal, K. (1999). The end of corporate imperialism. Harvard Business Review, July Aug., 69 79. Rugman, A. and Moore, K. (2001). The myths of globalization. Ivey Business Journal, Sept. Oct., 64 8. Sachs, J. (2000). International economics: Unlocking the mysteries of globalization. In P. O’Meara, H. D. Mehlinger, and M. Krain (eds.), Globalization and the Chal lenges of a New Century: A Reader. Bloomington, IN: Indiana University Press. Waldrop, M. M. (1992). Complexity: The Emerging Sci ence at the Edge of Order and Chaos. New York: Touchstone. Weick, K. E. and Van Orden, P. (1990). Organizing on a global scale: A research and teaching agenda. Human Resources Management, 29 (1), 49 61.

globalization Jeanne McNett

This term denotes the shift towards an increas ingly integrated world economy, facilitated by technology and the increased mobility of capital, labor, goods, and services. With globalization, nationality becomes increasingly less relevant. Globalization may also be understood as a mani festation of complexity, an understanding that puts organizational processes and people, rather than economic measures, at its center (Lane, Maznevski, and Mendenhall, 2004) (see g l o b a l c o m p l e x i t y ). The three conditions of complexity which globalization manifests are m u l t i p l i c i t y , i n t e r d e p e n d e n c e , and a m b i g u i t y . Bibliography Bartlett, C. A. and Ghoshal, S. (1998). Managing Across Borders: The Transnational Solution, 2nd edn. Boston, MA: Harvard Business School Press. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Porter, O. and Steger, U. (eds.) (1998). Discovering the New Pattern of Globalization. Ladenburg: Ladenburg Kolleg, Daimler Benz Foundation. Prahalad, C. K. (1990). Globalization: The intellectual and managerial challenges. Human Resource Manage ment, 29 (1), 30.

governing law John O’Connell

International contracts will often specify the country whose laws will be used to deal with any disputed areas of the contract. The law specified is referred to as governing law. Prob lems may arise when governing law is not the same as that which is stated to be jurisdictional (i.e., the country in which the dispute is lodged is different to the governing law country in the contract). Countries tend to allow governing specifications of a contract to stand when a contract has been properly drawn. There are no guarantees, however, that contract governing law statements will be upheld by the courts.

government procurement codes John O’Connell

The rules and practices associated with the pur chase of goods and services by a government entity. These are important because govern ments are a very large market for the sale of goods and services of all kinds. If procedures are not strictly followed parties seeking to sell goods or services will be precluded. Another problem associated with government

182

gray market

procurement is that preferences may be given to domestic goods or services over those imported, regardless of cost or quality. Although such preferences are frowned upon by the General Agreement on Tariffs and Trade (GATT), the practice is very common.

Green card holders are documented workers and legally work in the country.

green clause letter of credit John O’Connell

gray market John O’Connell

The term gray market formerly described a market outside of the normal market in which goods that are in short supply are sold at a premium. Gray markets were (and still are) found in countries suffering distribution prob lems, wars, extreme inflation, embargoes or trade sanctions, or shortages of various goods for a number of other reasons. The gray market has come to mean the market for illegal copies or knock offs of popular products. Gray markets (sometimes called parallel markets) are common in Southeast Asia and Eastern Europe, although gray market goods show up in virtually every country. See also black market

gray money John O’Connell

Money derived from g r a y m a r k e t activities or questionable business transactions.

A l e t t e r o f c r e d i t which does not allow an exporter to draw against the letter until such time as all required documentation is presented to the advancing bank. See also red clause letter of credit

group norms John O’Connell

Group norms are behaviors, attitudes, and beliefs which are expected by a group. They are an important determinant of behavior in an indi vidual’s personal and business life. The import ance of group norms and the amount of control they exert is greatly affected by the culture of the persons in the group. Norms are illustrated by the way people greet each other (a handshake or a hug) and the respect given to management (strong respect or feelings of unjustified super iority). Knowledge of group norms is essential to successful international management. See also cultural diversity; cultural norms Bibliography

grease payment

see b r i b e r y

green card/green card holder John O’Connell

In the United States the holder of a green card is a foreign citizen who has been granted permis sion by the government to work in the US.

Adler, N. J. (1983). A typology of management studies involving culture. Journal of International Business Studies, 14 (2), 29 47. Axtell, R. E. (1993). Do’s and Taboos Around the World, 3rd edn. New York: John Wiley and Sons. Briody, E. K. and Chrisman, J. B. (1991). Cultural adaptation on overseas assignments. Human Organization, 50 (3), 264 82. Graham, J. L. (1985). The influence of culture on business negotiations. Journal of International Business Studies, 16 (1), 81 96. Johnson, M. and Moran, R. T. (1985). Robert T. Moran’s Cultural Guide to Doing Business in Europe, 2nd edn. Oxford: Butterworth-Heinemann.

guest workers Punnett, B. J. (1995). Cross-national culture and management. In M. Warner (ed.), International Encyclopedia of Business Management. London: Routledge.

183

Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

guest workers

GSP

see g e n e r a l i z e d s y s t e m o f p r e f e r e n c e s

guaranteed letter of credit John O’Connell

Another name for a c o n f i r m e d l e t t e r o f c r e d i t . This letter guarantees payment by re questing a bank from the exporter’s country to make good on payments under the letter if the importer and the importer’s bank default on the letter of credit.

John O’Connell

A multinational business may occasionally have a need to send workers to one of their foreign operations for short periods of time. For example, equipment failures or other accidents may require short term assistance from outside of a country. Since work is being per formed by a foreign citizen it is necessary in many countries to secure a temporary permit to conduct such work. Guest worker status is granted in some countries for non citizens who are on temporary assignment to complete a pro ject or specific task.

H Hall’s high and low context Jeanne McNett

The anthropologist E. T. Hall points out the importance of the c o n t e x t in which commu nication exists within a given culture. Within any given act of communication, does the mean ing that is communicated lie in the words them selves (low reliance on context) or in the environment surrounding the words (high reli ance on context) and in other shared experiences in which meanings may be located? In low context cultures, meaning resides in the words themselves; in high context cultures, meaning may reside mostly in the surrounding context. High context tends to be found in c o l l e c t i v i s t c u l t u r e s such as Latin America and Asia. Low context tends to be found in individu alist cultures such as Germany, Switzerland, and the US. Bibliography Gudykunst, W. B., Ting-Toomey, S., and Chua, E. (1988). Culture and Interpersonal Communication. Newbury Park, CA: Sage. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Hall, E. T. and Hall, M. R. (1995). Understanding Cultural Differences. Yarmouth, ME: Intercultural Press. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Osland, J. S. and Bird, A. (2000). Beyond sophisticated stereotyping: Cultural sensemaking in context. Acad emy of Management Executive, 14, 65 77. Thomas, D. and Osland, J. (2004). Mindful communication. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

Ting-Toomey, S. (1999). Communicating Across Cultures. New York: Guilford Press.

hard currency John O’Connell

A hard currency is one which is readily convert ible into other currencies. Hard currencies in clude the British pound, Canadian dollar, Japanese yen, Swiss franc, and US dollar.

hardening John O’Connell

The process of identifying and fixing vulner abilities in a system.

hardship allowance John O’Connell

An organization sending employees overseas may offer additional pay for the inconvenience or because the location of overseas employment is considered less than desirable. Such pay is often referred to as a hardship allowance. See also compensation package (expatriate)

harmonization John O’Connell

A movement toward standardization, generally referring to standardization of trade regulations,

high context cultures monetary systems, accounting procedures, laws protecting property rights, and other areas where differences exist between countries. Har monization does not mean a movement towards a single culture; in fact, most economic agree ments are careful to preserve such differences. Harmonization is a movement toward freedom of movement of people, goods, and capital be tween nations.

185

organization’s currency risk has been reduced: it has hedged its currency position. See also futures; options Bibliography Bishop, P. and Dixon, D. (1992). Foreign Exchange Hand book: Managing Risk and Opportunity in Global Cur rency Markets. New York: McGraw-Hill. Daigler, R. T. (1993). Managing Risk With Financial Futures: Pricing, Hedging, and Arbitrage. Hinsdale, IL: Probus.

health certificate John O’Connell

A form on which a record of a person’s vaccin ations appears. A health certificate is often re quired to enter certain countries because of past and present health problems in that country.

hedge John O’Connell

To hedge is to attempt to reduce the risk associ ated with an investment or a bet. When a person or company fears that future events will cause fluctuations in the value of assets or the flow of valuable goods, they may hedge or act to reduce the impact of future change.

hedging John O’Connell

Profits in international transactions are some what dependent upon the values of currency or other commodities at the time of sale versus the time of delivery or payment. In order to plan for the amount of funds necessary to pay for goods or repay loans, many international companies employ hedging strategies. For example, if a company is fearful that the exchange rate of a currency might fall (the currency is worth less), that currency could be purchased today at a specified price for delivery later when the organ ization’s need arises. The organization now knows what the exchange rate will be because it has locked in its future price. Therefore, the

high contact cultures John O’Connell

Cultures in which there is a high degree of physical contact or proximity. This is reflected in the extent to which people within a culture touch, embrace, shake hands, or stand close to one another. South American cultures are for the most part high contact cultures, whereas US and Canadian cultures are low contact. Difficulties occur when people of both types of culture meet: feeling your space is being invaded by someone standing too close; feeling that friendship and trust are lacking because someone is standing too far away during conversation; uncomfortable feelings from being touched; or a feeling of un friendliness from not being touched, may arise. In order to manage living and working in a culture successfully, knowledge about the expected degree of contact is helpful. Bibliography Ahmad, K. (1976). Islam: Its Meaning and Message. London: Islamic Council of Europe. Johnson, M. (1992). Cultural Guide to Doing Business in Europe, 2nd edn. Boston, MA: ButterworthHeinemann.

high context cultures John O’Connell

A culture in which feelings or emotions are not directly expressed. In a high context culture, knowing the true meaning of what is being said

186

hiring

requires the building of a relationship over time. Once a relationship is built, knowing the other person’s true feelings is easier because one now understands the various visual and other non verbal cues (nods of the head, smiles, posture, intonation, and others). High context cultures are found in Japan, China, Middle Eastern coun tries, and others. Bibliography Tabatava’i, S. M. (1989). Islamic Teachings: An Overview. Canada: John Deyell.

hiring

organizations within a country accept that power is distributed unequally); individualism (a measure of the looseness of ties between individ uals) and collectivism (the presence of strong, cohesive ingroups that offer protection and expect loyalty); masculine vs. feminine (masculine cultures having distinct gender roles, in which men are assertive and focused on success while women are tender and focused on quality of life); and uncertainty avoidance (tolerance of ambigu ity). The added dimension is Confucian dynamism or long term orientation, and has to do with an underlying understanding of virtue, exhibited by respect for tradition, social and status obliga tions, thrift, and perseverance, values found in high measure in Confucian societies. The other end of the scale is short term orientation.

see s t a f f i n g Bibliography

historically planned economy (HPE) John O’Connell

This term is used by the i n t e r n a t i o n a l bank for reconstruction and devel o p m e n t to refer to countries which have re cently changed from communist governments to movement toward market economies. Those countries included as HPEs are Russia and the other states of the former Soviet Union and most of Eastern Europe.

Hofstede’s cultural dimensions Jeanne McNett

Geert Hofstede’s research identifies four dimen sions (later expanded to five) to describe cultural values. The dimensions are based on data col lected globally through IBM employees from 1967 to 1973. These dimensions are useful in attempts to understand how national cultural values affect behavior in the work setting, in a general sort of way. Each dimension has an index score that ranges from 0 to 100, with countries represented by an average of its employees’ scores. The initial dimensions are power distance (the level to which the less powerful members of

Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Bing, J. W. (2004). Hofstede’s consequences: The impact of his work on consulting and business practices. Acad emy of Management Executive, 18 (1), 80 8. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Hofstede, G. (1983). The cultural relativity of organizational practices and theories. Journal of International Business Studies, fall, 75 89. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill. Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organ izations Across Nations, 2nd edn. Thousand Oaks, CA: Sage. Nisbett, R. (2003). The Geography of Thought. New York: Free Press. Triandis, H. C. (1972). The Analysis of Subjective Culture. New York: Wiley. Triandis, H. C. (1995). Individualism and Collectivism. Boulder, CO: Westview Press. Vinken, H., Soeters, J., and Ester, P. (eds.) (2003). Com paring Cultures: Dimensions of Culture in a Comparative Perspective. Leiden: Brill.

human relations home country nationals John O’Connell

Multinational companies are legally formed in a given country and expand from there. Citizens from the country in which the organization was formed are referred to as home country nationals.

187

to a single location. The freight forwarder issues a receipt for goods being shipped. This receipt is referred to as an a i r b i l l . Included in the airbill is the house air waybill. The waybill lists the specifics of the shipment transaction (destin ation, owners, types of goods, values, etc.).

household effects home currency

John O’Connell John O’Connell

Generally, the currency of the country in which a parent company was originally formed and still has residence. The home currency of a US com pany is the US dollar; the home currency of a British company is the pound, etc.

home leave John O’Connell

An e x p a t r i a t e (including family) is often given paid leave each year to return to his or her home country. Normally, all expenses of the trip home are paid by the company. Home leaves were developed to allow expatriates and their families to maintain ties with relatives, friends, and others. This eases problems commonly associated with the transition to and from the foreign location.

All of the furnishings and other property which go into a home. Although the exact nature of property differs, it is generally comprised of fur niture, cooking and serving equipment, beds and bedding, and other items of personal selection. This term may become important to an e x p a t r i a t e whose employer has agreed to move household effects to the new a s s i g n m e n t location. If the employee has any unusual or un common property (grand piano, valuable collec tion of antiques, etc.) these may or may not fit into the normal household effects category. Also, it must be remembered that some countries have restrictions related to types of property which may be brought into the country (e.g., pets, plants, guns, etc.). Depending on the home and host country accommodations, it is common to ship a portion of an expatriate’s household effects to the new location and store the rest.

housing allowance

host country nationals

John O’Connell

John O’Connell

Citizens of those countries to which a multi national corporation expands. If the multina tional company was formed in France but also had operations in Spain, Spanish workers would be host country nationals (French workers would be home country nationals).

A common benefit provided to expatriates. Housing allowances are provided in several forms: additional salary to help pay housing costs; provision of employer owned housing in the foreign country; and reimbursement (or paid directly to the landlord) of the actual cost of housing incurred by the e x p a t r i a t e .

house air waybill

human relations John O’Connell

John O’Connell

Often, a f r e i g h t f o r w a r d e r will combine goods from many shippers into a shipment by air

A human relations approach to management views each employee as a separate entity,

188

human resource management

motivated by individual wants and needs and capable of accomplishments at different levels. To enable managers to motivate employees an employee’s needs (not just money) must be iden tified and ways found to meet more of them in the workplace.

human resource management

see i n t e r n a t i o n a l h u m a n r e s o u r c e s management

human resource strategy James A. Craft

The term human resource strategy (HRS) cur rently lacks definitional precision, but it gener ally refers to a construct denoting the coherent set of decisions or factors that shape and guide the management of human resources (ac quisition, allocation, utilization, development, reward) in an organizational context. It is dir ectly related to the business strategy and focuses on the formulation and alignment of human resource activities to achieve organizational competitive objectives. HRS is a relatively new concept in the field of human resource management (HRM). It has emerged as the HRM function has assumed a more strategic perspective and organizations have come to view employees as essential re sources who are to be managed effectively to achieve strategic business goals. There are at least three basic concepts of HRS that have been articulated: the decisional concept, the human resource issue/action concept, and the human resources priorities concept.

The Decisional Concept Drawing upon the business strategy literature, Dyer (1984) has formulated a longitudinal or retrospective decisional concept of HRS. He defines the organizational HRS ‘‘as the pattern that emerges from a stream of important deci sions about the management of human re sources.’’ This concept requires a review of important HRM related organizational decisions

over a period of time to determine consistencies and observable patterns. In effect, the emergent pattern of coherent and consistent decisions revealed upon retroactive investigation would indicate the strategy that guides HR activity. In a later work, Dyer and Holder (1988) offer a more proactive decisional concept of HRS. In this case, the HRS is viewed as the collection of major human resource (HR) goals and means to be used in pursuit of organizational strategic plans. When an acceptable business strategy is formulated, key HR goals are defined to support this strategy and the necessary means (i.e., pro gramming and policies) are designed and imple mented to meet the goals. For example, if an organization chooses a competitive strategy of low cost producer, major HR goals to support this strategy could be higher performance and lower headcounts. These in turn could lead to programs including reduction in force and more increased investment in employee training. This combined set of HR goals and means would be the organizational HRS.

The HR Issue/Action Concept This approach is based on an issue oriented focus to develop an organizational HRS. Schuler and Walker (1990) and Walker (1992) argue that in a dynamic, fast changing environment, man agers have to deal effectively with a series of emerging business issues that can have a signifi cant impact on competitive success. Business issues will involve HR issues that are critical to successful strategy implementation. These HR issues can be considered gaps that represent opportunities for people to contribute more effectively to the achievement of business strategies. Line managers have to respond to these HR issues in their decision processes. As is necessary, they will define directional actions to address the people related business issues. These managerial actions and plans will focus, mobilize, and direct the HR activities toward the business issues most important to the firm, and they will form the essence of the organizational HR strategies.

The HR Priorities Concept This concept of HRS posits that each organiza tion has an identifiable set of dominant HR priorities that are used to align its HR activities,

human rights policies policies, and programs with its strategic business goals (Craft, 1988, 1995). This cluster of key HR priorities, which constitutes the HRS, defines the organization’s orientation and attitude toward its employees and it guides the develop ment of HR plans that deal with the personnel aspects of basic business issues. For example, in an organization competing on the basis of innov ation, core HR priorities might include em ployee risk taking, initiative, teamwork, and high competence. The priorities will be basic factors guiding and configuring the HR system (acquiring, develop ing, rewarding) in response to business needs. Each organization’s cluster of priorities (HRS) will differ, based on the mix of its competitive strategy, internal organizational factors (e.g., culture, technology), and external environmental factors (e.g., labor market, competitor practice). While the HRS tends to be stable in the short term, over time it is a dynamic concept, since the priorities will evolve and be crafted to meet changing business situations.

189

into an organization. Human resources, like all other resources (materials, capital, etc.), must be used to their fullest potential in order for the organization to be successful. Assuring the most advantageous use of human resources is the task of i n t e r n a t i o n a l h u m a n resource management. See also human resource strategy Bibliography Cohen, R. B. (1988). The new international division of labor and multinational corporations. In The Trans formation of Industrial Organization: Management, Labor, and Society in the United States. Belmont, CA: Wadsworth. Schuler, R. S. (1993). World class HR departments: Six crucial issues. Singapore Accounting and Business Review, inaugural issue, September.

human rights policies John O’Connell

Bibliography Craft, J. A. (1988). Human resource planning and strategy. In L. Dyer (ed.), Human Resource Management: Evolving Roles and Responsibilities. Washington, DC: Bureau of National Affairs. Craft, J. A. (1995). Human resources strategy. Unpublished working paper. Dyer, L. (1984). Studying human resource strategy: an approach and an agenda. Industrial Relations, 23, 156 69. Dyer, L. and Holder, G. W. (1988). A strategic perspective of human resource management. In L. Dyer (ed.), Human Resource Management: Evolving Roles and Re sponsibilities. Washington, DC: Bureau of National Affairs. Schuler, R. S. and Walker, J. W. (1990). Human resources strategy: Focusing on issues and actions. Organiza tional Dynamics, 19, 4 19. Walker, J. W. (1992). Human Resource Strategy. New York: McGraw-Hill.

human resources John O’Connell

Human resources are the employees, manage ment, and other parties having personal input

Although human rights policies are normally associated with governmental functions, the plight of humankind has become of great con cern in the international business world. Feel ings about a country’s treatment of its citizens, especially those who speak out against the gov ernment or seek changes or freedoms which other citizens may have, are often transferred to the businesses located in the country. For example, when South Africa had a poor record regarding human rights, foreign com panies doing business in South Africa were criticized, boycotted, and some were even ter rorized. Now that the system has changed, former investors are coming back to South Africa. Perception of a company’s feelings or positions can greatly harm or assist in successful international activities. Many companies stay away from taking stands, while others seem to make a point of explaining their corporate view. Either way, a company must carefully consider its public and private positions, especially on questions involving such sensitive areas as human rights. See also advocacy advertising

190

hybrid attack

Bibliography

Bibliography

Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

Austin, J. E. (1990). Managing in Developing Countries: Strategic Analysis and Operating Techniques. New York: Free Press.

hybrid attack

hypothetical tax John O’Connell

This builds on the d i c t i o n a r y a t t a c k method by adding numerals and symbols to dic tionary words.

hyperinflation John O’Connell

Hyperinflation is a state of extreme inflation in an economy. Germany suffered hyperinflation in the 1920s and 1930s, during which time a loaf of bread cost billions of marks. Brazil suffered inflation rates of hundreds of percent age points during parts of the 1970s and 1980s. Hyperinflation destroys the purchasing power of domestic currency, causes social unrest, and commonly brings down the government.

John O’Connell

In order to determine the appropriate c o m p e n s a t i o n p a c k a g e for an e x p a t r i a t e , taxes must be taken into consideration. A hypo thetical tax is an estimated tax based upon the best information available related to the employ ee’s total income and allowable deductions. The hypothetical tax gives an idea of how much money is left from the proposed compensation package for necessary goods and services while on a s s i g n m e n t . If necessary, the compensa tion package can be adjusted to reflect the expected tax liability. Bibliography Hamill, J. (1984). Labour relations practices and Multinational corporations and industrial relations. Indus trial Relations Journal, 15 (2), 30 4.

I IAA

ICC

see i n t e r a m e r i c a n a c c o u n t i n g a s s o ciation

see i n t e r n a t i o n a l c h a m b e r o f c o m merce

IAB

ICG

see i n t e r n e t a d v e r t i s i n g b u r e a u

see i n t e r n a t i o n a l c o m m o d i t y g r o u p

ICO IAC

see i m p o r t a l l o c a t i o n c e r t i f i c a t e

see i n t e r n a t i o n a l c o m m o d i t y o r g a n ization

IASC

ICSID

see i n t e r n a t i o n a l a c c o u n t i n g s t a n d ards committee

see i n t e r n a t i o n a l c e n t e r f o r t h e settlement of investment disputes

IDA

IBF

see i n t e r n a t i o n a l b a n k i n g f a c i l i t y

see i n t e r n a t i o n a l d e v e l o p m e n t a s s o ciation

IBRD

IDB

see i n t e r n a t i o n a l b a n k f o r r e c o n struction and development

see i n t e r a m e r i c a n d e v e l o p m e n t b a n k

identical reciprocity ICA

see international accountants

John O’Connell

congress

of

When two countries enter into trade agreements, the result is often concessions from both parties

192

IDF

to reduce import/export barriers which may exist between them. When two countries reduce b a r r i e r s in response to one another, this is gen erally referred to as r e c i p r o c i t y . Identical reciprocity describes a situation in which coun tries allow foreign firms to operate but only to the extent that current local laws and regulations allow. Foreign firms also may not undertake activities not allowed in their home country. For example, insurance companies in the United States generally cannot own or operate banks, whereas in Europe joint banking and insurance is common. If identical reciprocity was in effect, a French insurance company could operate in the US but would have to accept the restriction on bank relationships. On the other hand, a United States insurer could operate in France and even though France allows banking relationships, the US insurer could not enter into such an arrangement because US law precludes it. Bibliography Simmonds, K. R. and Musch, D. J. (eds.) (1992). Law and Practice Under the GATT and Other Trading Agree ments, North American Free Trade Agreements, United States Canada Free Trade Agreements: Binational Panel Reviews and Reports. Dobbs Ferry, NY: Oceana.

ILO

see i n t e r n a t i o n a l l a b o r o r g a n i z a tion

IMF conditionality

see i n t e r n a t i o n a l m o n e t a r y f u n d

imitation John O’Connell

Although imitation is sometimes referred to as the highest form of flattery, in international business it is at the very least a costly activity and at the most an illegal act. When a company copies or counterfeits another com pany’s product or process it effectively takes money out of the original company’s pocket. A number of international agreements have been established in attempts to dissuade imitators, but not all countries strictly enforce the agreements. See also intellectual property Bibliography

IDF

see i m p o r t d e c l a r a t i o n f o r m

Schultz, J. S. and Windsor, S. (1994). International Intel lectual Property Protection for Computer Software: A Research Guide and Annotated Bibliography. Littleton, CO: Fred B. Rothman.

IFC

see i n t e r n a t i o n a l f i n a n c e c o r p o r ation

immersion approach to training

IIC

immigrant visa

see inter american corporation

illegal alien

see a l i e n

investment

see e x p a t r i a t e t r a i n i n g

John O’Connell

A v i s a that permits a foreign person to enter into a country and to stay there for a fixed amount of time or permanently. An immigrant visa normally allows a person the freedom to obtain employment or to conduct business in that foreign country.

import deposit Bibliography Grant, L. (1994). Immigration Lawyer’s Transaction Pack. Bristol: Jordon Publishing.

193

local markets to grow while being protected from competition from outside the country. As local markets grow and efficiencies develop, trade re strictions tend to be reduced. The particular type of restriction varies with the type of goods being protected and the countries involved.

import (direct) John O’Connell

A buyer who handles the import transaction without help from intermediaries is said to have made a direct import. Although handling importation of goods without intermediaries may save money for the buyer, a great deal of knowledge is normally required to successfully carry out the transaction. Thus, the use of inter mediaries is very common.

See also barriers Bibliography Bowker, R. R. (1993). GATT, General Agreement on Tariffs and Trade: What It Is and What It Does. Chester, PA: Diane.

import broker John O’Connell

Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

import allocation certificate (IAC) John O’Connell

A document required by the Japan Ministry of International Trade and Industry authorizing foreign exchange for imports. The purpose of the certificate is to assist the government in regulating f o r e i g n e x c h a n g e expenditures. The importer must submit the certificate to the appropriate governmental agency in order to secure an import license. A Japanese importer may not receive an import license without this completed document. Bibliography Korth, C. (1985). Barriers to International Business. Englewood Cliffs, NJ: Prentice-Hall.

Many persons who are involved in exporting activities do not have the knowledge or contacts to successfully conduct trade activities. An import broker is hired by exporters to locate buyers (importers) for the exporter’s goods. Typically, the import broker receives a commis sion for services rendered. Bibliography United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

import declaration form (IDF) John O’Connell

An IDF is required by some countries (generally those having f o r e i g n e x c h a n g e restrictions in place) of importers desiring to pay for imports with the currency of another country. The ap propriate government authority must act on an application (the import declaration form) prior to making foreign exchange available. See also mark sheet

import barriers John O’Connell

Most countries do not allow unlimited import ation of all types of goods and services. Generally, barriers to importation are established to allow

import deposit John O’Connell

A country may require an importer to deposit funds with governmental authorities as a type of

194

import license

good faith offering that all taxes, etc. will be paid. The deposit is returned after a relatively short period of time. Although this sounds fair, in reality the deposit has been used by some coun tries to restrict the importation of items. The practice of collecting import deposits is not widespread. Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

import restrictions John O’Connell

Many countries attempt to limit the importation of certain goods and/or services. A country may impose a total ban on certain items or services or restrict the numbers of or total value of goods or services imported. Restrictions can apply to a specific country of origin or to the world as a whole with respect to specific goods or services. See also import quotas

import license John O’Connell

Generally, a person is required to secure government permission before moving goods from one country to another. An import license is issued by the appropriate government office to provide specific permission for the im portation of goods into a country. Without the license, a person is unable to import goods legally. Licenses are issued by govern ments desiring to control the amounts or types of goods, or to collect taxes associated with importation. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

import substitution John O’Connell

Import substitution involves substituting local production of goods for the importation of those goods. As a country develops economic ally, certain goods may not be available locally even though there is a demand for them. In order to promote local development of produc tion, a government may institute controls over the importation of certain items. Examples of controls include charging high import duties for certain goods or restricting the amount of goods allowed to be imported. Duties or quotas restrict the amount of goods imported, thereby giving local industry time and incentive to develop. See also barriers

import quotas John O’Connell

In order to limit the importation of certain goods, a government may establish maximum numbers or values of the goods which may be imported. Limitations are commonly established to protect domestic industries from foreign com petition or as retaliation for trade practices of other nations. Import quotas may also be estab lished to improve a country’s balance of pay ments position. See also barriers

import tariff John O’Connell

Many countries place taxes on certain types of merchandise entering a country. Such taxes (tariffs) usually serve the purpose of reducing the local demand for such goods because of higher prices. Tariffs not only provide income for the taxing authority, but also serve to protect local industry by raising the price of competing imports.

income tax treaties

195

in transit

Bibliography Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin.

import trade control order notices John O’Connell

If a country decides that it is in its best interest to restrict importation of certain goods, a written directive is normally issued by the appropriate governmental authority. This written directive provides information related to quotas placed on specific imports.

John O’Connell

After goods have left the seller’s possession until such time they are received by the buyer they are considered to be in transit. It is very important to determine who is responsible for damage to goods, securing and paying for insurance, and other details of delivery while goods are in tran sit. Normally, responsibility for the various aspects of the trade transaction is determined by the terms of the contract between seller (ex porter) and buyer (importer). See also INCOTERMS

Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

incident John O’Connell

Is an adverse network event in an information system or network or the threat of the occur rence of such an event.

import wholesalers John O’Connell

Often, it is not economically feasible for a retailer to import goods directly from a foreign manufac turer. Problems and costs commonly associated with establishing contacts and carrying out the trade transaction act to exclude many small retail ers from direct importing activities. An import wholesaler helps to solve this problem. The wholesaler makes all arrangements to import large quantities directly from foreign sources. Local retailers then arrange for delivery from the wholesaler.

in bond

incident handling John O’Connell

Is an action plan for dealing with intrusions, cyber theft, denial of service, fire, floods, and other security related events. It is comprised of a six step process: preparation, identification, con tainment, eradication, recovery, and lessons learned.

income tax treaties John O’Connell

Dale L. Davison

It is common for the buyer of goods to take delivery prior to the buyer’s peak selling season. Goods delivered, but warehoused until the sell ing season, are said to be held in bond.

The United States is a party to a dizzying array of international agreements with other nations, including over 80 income tax treaties now in force or being negotiated. Even the best income tax advice can be thrown to the winds if the subject transaction is between taxpayers from different countries and the taxpayers fail to con sider the effects of tax treaties that may exist between their nations. The language of the

Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

196

income tax treaties

treaties, although a little stilted with the formu las of international legal expression, is generally understandable in context, and the goal of income tax treaties is clear: to harmonize and simplify tax laws between the two countries, promoting commerce, while avoiding double taxation and fiscal evasion. Each income tax treaty is a separate agreement between two nations who are a party to the agreement. While in theory each treaty could differ widely from each other treaty, in practice all treaties to which the United States is a party tend to look very much alike, and tend to look like most other income tax treaties in the world, owing largely to the Organization for Economic Cooperation and Development (OECD). In 1963 the OECD member nations developed a model treaty, a basic framework designed to serve as the starting point for tax treaty negoti ations between member nations. Modified in 1977, the model treaty was accompanied by a commentary prepared by the OECD that has become a key guide to interpreting the meaning to the terms and expressions used in modern treaties. As a consequence of this general inter national understanding of the meaning of treaty terms, conflicts between nations over treaty ob ligations are actually rather rare. If they do occur, the International Court at the Hague ad judicates the dispute. In 1977 and in 1981, the United States adopted its own version of a model treaty, but the commentary developed by the OECD remains a major guide to interpretation of this US model treaty, as well as the OECD versions. The status of a treaty obligation is a matter for domestic law to determine in each country. Where a treaty obligation is in conflict with a domestic tax law, a country must decide which has priority over the other. In the United States, tax law clearly provides that a treaty provision controls in the event of a conflict of laws if the conflict existed on April 16, 1954, but, there after, the later expression of sovereign will con trols. As a result, it is possible for Congress to override a treaty obligation by passing a law that contravenes the clear language of a treaty obliga tion already in existence. In this event, the treaty as a whole remains in force, but the contravened provision is deemed abrogated, and usually the two countries renegotiate the treaty.

In the United States, treaties are negotiated by the executive branch of the federal govern ment, and once approved by the president, sent to the Senate for its advice and consent. Once ratified by the Senate, treaties come into force on the date the two parties to the treaty ex change instruments of ratification – conformed copies of the final treaty. Because all recent US tax treaties start from the same model, it is possible to generalize a great deal about the contents of an income tax treaty, although the specific points that are agreed upon vary from treaty to treaty. Each income tax treaty must determine what persons have treaty standing, and what taxes are covered by the treaty. Treaty standing is critical because a taxpayer may take advantage of a pro vision in a treaty only if that taxpayer is covered by the treaty. US tax treaties generally follow the OECD model in providing that all US residents and domestic corporations may benefit from a US tax treaty. Interestingly, this means that a non resident US citizen may not obtain benefits from a US tax treaty, even though the US asserts its right to tax its citizens – not just its residents – on their worldwide income. Residency is usu ally carefully described in terms of the geo graphic area that creates residency for treaty standing purposes, and generally excludes US territories. Residency can be a difficult matter to determine, and treaties often go to great lengths to avoid dual residency by prescribing ‘‘tie breaker’’ rules, designed to insure that any tax payer is deemed a resident of only one of the two contracting nations in a tax treaty. A treaty may also contain a set of anti treaty shopping provi sions, designed to thwart taxpayers’ efforts to obtain treaty benefits by creating shell corpor ations or other subterfuges that appear to create residency. The taxes covered by the treaty tend to in clude only US federal income taxes, often exclu sive of the personal holding company tax and the accumulated earnings tax. In only a few cases are state income taxes explicitly covered in US treat ies, although the fact that nearly 40 states in the United States begin their tax computations with federal income makes these states implicit signa tories to each US income tax treaty. Similarly, other countries may or may not cover taxes other than basic federal income taxes.

inconvertibility of currency coverage Once a treaty has established the issues of treaty standing and taxes covered by the treaty, treaties based on the OECD model treaty often include permanent establishment provisions. To simplify the issue of the income taxation of busi ness income of a foreign entity or individual, these treaties provide that the business income of a foreign person is taxable in the foreign country only if that person has a permanent establishment in that foreign country. Other wise, this business income is taxable only in the country of that person’s residency. If there were no permanent establishment provision, foreign business income would be taxable in a foreign country if the tax laws in that foreign country sourced the transaction in that foreign country. The rules governing sourcing of trans actions vary widely, often leading to double taxation without a permanent establishment pro vision to harmonize the tax laws of the two countries in a treaty. A permanent establishment is defined in the US model treaty of 1981 to be a fixed place of business through which the busi ness of an enterprise is wholly or partly carried on. A place of management, a branch, an office, a factory, a workshop, a mine or well, a building site used for 12 months, or an installation, drilling rig, or ship used for more than 12 months to discover or exploit natural resources all qualify as permanent establishments. In add ition, if another party other than an agent of independent status has and habitually exercises the power to bind a foreign person to contracts in a foreign country, this person is deemed to create a permanent establishment on behalf of the person that he or she represents in that country. Following the permanent establishment pro visions in treaties are a number of special sourcing rules for non business income, such as dividends, interest, rents, royalties, and capital gains. These types of income are often taxed to non resident recipients by using withholdings taxes – taxes withheld by the payor and sent directly to the government – obviating the need to file tax returns in the foreign country. To encourage commerce, treaties often reduce or eliminate these withholdings taxes. In addition, the treaty may include special taxing rules for other types of income, such as the income of teachers or students, or that of artists or sports men. Often, this kind of income is determined to

197

be tax free, or very beneficially taxed, in the foreign country. Treaties usually contain a savings clause that clearly limits the applicability of the treaty to international transactions, by providing that nothing in the treaty should be construed as interfering with the right of the country of resi dency to tax its own residents. As a result, even though a US treaty may declare gains on the sale of personal capital assets tax free, gains on the sale of such assets by a US citizen or resident are clearly taxed in the US. Treaties also commonly include the identifi cation of a person or official to serve as competent authority to negotiate with the other government to insure that the goal of avoiding double taxation without evasion is met. Competent authorities are often invoked to determine fair transfer prices for goods or services provided by residents of one country to those of the other country, where the parties are related, for example. Information sharing provisions are also commonly included in treaties, providing for specified levels of cooperation between the con tracting states in the pursuit of income taxes in the other country. The United States refuses to enter into such information sharing agreements unless foreign governments agree to treat the information so received with the same level of confidentiality that is required of US tax authorities. While the language of treaties appears to be somewhat technical in character, reference to model treaties and their commentaries provides a ready basis for reading and understanding the nature of the mutual obligations that nations incur in the network of income tax treaties, and the often extraordinary benefits that the treaties confer on the residents of the contracting states. Clearly, tax planning and practice require that treaty law be carefully screened to insure that international transactions are appropriately taxed.

inconvertibility of currency coverage John O’Connell

This is the inability to convert local currency into a company’s home currency. This is an

198

INCOTERMS

important consideration for an organization seeking to repatriate profits or dividends from a foreign operation. Insurance against losses arising from inconvertibility is available from specialty international insurance markets. Insur ance commonly protects against one or both of the following situations:

INCOTERMS took place in 1990. The 1990 INCOTERMS include:

1 A change in a law or regulation which restricts the right to convert currency. As long as there was an official method of currency conversion before the insurance contract goes into force, coverage usually applies for changes in the law from that point forward. Most policies require that normal convertibility be delayed at least 60–90 days beyond the normal conversion period. 2 An administrative delay on the part of the country’s exchange authority which delays the ability to exchange currency. Most pol icies require the delay to be a minimum number of days beyond the period normally required for conversion.

CPT

If either of these situations occurs, the insurer converts the currency for the insured into the currency designated in the contract.

Each INCOTERM is explained in detail under its name.

See also political risk; political risk insurance

indigenization laws

CAP CFR CIF

DAF DDP DDU DEQ DES EXW FAS FCA FOB

Carriage and insurance paid to (named place of destination) Cost and freight (named port of destination) Cost, insurance, and freight (named port of destination) Carriage paid to (named place of destination) Delivered at frontier (named place) Delivered duty paid (named place of destination) Delivered duty unpaid (named place of destination) Delivered ex quay duty paid (named port of destination) Delivered ex ship (named port of destination). Ex works (named place) Free alongside ship (named port of shipment) Free carrier (named place) Free on board (named port of shipment)

John O’Connell INCOTERMS John O’Connell

Standardized terminology used to assist in de scribing the responsibilities of parties (usually buyer and seller) in international trade transac tions. INCOTERMS were approved by a com mittee of the i n t e r n a t i o n a l c h a m b e r o f c o m m e r c e . Trading terms have been stand ardized in order to reduce misunderstandings between parties to trade transactions. The terms specify which party is responsible for de livery of goods to a given place, providing and paying for insurance, and other transportation requirements. The most recent revision of

In order to restrict (and therefore control) for eign ownership of organizations operating within its borders a government may establish a minimum percentage of ownership by local na tionals. These restrictions are referred to as in digenization laws. It is not uncommon for developing countries to require that at least 51 percent of ownership be held locally. This allows foreign investment to take place while still retaining local control. This protectionist pos ition may allow a greater percentage of foreign ownership as time passes, thus allowing the in dustry to become more firmly embedded in the host country’s economy. See also barriers

industrial countries indirect exchange rate

199

Bibliography

John O’Connell

An exchange rate is determined by valuing one currency in terms of another. It is common to see the value of a US dollar expressed in yen or the value of a British pound expressed in euros. However, when two currencies are compared and neither of the currencies is well known an indirect exchange rate may be used. Thus, the Colombian bolivar and the Nigerian naira may each be compared to the British pound in order to determine their comparable value.

Peters, C. C. and Gitlin, A. W. (eds.) (1993). Strategic Currency Investing: Trading and Investing in the Foreign Exchange Markets. Hinsdale, IL: Probus.

indirect selling John O’Connell

Organizations may not have the desire or the resources to conduct export activities them selves. Many of these organizations enlist the services of export intermediaries to carry out foreign sales activities.

indirect exporting John O’Connell

Producers of goods may not desire or have the expertise to undertake export operations of their own. In order to take advantage of opportunities with foreign purchasers of goods, many produ cers turn to indirect exporting or use the services of export agents or other intermediaries. The intermediary generally receives a commission for services rendered. This is a common way to begin export activities. As activities increase it then becomes more likely that producers will begin to develop internal expertise in the export area and reduce the use of intermediaries. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

See also export agent Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

individually validated export license John O’Connell

A document issued by the appropriate govern mental agency to allow an exporter to export a specific good to a specific destination. An indivi dually validated export license may apply to a single shipment or to a series of shipments as specified in the document. This type of export license is used when a general license is unavail able.

indirect quote (foreign exchange cross rate) John O’Connell

An indirect quote is when the values of two cur rencies are compared by determining the ex change rate of each currency in relation to a third country’s currency. Currencies which are not often traded for one another may still be compared by relating them to a third, commonly traded currency. Thus, both currencies may be expressed in US dollars for a more meaningful comparison.

industrial countries John O’Connell

The movement from agricultural or trading pur suits to producing products through mechanized methods is a process which has already taken place in a number of countries and is continuing in many more. Countries whose economies have become driven by their industrial base are known as industrial or industrialized countries. Industrialized countries control the vast amount

200

industrial espionage

of economic activity taking place throughout the world. The economic impact of just a few nations exceeds that of the remainder of the world. Major industrial countries include Aus tralia, Canada, France, Germany, Great Britain, Hong Kong, Japan, Singapore, and the United States. Virtually all of Western Europe is con sidered to be industrialized, as well as the states of the former Soviet Union. As countries become more reliant on industrial output there is a general increase in per capita income and wealth, as well as a general awakening of foreign trade and commerce.

those meant for use in the production of other goods are referred to as industrial or producer’s goods. Industrial goods include various kinds of machinery or equipment to process materials into products, as well as the raw materials them selves. Bibliography Miller, J. G., Demeyer, A., and Nakane, J. (1994). Bench marking Global Manufacturing: Understanding Inter national Suppliers, Customers and Competitors. Hinsdale, IL: Irwin Professional Publishing.

Bibliography Baldasarri (1994). The International Problems of Economic Interdependence: Central Issues in Contemporary Eco nomic Theory and Policy. New York: St. Martin’s Press.

industrial espionage John O’Connell

Unethical or illegal activities to obtain informa tion about a competitor’s products, processes, or technology. Common targets include new tech nological developments, research interests, and other proprietary information. Today, industrial espionage is commonly carried out through the use of various kinds of electronic equipment (computers, telephones, or other surveillance equipment). Some industrial espionage activities may be subject to criminal prosecution depending upon the exact nature of the espion age and the country in which the activity takes place.

industrial property John O’Connell

There are two definitions of this term which are in common usage. Industrial property may refer to property used for commercial purposes, such as factories, storage facilities, research and development facilities, office buildings, and other commercial structures. Industrial property may also refer to intangible property normally associated with commercial ventures such as trademarks, patents, licenses, and other property right protections issued by govern ments. Bibliography Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin.

industrial relations Bibliography

John O’Connell

Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

industrial or producer’s goods John O’Connell

Whereas goods purchased for individual con sumption are referred to as consumer goods,

Industrial relations may refer to any number of interactions between an organization and other parties associated with commercial ac tivity. Examples include employee–employer ne gotiations, relations, or other activities, interaction between employers and unions, activ ities associated with trade associations or other industrial associations, as well as many other interactions or activities conducted on behalf of the organization.

information security infant industry argument John O’Connell

When an industry is first beginning to develop in a country (e.g., production of clothing) the gov ernment may feel the necessity to institute con trols over the importation of that same product. The theory behind these controls is that an infant (just beginning) industry cannot compete with foreign industries of the same type until it becomes established and efficient. Trade protec tion, either through quotas or tariffs, will give the infant industry a chance to grow and become self sufficient. A problem can exist, however, if protectionist activities of government are not repealed after the industry grows from its infant stage. See also barriers; quota

201

bination of monetary policies, price controls, and adjustments in governmental spending. Bibliography Ellsworth, P. T. (1990). The International Economy. New York: Harper and Row.

inflation accounting John O’Connell

An accounting practice that attempts to explain the effects of inflation on an organization’s financial activities. By taking inflation into account, an organization can determine its real rate of growth or the value of assets in current financial terms. If this type of accounting is not used, the real return on investment as well as real values of assets are difficult to determine.

Bibliography Ferris, K. R. (1993). Financial Accounting and Corporate Reporting: A Casebook, 3rd edn. Homewood, IL: Irwin.

influence peddling John O’Connell inflation John O’Connell

Inflation occurs when the price level of goods and services rises over time. Increased price levels erode the purchasing power of local cur rency. Inflation rates (the percentage increase in prices normally measured on an annual basis) vary from country to country and even within a country as time passes. Major problems associ ated with purchasing power or investment returns/values arise when the inflation rate is high. A number of countries have at times had inflation rates in excess of 200–300 percent. h y p e r i n f l a t i o n has been known to occur at times of war, causing thousands of percentage points of inflation in very short periods of time. Such inflation destroys a country’s economy and its ability to participate in international trade. Foreign investments in times of high inflation are very risky and normally decrease in countries showing inflation instability. Small amounts of inflation are quite normal. When inflationary pressures begin to mount, however, govern ments attempt to stem the rise through a com

Persons may be influential because of their gov ernmental contacts, family name, position in the military, or for other reasons. These people may seek to achieve personal gain by using this influ ence to assist others. For example, a person uses his or her contacts to assist a firm to secure a government contract. The firm then appoints the person (or a relative of that person) to an important management position in the firm. The person has thus peddled his or her influence in return for the management position. Bibliography Scarpello, V. and Ledvinka, J. (1987). Personnel/Human Resource Management. Boston, MA: Kent.

information security (Infosec) John O’Connell

The preservation of the availability, utility, integrity, authenticity, confidentiality, and possession of information. The protection of

202

information technology

information systems against unauthorized access to or modification of information, whether in storage, processing, or transit, and against the denial of service to authorized users or the pro vision of service to unauthorized users, includ ing those measures necessary to detect, document, and counter such threats.

Bibliography Adler, N. J. (1991). International Dimensions of Organiza tional Behavior, 2nd edn. Belmont, CA: Wadsworth.

injury John O’Connell

information technology John O’Connell

The electronic transfer of information has revo lutionized the management of organizations throughout the world. The term information technology denotes the various electronic devices which are used to store, interpret, and transfer data. Devices include computers, satel lite links (both portable and fixed base), elec tronic mail systems, various types of telephone links, and the associated cables and other con necting devices. The development of new infor mation technology proceeds at a blinding rate. The effect of such change on future management of firms remains uncertain, but exciting.

This term is sometimes used to describe the financial impact of imports on domestically pro duced goods and services. A domestic enterprise is considered injured if it perceives itself as being damaged by imports. Damages could include reduced market share, lower profits, downsizing employment opportunities, or any other real or perceived injury. Bibliography Serko, D. (1991). Import Practice: Customs and Inter national Trade Law. New York: Practicing Law Institute.

inland bill of lading John O’Connell

Bibliography Deans, P. C. and Kane, M. J. (1992). International Dimen sions of Information Systems and Technology, 2nd edn. Boston, MA: PWS-Kent Publishing.

The name given to a b i l l o f l a d i n g when goods are shipped over land by truck or rail. Often, several bills will have to be prepared when goods are transported by different types of carriers (inland, ocean, etc.).

Infosec INMARSAT

see i n f o r m a t i o n s e c u r i t y

see i n t e r n a t i o n a l m a r i t i m e s a t e l l i t e organization infrastructure John O’Connell

When viewing the economic condition of a country, important factors considered in most inquiries include the transportation system (roads, airways, railways, etc.), the financial system (banks, credit system, stock market ac tivity, etc.), and the communications system (telephone, media, electronic transfer capabil ities, etc.). These systems comprise the basic infrastructure of a country.

innovation John O’Connell

Historically, this term has meant a new approach or way of doing things. An innovative organiza tion was one which sought out and implemented new or unique ways of accomplishing its tasks. In recent years innovation has been associated with developments of technology and the adop tion of advances by firms. Development of, and

integrative social contracts theory 203 implementation of, new technology is con sidered to be innovative.

input validation attacks John O’Connell

Are where an attacker intentionally sends unusual input in the hopes of confusing the application.

insurance certificate John O’Connell

Trading transactions normally require either the seller or buyer to secure and pay the cost of insurance protection. In order to supply proof to the remaining parties to the transaction, an insurance certificate is commonly required. The certificate indicates the dates of coverage, values insured, and coverage territory. This is not an insurance policy, but merely certification (usu ally by the insurance company or insurance broker) that a policy exists. Bibliography Kunreuther, H. K. and Pauly, M. V. (1990). International Trade in Insurance. Philadelphia, PA: Huebner Foundation for Insurance Education.

integrated carriers John O’Connell

Integrated carriers have both air and ground fleets, or other combinations such as sea, rail, and truck. Since they usually handle thousands of small parcels an hour, they are less expensive and offer more diverse services than regular car riers.

integrative social contracts theory (ISCT) Jeanne McNett

This theory seeks to understand and reconcile ethical values and their implementations, both of

which may differ across cultural borders. De veloped by Tomas Donaldson and Thomas Dunfee, ISCT rests on the assumption that an organization doing business in a foreign country has committed to a social contract with the host country. This contract requires that the organ ization act in a way that increases the local wel fare, recognizes and respects the rights of all people, and minimizes harm. ISCT incorporates the complexity of the global c o n t e x t , its multiple stakeholders and interested parties, and its increased levels of ambiguity. In order to assess local norms, the global man ager has to establish b o u n d a r y s p a n n i n g relationships in the local environment, build on m i n d f u l c o m m u n i c a t i o n , and build com munity through decision making. Building trust is essential to this process. ISCT illustrates the value of the g l o b a l c o m p e t e n c i e s f r a m e w o r k in ethical decision making. Bibliography Bailey, W., Spicer, A. and Dunfee, T. (2004). Does national context matter in ethical decision-making? An empirical test of integrative social contracts theory. Zicklin Center Working Paper Series: Wharton, U Penn. http://www.zicklincenter.org/Working%20 Papers.htm. Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review, Sept. Oct., 48 62. Donaldson, T. and Dunfee, T. W. (1999). Ties That Bind: A Social Contracts Approach to Business Ethics. Boston, MA: Harvard Business School Press. Hamilton, J. B. and Knouse, S. B. (2001). Multinational enterprise decision principles for dealing with crosscultural ethical conflicts. Journal of Business Ethics, 31, 77 94. Kohls, J. J. and Buller, P. F. (1994). Resolving crosscultural ethical conflict: Exploring alternative strategies. Journal of Business Ethics, 13, 31 8. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. McNett. J. and Sondergaard, M. (2004). Making ethical decisions. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Weiss, J. (2003). Business Ethics: A Stakeholder and Issues Management Approach, 3rd edn. Mason, OH: Thompson South-Western.

204

intellectual property

intellectual property

Inter-American Accounting Association (IAA) John O’Connell

John O’Connell

Most property can be seen and touched, and is capable of physical measurement and valuation. This is not true of all property. With technological advancements over the past several decades, a new type of property in the form of ideas or unique processes has been recog nized. Especially valuable are ideas and develop ments associated with advances in computers or communications technology. The person having these ideas or the firm developing a process or way of doing things is said to have developed intellectual property. Intellectual property has become valuable and subject to protection in many countries. Patents and copyrights are two examples of measures to protect intellectual property rights. The owner of intellectual property can protect it against unauthorized use by filing the forms documenting its existence with the appropriate governmental authorities. A real problem exists in the world today because of the failure of some countries to allow intellectual property rights to be protected or to enforce existing property right protections. Failure to protect intellectual property rights may slow the spread of certain technological advances throughout the world. Unless intellec tual property rights protection is provided (with the accompanying right to profit from those rights) organizations may be unwilling to share technological developments with certain countries. Several international initiatives and organiza tions have begun work toward establishing better methods of controlling unauthorized use of intellectual property. The United Nations established the World Intellectual Property Organization (WIPO) and began operations in 1970. The WIPO is charged with pro moting international cooperation and coordin ation related to intellectual property rights protection.

This association was established to increase standardization of accounting practices and rules in the region. Standardization eases prob lems associated with reconciling financial reports of organizations conducting cross border business. This has the effect of encour aging international business activities.

See also Berne Convention; Patent Cooperation Treaty; World Intellectual Property Organi zation

Bibliography Arpan, J. S. and Al Hashim, D. D. (1984). International Dimensions of Accounting. Boston, MA: Kent Publishing.

Inter-American Convention on Invention, Patents, Designs, and Models John O’Connell

This 1910 convention was one of the early at tempts of countries to enter into agreements protecting property rights. Concerns over illegal use of proprietary information (patents, inven tions, designs, etc.) by organizations in other countries caused a number of Latin American countries (the United States is now also a signa tory to the convention) to enter into agreements to abide by one another’s rules and regulations pertaining to such property rights. Bibliography Hautmann, R. A. and Sullivan, R. A. (1989). Intellectual property: Maximizing protection of an employer’s rights. Employee Relations Journal, 15, 253 65. Seminsky, M. and Bryer, L. G. (eds.) (1994). The New Role of Intellectual Property in Commercial Transactions. New York: John Wiley and Sons. Stewart, G. R. (ed.) (1994). International Trade and Intel lectual Property: The Search for a Balanced System. Boulder, CO: Westview Press.

Inter-American Development Bank (IDB) John O’Connell

The IDB’s purpose is to assist in the economic development of its member countries. The bank

interchangeability is the financial institution charged with respon sibility for implementing projects sponsored by the United Nations Development Program. The IDB was founded in 1959 and is responsive to the needs of 25 regional members and 18 non regional members. In addition to providing funding for projects, the bank also offers support by providing information related to a number of important basic economic activities (techno logical development, c o m m u n i c a t i o n s , transportation, and other areas of potential in vestment). The bank’s headquarters are in Washington, DC.

205

clude the foreign exchanges market (as far as bank to bank transfers are concerned), the Euro currency market (even though many transac tions are between banks and their customers), and the practice of banks lending to one another within a country. Bibliography Ricks, D. A. (1978). International Dimensions of Corporate Finance. Englewood Cliffs, NJ: Prentice-Hall.

interbank offered rate Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

Inter-American Investment Corporation (IIC) John O’Connell

The Inter American Investment Corporation is associated with the Inter American Develop ment Bank (IDB). Whereas the IDB was primar ily concerned with what may be considered to be i n f r a s t r u c t u r e projects in Latin America (c o m m u n i c a t i o n s , transportation, educa tion, etc.), the IIC was established to promote private enterprises in the region. See also Private Sector Development Program

John O’Connell

This is the interest charged when one bank loans funds to another bank within the same country. The rates normally charged for interbank loans are nearer the actual cost of funds for the bank than are loans to commercial customers. That is, the rates charged for interbank loans are gener ally lower than regular commercial loans. Prob ably the best known interbank rate is the London Interbank Offered Rate (LIBOR). This rate is the average of five London banks and is used not only as a true interbank rate, but also as the basis for rates on short term inter national loans. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

interbank market John O’Connell

A market in which the major participants are various banking units. Interbank markets in

interchangeability John O’Connell

A condition which exists when two or more items possess such functional and physical char acteristics as to be equivalent in performance and durability, and are capable of being exchanged one for the other without alteration of the items themselves, or of adjoining items, except for adjustment, and without selection for fit and performance.

206

intercultural communication

intercultural communication Jeanne McNett

This term is used to describe communication across cultural borders. It draws on the skills and is an application of m i n d f u l c o m m u n i c a t i o n . Intercultural communication involves significantly more than speaking the same lan guage. Successful communication suggests the transmission of a message whose receiver gives it a meaning so that a shared understanding is reached (Thomas and Osland, 2004). Mindful communication is a symbolic exchange in which individuals interactively negotiate shared mean ings. Competence in mindful communication rests on the attributes of a g l o b a l m i n d s e t and is a critical personal skill for the inter national manager. Competence involves heightened mindfulness, the acquisition of in depth knowledge, and the development of com munication skills. In mindful communication, knowledge of the culture of the other party is an important pre requisite in negotiating a shared meaning. The communication process is embedded in culture. It tends to proceed in a routine manner without much conscious thought unless it is mindful. Cultural values include varying communication norms that individuals use to guide their com munication behaviors. These behaviors may be misunderstood by someone who does not share the same cultural grounding. In addition to the spoken language, culturally influenced aspects of communication include tone of voice, proxemics (spatial aspects of communication), body pos ition, gestures, facial expression, and eye contact. Mindful communication can be judged by three criteria: appropriateness, effectiveness, and satisfaction. Appropriate communication matches the expectations of both sender and receiver. Effectiveness indicates that shared meaning has been achieved. Satisfaction occurs when a communicator’s identity image is affirmed rather than disconfirmed as a result of the interaction. Bibliography Adler, N. J. (2002). International Dimensions of Organiza tional Behavior, 4th edn. Cincinnati, OH: SouthWestern.

Bennett, M. (1993). Towards ethnorelativism: A developmental model of intercultural sensitivity. In R. M. Paige (ed.), Education for the Intercultural Experience. Yarmouth, ME: Intercultural Press, 21 71. Benson, P. G. (1978). Measuring cross-cultural adjustment: The problem of criteria. International Journal of Intercultural Relations, 2 (1), 21 37. Brein, D. and David, K. H. (1971). Intercultural communication and the adjustment of the sojourner. Psycho logical Bulletin, 76 (3), 215 30. Clark, H. H. and Brennan, S. E. (1991). Grounding in communication. In L. B. Resnick, J. M. Levine, and S. D. Teasley (eds.), Perspectives on Socially Shared Cog nition. Washington, DC: American Psychological Association. Gallois, C. and Callan, V. (1997). Communication and Culture: A Guide for Practice. Chichester: John Wiley. Gudykunst, W. B., Ting-Toomey, S., and Chua, E. (1988). Culture and Interpersonal Communication. Newbury Park, CA: Sage. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Taylor, S. and Osland, J. S. (2002). The impact of intercultural communication on global organizational learning. In M. Easterby-Smith and M. A. Lyles (eds.), Handbook of Organizational Learning and Knowledge. Oxford: Blackwell. Thomas, D. and Osland, J. S. (2004). Mindful communication. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Ting-Toomey, S. (1999). Communicating Across Cultures. New York: Guilford Press. Triandis, H. C., Marin, G., Lisansky, J., and Betancourt, H. (1984). Simpatia as a cultural script of Hispanics. Journal of Personality and Social Psychology, 47 (6), 1363 75.

interdependence John O’Connell

Interdependence is a relatively simple concept referring to organizations or groups relying upon the actions of each other in order to function. An import firm is reliant upon an export firm to stay in business, as well as the export firm being reliant on the import firm for the same reason. The two firms are thus interdependent. Regard less of its simplicity, it is an extremely important concept in the context of international trade. Organizations which are too dependent upon

intermerchant the operations of other organizations (suppliers, buyers, distributors, etc.) may have their very existence threatened by the demise of that other organization or a change in contract, etc. Interdependencies must be identified and dealt with by management. When situations are identified in which the dependence is too great for management, alternate sources of supply, sale, or distribution must be found. Failure to deal with interdependency situations places the organization’s continued existence in the hands of others. To most managements this is an un acceptable condition which must be remedied if at all possible.

207

interest rate John O’Connell

The amount paid for the use of capital. Interest rates can vary greatly between countries, over time and between various uses of funds. Interest rates are expressed as a percentage. Comparison of rates of return between countries must not be based solely upon the percentage rate interest; other factors should also be considered, such as security of investment principle, guarantee of return, and stability of the country’s economic system. Bibliography

Bibliography Egelhoff, W. G. (1988). Strategy and structure in multinational corporations: A revision of the Stopford and Wells Model. Strategic Management Journal, 9, 1 14. Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin. Humes, S. (1993). Managing the Multinational: Confront ing the Global Local Dilemma. Englewood Cliff, NJ: Prentice-Hall. Rosenweig, P. M. and Singh, J. V. (1991). Organizational environments and the multinational enterprise. Acad emy of Management Review, 16, 340 61.

interest arbitrage John O’Connell

A process by which one takes advantage of higher interest rates in different countries by lending or investing wherever the rates are highest. One can borrow in one country and lend in another and profit by the difference in rates of interest. At the same time, however, the investor is also taking on any additional risks associated with doing busi ness in the second country. The overall effect of interest arbitrage is to make rates of interest more equal between countries. Interest arbitrage takes place through the trading of short term funds (usually 90 days or less). Bibliography Houthakker, H. S. and Williamson, P. J. (1994). The Economics of Financial Markets. New York: Oxford University Press.

Ashegian, P. and Ebrahimi, B. (1990). International Busi ness. Philadelphia, PA: HarperCollins.

intermediation John O’Connell

Intermediation is the process of securing funds from savings or investors and in turn offering those funds to borrowers. Since the lenders are not the direct source of loanable funds they perform an ‘‘intermediary’’ or go between function. Lenders performing intermediary functions include banks, insurance companies, building societies, and savings and loan com panies. Each institution secures deposits and loans funds to others who are not necessarily the original depositors. Bibliography Agenor, P. R. (1992). Parallel Currency Markets in De veloping Markets: Theory, Evidence, and Policy Implica tions. Princeton, NJ: Princeton University Press.

intermerchant John O’Connell

Some currencies are more readily convertible than others. The so called ‘‘hard’’ currencies are regularly traded and generally pose no prob lems in the exchange process. ‘‘Soft’’ currencies, however, are often difficult to exchange. An

208

International Accounting Standards Committee

intermerchant is a person specializing in solving problems associated with hard and soft currency exchange. The intermerchant makes necessary arrangements for paying for goods sold between countries with hard currencies and those with soft currencies.

The agreement then becomes a part of each country’s obligations to the others or to the world as a whole.

International Bank for Reconstruction and Development (IBRD)

Bibliography Murray, F. and Murray, A. (1991). SRM Forum: Global Managers for Global Businesses. Ann Arbor: University of Michigan Press.

International Accounting Standards Committee (IASC) John O’Connell

One of the major administrative problems facing a multinational company is complying with a variety of accounting procedures which exist in different countries. In 1973, representatives from a group of powerful trading nations formed the International Accounting Standards Com mittee. The objective of the committee was to develop accounting standards which could be applied on an international basis. Since then, the committee has made strides towards this objective. The nations represented on the com mittee are Australia, Canada, France, Germany, Ireland, Japan, Mexico, the United Kingdom, and the United States. Associate membership is also available and numbers more than 40 countries.

John O’Connell

This was the original name given to what is now commonly referred to as the World Bank. The bank’s major goals are to foster international economic growth. Its goals are achieved by offering financing for long term development projects, mainly to developing and less de veloped countries.

International Banking Act of 1978 John O’Connell

In an attempt to regulate the impact of foreign banks, the United States adopted the Inter national Banking Act of 1978. The banking act restricted the activities of a foreign bank to a single state. The act also limits the bank to conducting either commercial banking activities or activities related to investment banking, but not both. Bibliography Sarachek, B. (1994). International Business Law: A Guide for Executives With Case Examples. Pennington, NY: Darwin Press.

international agreement John O’Connell

A country many times seeks the support of other countries in order to achieve a common goal. Goals may relate to environmental concerns, human rights questions, or any number of other topics. A stand taken by a single country is generally not as effective as the same position when endorsed by several countries. Inter national agreements are achieved when several countries become signatories to a written docu ment proclaiming a specific stand on an issue.

international banking facility (IBF) John O’Connell

If a US bank desires to accept Eurocurrency deposits and make Eurocurrency loans, it can establish an IBF. Upon proper notice to the Federal Reserve, a US bank may enter into Eurocurrency transactions. That is, it may accept deposits from or make a loan to non US residents as well as to other international banking facilities. The IBF must keep separate

international code of business ethics accounts for all Eurodollar transactions. IBF status allows a bank to compete in offshore banking activities. IBF status also allows the bank to be free of many of the US banking regulations, reserve requirements, and some taxes, but only for those transactions falling under the international banking facility activ ities.

209

convention establishing the center are bound by its decisions and the courts of those countries are instructed to act to enforce the decisions if ne cessary.

International Chamber of Commerce John O’Connell

Bibliography Bowker, R. R. (1994). International Banking: Strengthening the Framework for Supervising Inter national Banks. Chester, PA: Diane.

international business John O’Connell

International business takes place when business is carried out across national borders. Inter national business includes import and export activities, trade in services, consulting activities, and any other business related endeavors which cross a nation’s borders. International business activities have grown to be a major part of the world’s total economic picture. Changes in pol itical positioning of countries and the drive toward p r i v a t i z a t i o n of formerly govern mental operations will assure the continued growth of international business.

The International Chamber of Commerce (ICC) is an association of business persons with its home office located in Paris. The ICC was estab lished to foster the growth and development of trade throughout the world. The ICC provides international contacts for business activities; supports the expansion of free trade in goods and services; and provides a place to which people interested in international business can go for assistance. One of the most important programs sponsored by the ICC is the develop ment and dissemination of International Com merce Terms (INCOTERMS). INCOTERMS are used throughout the world to define the parties, responsibilities, and other details of the trade transaction. Virtually everyone in business has heard of FOB (free on board) or FAS (free along side) in relation to shipping goods. These are examples of INCOTERMS developed by special committees of the ICC in conjunction with governments and other interested parties. See also International Maritime Bureau

Bibliography Alkhafaji, A. F. (1990). International Management Chal lenge. Acton, MA: Copley.

international code of business ethics Laurie Pant, Jeffrey Cohen, and David Sharp International Center for the Settlement of Investment Disputes (ICSID) John O’Connell

International business transactions are not with out problems and disagreements. In order to assist in bringing disputes to an equitable end, the World Bank established the International Center for the Settlement of Investment Dis putes in 1966. The center arbitrates disputes between private parties concerning commercial ventures. Countries which are signatories to the

Can international codes of professional ethics be developed to regulate, successfully, professional behavior? Put differently, are the rules of the game the same in Boston, Berlin, and Tokyo? There is evidence that local ‘‘customs’’ may override universal principles, thus making for ethical ‘‘diversity.’’ By identifying and under standing the factors which make local cultures unique, and addressing their requirements, the potential effectiveness and acceptability of an international code might be enhanced. There is no guarantee of success in this venture: to illustrate

210

international code of business ethics

the problems, we will examine the code of con duct or guidelines used by the International Federation of Accountants (IFAC) in July 1990. On the face of it, there are two major reasons why worldwide acceptance of the current ver sion of this guideline may be problematic. First, societies tend to resist guidelines imposed from without where they are perceived as inconsistent with a society’s entrenched cultural norms. Second, as socioeconomic conditions vary dra matically from country to country, so, too, do levels of professional proficiency in the countries in which guidelines are to be implemented. While all accountants encounter ethical con flicts, those arising in the context of the high technical proficiency required of accountants in a developed country may be entirely different in kind from those encountered by accountants in developing countries. In this entry we will con centrate on highlighting the cultural issues.

Cultural influences on Ethical Conduct We will argue that culture plays an important role in relation to ethical standards. If we restrict the meaning of culture to a national or local unit of analysis, as opposed, say, to ethnic or corpor ate cultures, Hofstede’s (1980a) definition pro vides a useful framework. Culture in this sense is ‘‘the collective mental programming of the mind which distinguishes the members of one human group from another.’’ As Hofstede considered cultures, he concluded that four measures – power distance, uncertainty avoidance, poles of individualism and collectivism, and poles of masculinity and femininity – could be used to differentiate the ‘‘collective mental program ming’’ which is culture. Power distance, a construct originally identi fied by Mulder (1977), measures how a less powerful subordinate perceives the degree of inequality in power which separates him or her from a more powerful superior. Uncertainty avoidance, which indexes toler ance for uncertainty in culture, considers three indicators: rule orientation, employment stabil ity, and stress. Reluctance to break rules, even when doing so is in the interests of the company, indicates an aversion to uncertainty. Employment stability captures a collective tolerance of the risks associated with job change. (Long term

employers who hold scrupulously to rules would measure high on the uncertainty avoid ance scale.) While recognizing that stress cer tainly reflects organizational and personality variables, Hofstede attributes some part of it to culture and sees it as reflecting the level of anx iety in a society. The poles of individualism and collectivism form the third dimension of national culture. Put simply, this dimension captures the extent to which a culture values individual achievement over group cohesion. Individualist societies, such as the United States, regard achievement as personal; collective contributions to one’s suc cess tend to be discounted. In contrast, collect ivist cultures prize group well being and group achievement over individual self interest. The poles of masculinity and femininity form the final dimension of national culture. This dimension measures the extent to which a cul ture emphasizes assertive (‘‘masculine’’) rather than supportive (‘‘feminine’’) values and also captures the degree to which a culture identifies jobs as gender based. Where cultures differ, international codes of ethics, even for a relatively homogeneous profes sion such as accounting, may encounter difficul ties. Two broad difficulties suggest themselves: lack of consensus as to what constitutes accept able behavior and divergent interpretations of the code. Since cul tures embody generally held beliefs and norms of appropriate behavior in a country, they have consequences for ethical behavior. Consider bri bery. Pressure on a subordinate to cover up a supervisor’s illegal action, such as accepting bribes, might be evaluated differently by Japan ese than Americans because of cultural influences. While an American might interpret this pressure as coercion, a Japanese might willingly partici pate in a cover up for collective motives – to save face and protect the reputation of the group. Intellectual property presents another inter esting contrast. In the typically collectivist cul tures of Asia, the individual artist or writer is expected to share his or her creation. In contrast, individualist societies emphasize protecting the artist or writer by establishing copyright and patent laws.

Lack of consensus on acceptable behavior

international code of business ethics Cultural differences, in the second place, might limit the application of an international code by spawning a diversity of interpretations of the code, with correspond ing consequences for implementation. The ideal of a self regulating profession, in which members identify not with the organization by which they are employed but instead with the code of a profession, may be based on an indi vidualist value system. Several researchers have argued that individualism values prize allegiance not to a group of people, but to a set of standards. As a consequence, practitioners in an individual ist society may assume that if a professional chooses in light of the profession’s guidelines, this will produce the best long term results for that profession and for the society. But such an assumption may be antithetical to a collectivist culture.

Diversity of interpretation

An Evaluation of the IFAC Guideline The IFAC guideline identifies six principles fundamental to the accounting profession: integ rity, objectivity, professional competence and due care, confidentiality, professional behavior, and technical standards. Some of these could conflict with some cultural norms, and others

211

are geared more toward the needs of developed economies than those of less developed coun tries. Table 1 shows a matrix consisting of Hof stede’s cultural dimensions and the IFAC guideline: cells with text identify areas where cultural diversity might create problems. Power distance and the dilemmas of the faithful follower Power distance captures the extent to

which subordinates in an organization expect to be instructed by superiors, and willingly obey those instructions. In a high power distance cul ture, the international guideline’s requirements on integrity, objectivity, and confidentiality are likely to create cultural conflicts for subordin ates. Consider the first column of figure 1: a subordinate in such a culture would be likely to acquiesce to a superior’s unauthorized request for confidential information, and such acquies cence would be regarded as acceptable behavior. A subordinate would also be more likely to remain loyal to his or her supervisor out of respect for the supervisor’s position, even when the supervisor acts unethically, or even illegally. More important, such behavior on the part of the subordinate would be culturally acceptable. Individualism/collectivism and the dilemmas of per sonal loyalty The integrity principle requires

Table 1 A framework for evaluating international codes of conduct applied to IFAC’s ‘‘Guideline on Ethics’’ Consistency with cultural values Uncertainty/ Avoidance

Power distance

Individualism/ Collectivism

Integrity

Loyalty to supervisor

Objectivity

Loyalty to supervisor Willingness to follow instructions

Conflicting loyalties Compromising professional standards Value of others’ opinions Loyalty to family and friends Resolution of Loyalty to ethical conflicts professional colleagues Independence of audit

Confidentiality

Professional behavior

Masculinity/ Femininity Exaggeration of ability

Acceptability of self-promotion ‘‘Lowballing’’ and aggressive promotion of the firm Sex discrimination

212

international commodity agreement

the professional accountant to be ‘‘straightfor ward and honest in performing professional ser vices,’’ and the objectivity principle requires that ‘‘a professional accountant should be fair and not allow prejudice or bias or influence of others to override objectivity.’’ If we take ‘‘straightfor ward and honest’’ to involve a willingness on the part of individuals to be open to non members of their group, then cultures will differ markedly. As the second column of figure 1 indicates, a member of a collectivist culture would value the opinion of peers, and indeed would be unwilling to make a decision without their input. A code of conduct which forces individuals to compromise relationships with group members in favor of client confiden tiality also conflicts with collectivist cultural norms. The confidentiality principle states that a pro fessional accountant ‘‘should respect the confi dentiality acquired during the course of performing the professional services and should not use or disclose any such information without proper and specific authority.’’ If a professional discovered that his or her client was close to bankruptcy, the guideline requires that this in formation be withheld from close friends and family. However, in a collectivist culture, a fail ure to warn family and friends who were owed money would be a serious breach of collectivist norms. Uncertainty avoidance and the dilemma of being ‘‘professional’’ In the process recommended for

the solution of an ethical conflict, the guideline recommends a hierarchical approach whereby the professional is to review the conflict with his or her superior, or a higher authority if the superior is involved in the conflict problem. While this hierarchical approach might be suit able for a strong uncertainty avoidance culture, with its preference for written rules and intoler ance of deviance, a weak uncertainty avoidance culture would be more tolerant of whistleblow ing. Furthermore, a professional from a collect ivist culture would value the advice of colleagues rather than superiors. Masculinity/femininity and the question of profes sional ‘‘presentation’’ The masculinity dimen

sion has important implications for the accounting profession, in which Western norms

of professional conduct include restrictions on advertising and promotion. A masculine culture might be more tolerant of exaggerated self pro motion, and aggressive bidding for new clients. The norms of a masculine culture which in clude acceptance of gender based work role dif ferences in a country such as Japan (which has the highest masculinity score) would be inter preted as sex discrimination by members of a more feminist culture (such as Sweden).

Toward internationally Acceptable Ethical Guidelines As our review of the IFAC guidelines suggests, ‘‘international’’ professional guidelines may turn out to be ethnocentric, reflecting the ethical and cultural standards of the developed countries whose organizations are most influential in writing them. They therefore risk failing to address ethical dilemmas found primarily in developing countries. Truly international guide lines must be sensitive to the need for guidance of the profession in its normal practice in all countries in which the code will operate. Bibliography Hofstede, G. (1980a). Culture’s Consequences. Beverly Hills, CA: Sage. Hofstede, G. (1980b). Motivation, leadership, and organization: Do American theories apply abroad? Organiza tional Dynamics, summer, 42 63. Mulder, M. (1977). The Daily Power Game. Leiden: Martinus Nijhoff.

international commodity agreement (ICA) John O’Connell

A number of developing countries have entered into agreements with one another in order to control the supply, and therefore the price, of certain commodities. The agreements are usu ally entered into by countries which have little else to trade except the protected commodity. Examples of commodities currently subject to such agreements are coconuts, rubber, coffee, sugar, and petroleum. There has been some dif ficulty in the past with policing some of the agreements, either because all countries which produce a particular commodity are not signers

International Congress of Accountants of the agreement or because the pursuit of self interest of one nation has led it to breach the agreement. See also international commodity group; Inter national Commodity Organization

213

of a particular commodity (rubber, coffee, etc.), that group may become recognized by the United Nations. The United Nations refers to such groups as International Commodity Organiza tions (ICOs). See also international commodity agreement; inter national commodity group

Bibliography Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

international companies John O’Connell international commodity group (ICG) John O’Connell

Generally thought of as a group of nations coming together to establish control over a particular commodity, an ICG could also refer to a group of economists interested in supplying the world with statistical reports related to a particular com modity. Probably the most recognizable of all commodity groups is the Organization of Petrol eum Exporting Countries (OPEC), which has been very active in controlling the price and dis tribution of oil in international markets. International commodity groups often admin ister commodity agreements for members. When this occurs the IGC becomes eligible for financial support from the United Nations and is recognized as an International Commodity Or ganization (ICO). See also cartel; international commodity agree ment; International Commodity Organization; Organization of Petroleum Exporting Countries Bibliography Yannopoulos, G. N. (1988). Customs Unions and Trade Conflicts: The Second Enlargement of the European Com munity. London: Routledge.

International Commodity Organization (ICO) John O’Connell

When a group of countries enters into formal written agreements to stabilize prices and supply

An international company is one which does business across national borders. Inter national companies are of all sizes, types, and interests, but have a common stake in inter national activity. Companies enter into inter national business at a number of different levels and also reach their current status through vary ing methods. See also evolution of global organization

International Congress of Accountants John O’Connell

One of the problems associated with operating an international business is that accounting standards and methods vary from country to country. It becomes quite difficult to compare operational results and activity when the ac counting methods used to chart such activity differ. The International Congress of Account ants is an association made up of accountants from throughout the world. Its purpose is to study methods of standardizing accounting to allow easy application and comparison across international borders. The congress meets every five years to discuss ongoing issues as well as new ideas or problems. Bibliography Gray, D. (1993). Foreign Currency Translation by United States Multinational Corporations: Towards a Theory of Accounting Standard Selection. New York: Garland.

214

International Court of Justice

International Court of Justice (ICJ) John O’Connell

The ICJ is probably better known as the World Court. The court is actually the judicial branch of the United Nations. The purpose of the court is to hear and rule upon disputes between nations. Although members of the United Nations agree to abide by decisions of the court, this has not always been the case in the past. The court may offer decisions but must seek the backing of the United Nations if com pliance with its decisions is not achieved. The court is based in the Hague, the Nether lands, and has 15 sitting justices. The court presides over United Nations’ Charter issues, breaching of international treaties or agree ments, or any other question brought to its at tention by a member of the United Nations.

Thus, money for development is hard to come by through normal channels. In 1960 the Inter national Bank for Reconstruction and Develop ment (IBRD) established the IDA to provide funding (at subsidized rates) to the poorest nations to facilitate economic development. The IDA’s efforts expedite the development of countries, thereby making them eligible for other types of assistance with the aim of, eventu ally, making them financially self supporting. Bibliography Bowker, R. R. (1988). Development Aid: A Guide to National and International Agencies. Worburn, ME: Butterworth-Heinemann.

international division John O’Connell

international debt rating John O’Connell

The success of a financial institution or other organization with high capital needs is closely tied to its ability to secure funds and the price paid for those funds. Banks and other large lenders and borrowers of capital are judged by debt rating services as to their credit worthiness. A low debt rating results in funds being difficult to obtain, or obtained only at a high cost. An organization with a good debt rating will nor mally find funds readily available at favorable rates. Bibliography Johnson, H. (1993). New Global Banker: What Every US Bank Must Know to Compete Internationally. Hinsdale, IL: Probus.

One of the ways of carrying out international operations is to establish a separate division in the company dedicated to international business activity. International divisions are normally only included in larger organizations where international activity is sufficient to warrant the time and expense of establishing such an entity. It is important to recognize the implications of establishing an international division. Close coordination between this division and all other divisions of the company is extremely important. It must be remembered that if the only responsi bility for international activity is held by a par ticular division, misunderstandings about the overall role in the organization of the division and its personnel are common. Clear delineation of responsibilities and communications channels must be established if an international division is to be a successful part of the organization. See also evolution of global organization

International Development Association (IDA) John O’Connell

Many of the developing nations of the world do not have the ability to meet the financial or other requirements for loans through most programs of the World Bank or other fund providers.

International Finance Corporation (IFC) John O’Connell

The International Finance Corporation was es tablished in 1956 by the World Bank. The pur pose of the IFC is to provide funding for private

International Labor Organization investments in member countries. By concen trating on private investments and enterprises instead of government sponsored and/or guar anteed projects, the IFC hopes to develop pri vate interests separate from those of the government. Without the IFC, capital for pri vate investments may be very difficult to secure in many countries.

international human resources management (IHRM)

215

cisions of affiliates: US forms in Mexico. Journal of International Business Studies, 20 (3), 465 87. Punnett, B. J. (1989). International human resource management. In A. Rugman (ed.), International Business in Canada. Toronto: Prentice-Hall. Reynolds, C. (1986). Compensation of overseas personnel. In Handbook of Human Resource Administration, 2nd edn. New York: McGraw-Hill. Schuler, R. S. (1993). World class HR departments: Six crucial issues. Singapore Accounting and Business Review, inaugural issue, September. Tung, R. L. (1984). Strategic management of human resources in the multinational enterprise. In Human Resource Management. New York: John Wiley and Sons.

John O’Connell

International human resources management in volves managing the factors dealing with persons employed in various ways by an organization. These factors include planning for human re source needs; staffing per the plans; training and development, if necessary; developing compen sation systems; and evaluating the performance of employees. These factors are the same as those for domestic operations except IHRM must also take into consideration cultural variables be tween employees’ countries of origin, language differences, religious preferences, and myriad other factors which differ from country to coun try. IHRM involves keeping a balance between all employees, thereby allowing employee trans fer from country to country. It also allows dif ferent management styles to coexist and value differences to be recognized and accommodated. Bibliography Acuff, F. (1984). International and domestic human resource functions. Innovations in International Compen sation, September, 3 5. Brewster, C. and Tyson, S. (1991). International Compari sons in International Human Resource Management. London: Pitman. Dowling, P. J. and Schuler, R. S. (1990). International Dimensions of Human Resource Management. Boston, MA: PWS-Kent. Edstron, A. and Lorange, P. (1984). Matching strategy and human resources in multinational corporations. Journal of International Business Studies, 15 (2), 125 37. Ishidi, H. (1986). Transferability of Japanese human resource management abroad. Human Resource Manage ment, 259 (1), 103 20. Martinez, Z. L. and Ricks, D. A. (1989). Multinational parent companies’ influence over human resource de-

international integration John O’Connell

This is the process of molding a company’s various international activities into a single, uni fied organization. The integration process cen tralizes management decisions, thereby reducing the autonomy of foreign subsidiaries or affiliates. The process of international integration allows management to view the organization as truly a single entity with focused goals and objectives instead of a group of independent operations which may or may not have the best interests of the parent company in mind. International inte gration is generally a precursor to the develop ment of a true global organization. Bibliography Peak, M. H. (1991). Developing an international style of management. Management Review, 80, 32 5.

International Labor Organization (ILO) John O’Connell

The International Labor Organization was founded by the League of Nations in 1919 and integrated into the United Nations in 1946. The ILO membership is made up of representatives from labor, management, and government. The ILO’s purpose is to establish minimum labor standards as well as provide assistance to gov ernments regarding various issues affecting labor, management, and government.

216

International Law Commission

International Law Commission John O’Connell

A United Nations Commission composed of a group of experts involved in the ongoing devel opment of international law and its codification. The purpose of the commission is to make inter national law a more effective means of imple menting the principles set forth by the United Nations. The commission consists of 34 members serving five year terms. Bibliography Weiss, E. B. (1995). Compliance with International Law. Irvington, NY: Transnational Publishers.

international location David Bennett

The international location decision is one which is concerned with the location of facilities at the highest level. It is a decision that needs to be made by any organization involved in inter national operations. Such organizations can in clude subsidiaries of multinational enterprises, international joint ventures, licensees, or fran chising operations. They may be involved in a range of different activities such as local assem bly, offshore manufacturing, or the complete production of goods for global markets. Inter national organizations are also increasingly be coming involved in the delivery of services, particularly since the barriers preventing them being transferred across national boundaries are progressively being removed. In many respects the international location decision is similar to any decision regarding the location of facilities for a domestic organization. Tangible factors can be taken into account, such as the cost of land, cost of buildings, labor costs, transport costs, etc. Similarly, there are intan gible factors to be considered, such as environ mental constraints and ease of communications. Perhaps the main thing that distinguishes an international location decision from a domestic one is its strategic dimension. Many organiza tions choose a particular international location with a view to exploiting the long term possibil ities offered and not simply to meet short term

objectives. Therefore, many of the established techniques for evaluating alternative locations or determining an ‘‘optimum’’ location are only of partial relevance. The actual method used to determine the location of an international operation will tend to vary according to its type. Local assembly normally takes place where tariff barriers exist on imported goods, or the assembly costs in the parent company are high, thereby making the products too expensive in the local market. The solution is therefore to use local labor to assemble CKD (complete knock down) or SKD (semi knock down) kits, thereby avoiding import tariffs or taking advantage of lower local labor costs. Location decisions in this case need to consider the logistics of supplying parts and the availability of suitable low cost labor. Offshore manufacturing is where products are made in a foreign country to the design of, and often using parts supplied by, an original equip ment manufacturer (or OEM), then re exported to the country of the OEM or to third countries. Therefore, it is often restricted to assembly op erations with the purpose of exploiting one or more of the local advantages such as reduced labor costs, specialized skills, or lower over heads. Where there is a tariff on imported ma terials this is often overcome by locating in an e x p o r t p r o c e s s i n g z o n e , which is a tariff free area for export oriented companies. Loca tion decisions in such situations are influenced by the local costs of production, the incentive and taxation regime, and the ease with which materials, parts, and finished goods can be trans ported into and out of the country in question. Complete production of goods for the global market is the approach to international oper ations commonly encountered in multinational corporations. It is often chosen because it offers the opportunity of achieving good economies of scale, since production for every market takes place at just one single location and is fully inte grated. Here, the location decision involves find ing the best place to manufacture the product, taking into account a wide range of factors such as design capability, engineering competence, and availability of low cost productive resources, as well as the need to minimize transport costs. This last factor is not too easy to determine because the materials, parts, and finished goods

international management can come from, and go to, an enormous number of other countries. The distribution of finished goods can also present difficulties because of the ever changing nature of the market in terms of customer location and product mix. An alternative and overlapping approach to international location is to consider the configur ation of a company’s network at an international level. Four configuration strategies have been identified. 1 Home country configuration. The simplest strategy for an organization trading around the world is not to locate plants outside its home country and to export its products to foreign markets. The reason for this might be, for example, that the technology employed in the product is so novel that it needs to be manufactured close to its research and development headquarters. Alterna tively, the home location of the company might be part of the attraction of a product (e.g., high fashion garments from Paris). 2 Regional configuration. An alternative strat egy is to divide the company’s international markets into a small number of regions and make each region as self contained as pos sible. So, for example, the Pacific region’s market would be served by an operation or operations in that region. Companies might adopt this strategy because their customers demand speedy delivery and prompt after sales service. If products or services were created outside the region it might be diffi cult to provide such a level of service without regional warehouses and service centers. 3 Global coordinated configuration. The oppos ite of the regional strategy is the global coord inated configuration. Here, each plant concentrates on a narrow set of activities and products and then distributes its products to markets around the world. So, for instance, a company might take advantage of low labor costs in one region and the technical support infrastructure in another in order to seek to exploit the particular advantages of each site or region. However, by doing so it does place a coordination requirement on the headquar ters of the company. All product allocations, operations capacities, and movement of prod ucts are planned centrally.

4

217

Combined regional and global co ordinated con figuration. The regional strategy has the ad vantage of organizational simplicity and clarity,theglobal coordinatedstrategy ofwell exploited regional advantages. Firms often attempt to seek the advantages of both by adopting a compromise between them. Under such a strategy, regions might be reasonably autonomous, but certain products could still be moved between regions to take advan tage of particular regional circumstances.

Bibliography Dicken, P. (1992). Global Shift. London: Paul Chapman. DuBois, F. C. and Oliff, M. D. (1992). International manufacturing configuration and competitive priorities. In C. A. Voss (ed.), Manufacturing Strategy: Pro cess and Content. London: Chapman and Hall.

international management John O’Connell

This is the process of planning, staffing, organ izing, and controlling international business ac tivities. International management thinking is normally not a part of domestic business oper ations. When an organization first ventures into international trade activities, management is not prepared to face its challenges. Consultants are often used to fill in the gaps in knowledge and approach to multinational business activities. As the organization grows in terms of its reliance on international business for market growth and profits, managers begin to more fully appreciate other cultures and economic systems. Language skills and cultural awareness increase. More growth results in managers striving to standard ize their products for worldwide distribution. The world begins to appear as a single market and management must be prepared to deal with all aspects of that market. Bibliography Austin, J. E. (1990). Managing in Developing Countries: Strategic Analysis and Operating Techniques. New York: Free Press. Beamish, P., Killing, J. P., and Lecraw, D. J. (1991). International Management Text and Cases. Homewood, IL: Irwin.

218

international manager (evaluation)

Daniels, J. D. and Radebaugh, L. H. (1993). International Dimensions of Contemporary Business. Boston, MA: PWS-Kent Publishing. Davidson, W. H. and de la Torre, J. (1989). Managing the Global Corporation. New York: McGraw-Hill. Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Hodgetts, R. H. and Luthans, F. (1994). International Management, 2nd edn. New York: McGraw-Hill. Lane, H. W. and Distefano, J. J. (1988). International Management Behavior. Scarborough: Nelson Canada. Lessem, R. (1989). Global Management Principles. London: Prentice-Hall. Mahini, A. (1988). Making Decisions in Multinational Cor porations: Managing Relations with Sovereign Govern ments. New York: John Wiley and Sons. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell. Punnett, B. J. and Ricks, D. (1992). International Business. Boston, MA: PWS-Kent Publishing.

time activities. The organization develops and implements shipping safety standards and acts as the enforcement bureau for the international Rules of Navigation. Through its research and training activities, the IMO seeks to implement changes to make the entire process of maritime transportation safer. A relatively new, but major, responsibility of the organization is to develop programs to educate people and governments about fighting pollution associated with marine transportation. The organization began in 1948 and continues today as a major force affecting marine transportation. See also International Maritime Satellite Organ ization

International Maritime Satellite Organization (INMARSAT) John O’Connell

international manager (evaluation)

see p e r f o r m a n c e e v a l u a t i o n

International Maritime Bureau (IMB) John O’Connell

The International Chamber of Commerce (ICC) established the International Maritime Bureau to identify and inform the proper authorities of ocean transit related crime and fraud. The bureau operates under the authority of a multilateral treaty entered into by the largest and most eco nomically developed nations of the world. These nations stand to lose the most from piracy, fraud, and other crimes associated with the international transportation of goods over the seas. Although the IMB has not stopped all of the criminal activ ity associated with maritime trade, its existence does act as a deterrent for such activity.

The advent of satellite tracking capabilities has extended the ability to keep track of what is going on around the world. One area of great importance is that of transport by ship. Prior to satellite technology it was very difficult to track and communicate with ships throughout the world. In time of distress a ship might not be able to be located. INMARSAT began in 1976 to monitor shipping movements and establish com munications through the use of satellites. This allowed for quicker response in time of distress as well as communication whenever necessary. In the 1980s INMARSAT was extended to cover aircraft movement and land based trans portation. It is now possible to track even a single truck on the road. The use of INMARSAT for emergencies and for logistical applications is just now being fully realized. INMARSAT’s base is in London.

international marketing International Maritime Organization (IMO) John O’Connell

This agency of the United Nations has responsi bility for promoting safety associated with mari

John O’Connell

International marketing may refer to two situ ations: (1) the activities of organizations to de termine and take advantage of opportunities to

international patenting sell goods or services internationally; this type of marketing may involve both large and small companies; (2) the standardization of products by an organization which seeks to take advantage of the large scale production and distribution of those products throughout the world. This type of marketing is normally carried out by the larg est of organizations. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Buzzell, R. D., Quelch, J. A., and Bartlett, C. A. (1995). Global Marketing Management: Cases and Readings. Reading, MA: Addison-Wesley. Kaynak, E. and Ghauri, P. N. (eds.) (1994). Euromarket ing: Effective Strategies for International Trade and Export. Binghamton, NY: Haworth Press. Pradeep, A. R. and Preble, J. F. (1987). Standardization of marketing strategy by multinationals. International Marketing Review, autumn, 18 28. Ricks, D. A. (1983). Big Business Blunders: Mistakes in Multinational Marketing. Homewood, IL: Dow JonesIrwin. Root, E. R. (1994). Entry Strategies for International Markets. New York: Lexington Books. Toyne, B. and Walters, G. P. (1993). Global Marketing Management. Boston, MA: Allyn and Bacon. Tse, D. K., Lee, K., Vertinsky, I., and Wehrung, D. A. (1988). Does culture matter? A cross-cultural study of executive choice, decisiveness, and risk adjustments in international marketing. Journal of Marketing, 52 (4), 81 95. Turnbull, P. W. (1987). Interaction and international marketing: An investment process. International Marketing Review, winter, 7 19.

International Monetary Fund (IMF) John O’Connell

The IMF began operations in 1947 as a result of agreements reached at the Bretton Woods Con ference. Key operations of the IMF can be placed into two categories: (1) developing standardized rules for the financing of international trade; and (2) providing funds for nations with temporary balance of payments difficulties. The IMF undertakes a number of different loan activities depending upon the type and extent of need of any particular country. The IMF sets forth the

219

criteria which must be met in order to qualify for a loan as well as the terms of the loan itself. From the time of its first activities in 1947, the IMF expanded its operations to include funding for nations suffering temporary declines in export revenues, the establishment of what are referred to as Special Drawing Rights (SDRs), and the development of standards which country borrowers must abide by in order to maintain access to IMF funds and other services. The IMF has over 150 country members. In recent years the IMF has focused on lending to less developed countries (LDCs). See also International Bank for Reconstruction and Development Bibliography Humphreys, N. K. (1993). Historical Dictionary of the International Monetary Fund. Lanham, MD: Scarecrow Press. Salda, A. C. (1992). The International Monetary Fund: A Selected Bibliography. New Brunswick, NJ: Transaction Publishers. Stiles, K. (1991). Negotiating Debt: The IMF Lending Process. Boulder, CO: Westview Press.

International Organizations Network (ION) Jeanne McNett

The ION is a loosely coupled global network of international management scholars and profes sionals with a wide range of backgrounds. It was formed with a mission to increase the quality and impact of research on people and their effective ness in international organizations. Bibliography Lane, H. W., Maznevski, M., Mendenhall, M., and McNett, J. (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

international patenting John O’Connell

One of the most troublesome problems associ ated with international distribution of products

220

international planning

is protecting the design, process, or other i n t e l l e c t u a l p r o p e r t y rights associated with the product. Unless a country offers protec tion against the theft of intellectual property rights, the maker of a product is in danger of having the product copied and sold by locals of that nation. In 1970 the World Intellectual Prop erty Organization (WIPO) adopted the Patent Cooperation Treaty (PCT) to assist in protecting property rights of inventors. The PCT has been signed by approximately 50 countries and at tempts to provide patent protection in all member countries through a single application (instead of the 50 applications formerly required). It is important for patent holders to determine the extent of any particular country’s adherence to patent agreements. There have been times in the past when a country has agreed to adhere to safeguarding intellectual and other property rights, but has failed to carry out that agreement. Bibliography Stewart, G. R. (1994). International Trade and Intellectual Property: The Search for a Balanced System. Boulder, CO: Westview Press.

international planning John O’Connell

Planning is the process of determining the steps to achieve specific goals and objectives. In the international arena the planning process in cludes reviewing the various factors normally associated with business functions (sources of labor, materials, financing, etc.), as well as add itional factors associated with differences in cul ture, monetary systems, language, and legal systems. The planning process includes an evaluation of an organization’s strong and weak points and the identification of core competen cies from which to build a strong organization. One of the most important aspects of inter national planning is the identification of possible threats to the viability of the organization. Such threats are normally associated with foreign gov ernments, competitors, or cultural differences which may overwhelm an otherwise strong organization.

Bibliography Alkhafaji, A. F. (1995). Competitive Global Management. Delray Beach, FL: St. Lucia Press. Bartlett, C. A. and Ghoshal, S. (1992). Transnational Management, 2nd edn. Chicago: Irwin. Beamish, P. W., Killing, J. P., Lecraw, D., and Morrison, A. J. (1994). International Management: Text and Cases, 2nd edn. Burr Ridge, IL: Irwin. Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Mead, R. (1994). International Management: Cross Cul tural Dimensions. Cambridge, MA: Blackwell. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

international product life cycle John O’Connell

This theory (originating in the mid 1960s) at tempts to describe the evolution of products through various stages: (1) local sales in the country in which the product was first pro duced; (2) exporting the goods; (3) production in a country which formerly imported the goods; and (4) becoming an import to the country in which the production process for the goods was originally developed. Through the cycle the ori ginal producing country eventually becomes an importer of the goods. When an organization develops the technol ogy to successfully produce a quality product (which is in demand) at low cost, that product will secure a local market relatively quickly. Take, for example, color televisions. When color televisions first came on the market, local companies which had the technology produced and sold most of the TV sets. As more and more sets were sold, more companies entered the market to produce and sell goods. TVs were exported as the local demand was met. As exports grew, the demands of high quantity pro duction brought about standardization of prod uct to take advantage of economies of scale. As overseas sales prospered, it became evident that if the costs of transportation, tariffs, etc. could be saved, lower costs and competitive ad vantage would accrue to the company. Overseas production units are then established to service the foreign markets. More and more of domestic product is transferred to foreign factories as it

International Standards Organization 9000–9004, 14000 becomes evident that labor and materials costs are also less. As more production takes place overseas, competition develops in foreign coun tries to meet their own demand. Eventually, production in developing countries supplants the production of the originator of the color television. Less costly production may eventu ally lead the original innovative country (the developer of the color TV) to become an im porter of the item to meet its own demand. In the advanced industrialized nations this has oc curred with automobile production, textiles, computers, and other products as well. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Davidson, W. H. and de la Torre, J. (1989). Managing the Global Corporation. New York: McGraw-Hill. Root, E. R. (1994). Entry Strategies for International Markets. New York: Lexington Books. Toyne, B. and Walters, G. P. (1993). Global Marketing Management. Boston, MA: Allyn and Bacon.

international product standards

see i n t e r n a t i o n a l s t a n d a r d s o r g a n ization

international selection John O’Connell

This is the process used to determine which employees will be considered for overseas as signments. The factors associated with inter national selection have both similarities to and differences from the selection process for home country (domestic) employment. Both types of selection include basic qualifications for work competency (work skills, technical knowledge, etc.), work ethic (absenteeism rate, etc.), and general managerial skills. The e x p a t r i a t e , however, must have a number of additional qual ities in order to be successful. These qualities normally include among other factors: flexibility in thought and action, ability to listen, empathy, acceptance of change, tolerance of cultural dif ference, and good language skills.

221

One of the major problems with expatriate selection is that having a different selection process for local and international positions may run afoul of laws against discrimination in some countries. For example, it is difficult for a person in a country which provides equal rights to men and women to accept that in other countries women may not be able to obtain driver’s licen ses, cannot go out unescorted, or a number of other things which would be blatant discrimin ation in their own countries. Is it justifiable under these conditions to avoid hiring women for jobs in such a country? A difficult question and one which must be dealt with considering both the laws against discrimination in various countries and practical considerations of getting a job done. Bibliography Brown, R. (1987). How to choose the best expatriates. Personnel Management, June, 67. Harvey, M. (1985). The executive family: An overlooked variable in international assignments. Journal of Inter national Business Studies, Columbia Journal of World Business, 785 800. Heller, J. E. (1980). Criteria for selecting an international manager. Personnel, May June, 47 55. Martinez, Z. L. and Ricks, D. A. (1989). Multinational parent companies’ influence over human resource decisions of affiliates: US forms in Mexico. Journal of International Business Studies, 20 (3), 465 87. Punnett, B. J., Crocker, O., and Stevens, M. A. (1992). The challenge for women expatriates and their spouses: Some empirical evidence. International Journal of Human Resource Management, 3 (3), 585 92. Tung, R. L. (1984). Strategic management of human resources in the multinational enterprise. In Human Resource Management. New York: John Wiley and Sons. Zeira, Y. and Banai, M. (1985). Selection of expatriate managers in MNCs: The host environment point of view. International Studies of Management and Organ ization, 15 (1), 33 51.

International Standards Organization 9000 9004, 14000 John O’Connell

ISO 9000 is the general name for the quality standard accepted throughout the e u r o p e a n u n i o n and ISO 14000 is the set of international environmental standards. ISO is a series of

222

international trade administration

documents on quality assurance published by the Geneva based International Standards Or ganization. The five documents outline stand ards for developing Total Quality Management and a Quality Improvement Process. 9000 con sists of guidelines for the selection and use of quality systems contained in 9001–9003. 9001 outlines a model for quality assurance in design, development, production, installation, and ser vicing. 9002 outlines a model for quality assur ance in production and installation. 9003 outlines a model for quality assurance for final inspection and testing. 9004 is not a standard but contains guidelines for quality management and quality system elements.

With a local union, only local production or transit are normally affected by a strike or other labor related problem. With an international union, however, the impact may be much broader geographically.

Internet Advertising Bureau (IAB) John O’Connell

An association of companies that advertise on the Internet. Key activities include establishing terminology and standards for measuring adver tising, conducting research relevant to electronic commerce and advertising, and addressing in dustry issues such as privacy and taxation.

international trade administration

see u n i t e d s t a t e s i n t e r n a t i o n a l t r a d e administration

interstitial pages John O’Connell

International Trade Commission (ITC) John O’Connell

The ITC, along with several other government departments and commissions, oversees inter national trade between the US and the rest of the world. The International Trade Commission is a United States government agency which provides advice, statistics on trade, and infor mation reports to the president and the Congress of the United States.

A form of advertisement on the Web that appears between two Web pages that the user requests. Thus, when a user elects to enter or exit a website, a page appears with its advertise ment, in place of the requested page. The user then needs to select from that page to receive the page requested. This is a form of interruption advertising, but this form of Web advertising breaks information design rules, as the user has a certain set of expectations when making the page selection, and the interstitial page does not match the expectation.

intranet international union

John O’Connell John O’Connell

A labor union with membership which spans international boundaries. Probably, the most powerful of the international unions with respect to international trade is the International Long shoremen’s and Warehousemen’s Union. Inter national unions may be able to provide support for trade activities through their impact in many different countries. On the other hand, they may also be problematic, for exactly the same reason.

A network that belongs to an organization and is designed to be accessible only by the organiza tion’s members, employees, or others with au thorization. An intranet’s website looks and acts just like other websites, but has a firewall sur rounding it to fend off unauthorized users. Intranets are used to share information. Secure intranets are much less expensive to build and manage than private, proprietary standard networks.

investment guarantee program intrusion detection John O’Connell

A security management system for computers and networks. An intrusion detector system (IDS) gathers and analyzes information from various areas within a computer or a network to identify possible security breaches, which in clude both intrusions (attacks from outside the organization) and misuse (attacks from within the organization).

223

must be weighed against the possible inventory financing savings during normal operations. Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley. Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill. Steudel, H. J. (1992). Manufacturing in the Nineties: How to Become a Mean, Lean, World Class Competitor. New York: Van Nostrand Reinhold.

inventory management John O’Connell

Many organizations rely upon a supply of raw materials or products to complete their daily tasks. Manufacturers rely upon materials or sub products, food processors rely upon a steady supply of agricultural products, retailers and wholesalers rely upon finished products to dis tribute. Businesses may invest large amounts of money to keep stocks of needed materials or products readily available. Inventory levels must be carefully managed or problems could occur. If inventory levels are higher than necessary an organization ties up funds which may be better used elsewhere. High inventory levels also run the risk of becoming outdated or unsuitable for use. If too little inventory is kept, an organization runs the risk of being unable to fill customer demand, thus paving the way for competition to enter the market. A great deal of skill is neces sary to plan for the correct balance between inventory, customer demand, and production needs. A Japanese system of inventory control has become popular in some organizations. The system is referred to as j u s t i n t i m e inven torying. Although the concept of having just enough inventory to meet current needs makes sense from an efficiency point of view, there are also some potential problems associated with just in time measures. For example, what if an organization’s supplier of goods goes out of busi ness or suffers a loss, forcing a shutdown? Just in time systems may result in a shutdown of multiple businesses which are dependent upon one another for supplies. This potential problem

investment banking John O’Connell

Investment bankers perform three important functions for organizations: (1) They purchase new issues of securities from the issuing com pany in hopes of reselling them at a profit. This is referred to as underwriting an issue. (2) They act as an agent of the issuing company in selling its securities. A commission is generally received from sales. (3) They offer management advice with regard to securities issued by a company. Investment bankers offer the above three ser vices to private organizations and governmental units, both domestically and internationally. Bibliography Bendaavid, D. and Rosenbloom, A. (eds.) (1990). The Handbook of International Mergers and Acquisitions. Englewood Cliffs, NJ: Prentice-Hall. Logue, D. E. (1995). The WG&L Handbook of Inter national Finance. Cincinnati, OH: South-Western.

investment barriers

see b a r r i e r s

investment guarantee program John O’Connell

An investment guarantee program offers protec tion against some of the risks associated with international operations. Investment guarantee

224

investment incentives

programs seek to provide incentives for local investors to invest overseas. Examples of guarantee programs include insurance for the credit risk (failure or inability of buyers to pay for goods after delivery) and for p o l i t i c a l r i s k (expropriation, inconvertibility of cur rency, etc.). Programs such as these reduce the overall risk for an exporter, thereby providing incentive to enter foreign trade.

tion of its proceeds to another party. For example, this type of letter may be used to guar antee payment to an exporter’s suppliers or for anyone else’s benefit as determined by the ex porter. The irrevocable nature of the letter means that the details of the letter cannot be changed without the consent of all parties to the letter of credit.

Islamic Development Bank (ISDB) investment incentives

John O’Connell John O’Connell

Investment incentives are offers which are intended to lure prospective investors to place their money in a particular country or in a par ticular city or region. Incentives often include tax holidays (reduction or elimination of prop erty taxes for a stated period of time), sharing of development costs (plant sites, roads, communi cations systems needed for operations, etc.), low interest financing, and changes in regulations to allow certain types of operations. Incentives are offered in return for a foreign investor building a plant or increasing the size of existing facilities. Capital investments are normally long term and give benefit to local economies for years to come.

One of the products of the 1973 Islamic Conference was the establishment of the Islamic Development Bank. Unlike most banks in the world, the ISDB’s financing activities are based upon the principles of Islam. Thus, the activities of the bank are limited to Arab member countries and to investment projects which are considered worthwhile under takings under Islamic law. Other than being governed by the principles of Islam, the bank is much like any other development institution. It provides loans for economic development spon sored by government or private sectors of member nations. Bibliography

irrevocable letter of credit John O’Connell

An irrevocable letter of credit cannot be with drawn without the consent of all parties. Parties to a l e t t e r o f c r e d i t include the importer, the exporter, and the importer’s and exporter’s banks. Payment of the exporter is more certain when using an irrevocable letter of credit. See also revocable letter of credit

irrevocable transferable letter of credit John O’Connell

The transferable nature of this type of l e t t e r o f c r e d i t allows an exporter to convey a por

Ludlow, N. H. (1988). A Practical Guide to the Develop ment Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

ISO 9000 John O’Connell

In 1987 the International Standards Organiza tion (ISO) introduced a number of product and service quality standards. The intent of the ISO 9000 standards (known as EN 29,000 in Europe) was to entice firms to make quality their highest priority. The ISO 9000 standards set forth a series of requirements re lated to product research, development and testing, purchasing, installation and inspection, employee training, and the institution of a quality management system to continually

ITC monitor the remainder of a company’s operations. ISO 9000 makes provision for companies to become certified as complying with its procedures. A company that qualifies is normally viewed as above average by buyers and sellers alike. Thus, certification is a good image builder as well as a commitment to quality production and service.

225

issuing bank John O’Connell

In relation to international trade, this is a bank that prepares and issues a l e t t e r o f c r e d i t or a d o c u m e n t a r y d r a f t for a client. The bank is referred to as the issuing bank.

Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley.

ITC

see i n t e r n a t i o n a l t r a d e c o m m i s s i o n

J Jamaica Agreement ( Jamaica Accord) John O’Connell

After years of discussion, the international com munity entered into one of the most important monetary agreements in history. In 1976 the Jamaica Agreement eliminated pegging of the price of gold to the US dollar (then valued at $32 per ounce) and accepted the concept of a managed float.

ning aground. One of the actions which may be necessary is to jettison cargo or equipment. Jettisoning means to purposefully throw goods overboard in order to save the venture. For example, if a ship is taking on water and begins to list, the captain may elect to jettison deck cargo in order to right the ship. The decision to jettison is entirely up to the master of the ship. Cargo jettisoned in order to save the venture is subject to g e n e r a l a v e r a g e . Briefly, general average means that all interests in the venture share proportionately in compensating the owners of any jettisoned cargo.

Japan Sea Basin (economic cooperation zone) John O’Connell

The Japan Sea Basin economic cooperation zone could develop into one of the major trading blocs in the world. The seeds for the trade zone came from officials of the Japanese Ministry of International Trade and Industry with the help of university theorists. The zone would have included China, Japan, North Korea, South Korea, and the former USSR. Doubts exist as to its viability because of recent problems between North and South Korea and the demise of the USSR. The idea, however, still has a good deal of support. If political problems could be overcome, the trading zone would be a formid able competitor to the other trading blocs of the world.

jettison John O’Connell

There are times when a ship captain must take action to save a vessel from sinking or run

joint venture John O’Connell

An agreement by companies to share a business venture. This is a very common method of entering a foreign market because it allows firms to share their strengths (the host com pany’s knowledge of the local market and cul tural differences; the foreign company’s products, processes, or financial strength) in the production and marketing of products or services. Joint ventures may be formally established through the formation of a third organization (owned by the joint venture parties) or infor mally by means of a contractual arrangement specifying the responsibilities of each party. As more countries reduce b a r r i e r s to foreign ownership of domestic businesses, more and more foreign companies are opting for equity positions of higher and higher percentages in domestic firms. Although equity positions are actually a form of joint venture, recent activity

just in time suggests that most companies are moving toward full ownership or solid control of foreign oper ations. See also market entry strategies Bibliography Beamish, P. W. (1985). The characteristics of joint ventures in developed and developing countries. Columbia Journal of World Business, 20. Bubant, J. (1992). Joint Ventures in East Asia: Legal Issues. Norwell, ME: Kluwer Academic Publishers. Butterworth Legal Publishers (1993). Joint Ventures with International Partners: Analysis and Forms. Salem, NH: Butterworth Legal Publishers. Contractor, F. J. (1986). Strategies for structuring joint ventures: A negotiations planning paradigm. Columbia Journal of World Business, summer, 30 9. Geringer, J. M. (1991). Strategic determinants of partner selection criteria in international joint ventures. Journal of International Business Studies, 22 (1), 41 62. Shan, W. (1991). Environment risks and joint venture sharing arrangements. Journal of International Business Studies, 22 (4), 555 78.

227

just in time John O’Connell

An inventory system which keeps as little inven tory in stock as possible. A just in time system continuously orders small amounts of needed raw materials or products to coincide with their use in the sales or production function of a business. This allows a business to operate more efficiently. Just in time inventory systems are very popular in Japan. A problem arose with this type of inven tory system after the 1995 Kobe earthquake, when many suppliers were knocked out of business. Many Japanese buyers using just in time inventory systems did not have sufficient inventory on hand to continue operations for even a few days after the earthquake. This resulted in a ripple effect that had a dramatic short term impact on the Japanese economy. Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley.

K kanban John O’Connell

The Japanese word for j u s t i n t i m e inven tory methods. The just in time inventory system does not allow the stockpiling of inven tory. Instead, inventory is ordered as needed. The system is closely linked to electronic inven tory reordering systems which automatically order small amounts of inventory as existing inventory is being used.

key currency

of goods produced by that industry or sub sidize the industry to insure its competitive standing.

kickbacks John O’Connell

Kickbacks are a form of b r i b e r y . They are usually associated with purchases of goods or services. When the order is made a portion of the sales price is secretly given back (kickback) to the purchasing agent. Kickbacks are considered illegal in most countries.

John O’Connell

Because of their strength and international ac ceptance, several currencies are referred to as key or important to world trade. Key currencies include those issued by Japan, Britain, Canada, and the United States. Many international fi nancial valuations are pegged to these curren cies, including establishing exchange rates and settling international trade financial issues.

key industry John O’Connell

A key industry is one which plays a major role in the economy of a country. The industry may be key because it is the only major industry, the industry employing the most people, the largest source of foreign trade, or for other reasons. Key industries are often the focal point of pro tectionist activity by a country. In order to protect the viability of a key industry, a govern ment may impose restrictions on importation

Kluckhohn and Strodtbeck’s dimensions Jeanne McNett

These anthropologists have developed a tax onomy of cultural values that looks at culture as a response to social problems. They offer six dimensions, based on problems that all societies face but resolve differently, across which we can measure and compare cultures. These problems and their categories are: 1 How do we view the environment (natural and social worlds)? Subjugation, Harmony, Mastery 2 How do we see relationships among people? Hierarchical, Group, Individual 3 How do we posit ourselves in the world? Being, Thinking, Doing 4 What is basic human nature? Bad, Mixed, Good, and Changeable/Un changeable

knowledge management 5 How do we think about and use time? Past, Present or Future Orientation, and Plen tiful or Scarce 6 How do we think about and use space? Private, Mixed, Public Bibliography Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Kluckhohn, F. and Strodtbeck, S. F. (1961). Variations in Value Orientations. Evanston, IL: Row, Peterson. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Nisbett, R. (2003). The Geography of Thought. New York: Free Press. Vinken, H., Soeters, J., and Ester, P. (eds.) (2003). Com paring Cultures: Dimensions of Culture in a Comparative Perspective. Leiden: Brill.

knock-offs

see b r a n d p i r a c y

knowledge management Jeanne McNett

Knowledge management is the systematic, ex plicit, and deliberate process of creating, identi fying, and organizing important information and expertise within the organization, and then dis seminating it and applying it to wherever it is needed to enhance organizational effectiveness and achieve organizational objectives. Know ledge management integrates business strategy, cultural values, and the work process (Harris et al., 1999). Knowledge itself can be understood as ‘‘a justified belief that increases an entity’s

229

capacity for effective action’’ (Nonaka and Takeuchi, 1995). Often, learning or transferring knowledge is assumed as a result of other processes such as creating a joint venture or an alliance. In a situ ation where knowledge is a key success factor, that knowledge requires management, as would any other resource. Often, the issue is not getting the knowledge needed, but finding a way to make use of it inside the firm (Birkinshaw, 2004). The acquisition and management of know ledge located outside the firm is achieved through many processes, including scanning, partnering, and acquiring. The knowledge may be explicit and codified or t a c i t , that is, learned through experience. Scanning tends to yield more codified knowledge, whereas partnering and acquiring tends to tap more tacit forms of knowledge. Bibliography Almeida, P., Anupama, P., and Grant, R. M. (2003). Innovation and knowledge management: Scanning, sourcing and integration. In M. Easterby-Smith and M. A. Lyles (eds.), Blackwell Handbook of Organizational Learning and Knowledge Management. Oxford: Blackwell. Athanassiou, N. and Nigh, D. (2000). Internationalization, tacit knowledge and the top management team of MNCs. Journal of International Business Studies, 31 (3), 471 88. Birkinshaw, J. (2004). External sourcing of knowledge in the international firm. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Davenport, T. H. and Prusak, L. (1998). Working Know ledge: How Organizations Manage What They Know. Boston, MA: Harvard University Press. Easterby-Smith, M. and Lyles, M. A. (eds.) (2003). Blackwell Handbook of Organizational Learning and Knowledge Management. Oxford: Blackwell. Harris, K., Fleming, M., Hunter, R., Rosse, B., and Cushman, A. (1999). The knowledge management scenario: Trends and directions for 1998 2003. Strategic Analysis Report, Gartner Group. http://gartnerweb. com80/gg/purchase/0/0/775/40/doc/00077540/. Kostova, T., Athanassiou, N., and Berdrow, I. (2004). Managing knowledge in global organizations. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, H. W., Greenberg, D., and Berdrow, I. (2004). Barriers and bonds to knowledge transfer. In H. W.

230

Kyoto Convention

Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Nonaka, I. and Takeuchi, H. (1995). The Knowledge Creating Company. New York: Oxford University Press. Prusak, L. (1997). Knowledge in Organizations. Boston, MA: Butterworth-Heinemann. Zack, M. (2002). Developing a knowledge strategy: Epilogue. In N. Bontis and C. W. Choo (eds.), The Strategic Management of Intellectual Capital and Organizational Knowledge: A Collection of Readings. Oxford: Oxford University Press. Zack, M. (2003). Rethinking the knowledge-based organization. Sloan Management Review, 44 (4), 67 71.

agreed to adopt standardized rules pertaining to the handling of cargo and its documentation. The purpose of the agreement was to attempt to reconcile procedures related to cargo handling and documentation between countries. Member countries of the Customs Cooperation Council agreed to comply with practices adopted at the Kyoto meeting. Standardization of practices re duces the problems associated with international trade. The actual name given to the Kyoto con ference was the Kyoto Convention on the Sim plification and Harmonization of Customs Procedures. Bibliography

Kyoto Convention John O’Connell

At a meeting in Kyoto, Japan in 1973, represen tatives of the Customs Cooperation Council

Serko, D. (1991). Import Practice: Customs and International Trade Law. New York: Practicing Law Institute.

L labeling

labor contract John O’Connell

John O’Connell

Labeling involves the packaging, design, color, and wording used to enclose goods for sale. Labeling is an important part of marketing a product. International marketing people must be sensitive to the meaning given to a certain color, number, design, or symbol by a particular culture. Designs and color schemes have been known to offend or even bring possible legal or religious sanctions against a manufacturer or distributor of a product. It is important to seek local review of designs and wording before at tempting to distribute a product in another country.

Periodically, business management and employ ees meet to work out details related to continued employment. Wages, hours of work, work con ditions, etc. generally become part of a written labor contract. In some countries (Japan, for example) public demonstrations by employees to bring attention to their demands occur on an annual basis. In other countries, strikes or labor unrest are common around negotiation time. Many developing countries still do not have large numbers of actual labor contracts because the system of employer–employee relations and negotiation is just developing. When a labor contract is concluded between employer and employees the process is generally referred to as collective bargaining.

Bibliography Ricks, D. A. (1983). Big Business Blunders: Mistakes in Multinational Marketing. Homewood, IL: Dow JonesIrwin.

labor intensive John O’Connell

labor agreements John O’Connell

A labor agreement is an agreement between management and employees concerning the terms of employment. Generally, labor agree ments are pursued through the process of collective bargaining between management and labor unions. The strength of labor unions varies considerably throughout the world. Some countries are virtually controlled by unions while others are relatively free from union influence.

This term may be used to describe either a job or an entire industry which relies heavily on manual labor rather than mechanical means to produce a product or service. A situation in which investment in facilities or materials is emphasized is referred to as capital intensive. Labor intensive activities include delivering pizza, insurance sales, psychotherapy, landscap ing, and many others. Industries which are capital intensive include automobile production and steel production. As technological advances continue, labor intensive jobs and industries are

232

labor law

becoming more capital intensive. Agricultural pursuits in industrialized countries are an example of this phenomenon. Where formerly it was relatively simple to enter the farming business in the United States, it now takes a great deal of capital investment.

Sarachek, B. (1994). International Business Law: A Guide for Executives with Case Examples. Pennington, NY: Darwin Press. Weiss, E. B. (1995). Compliance with International Law. Irvington, NY: Transnational Publishers.

labor markets labor law

John O’Connell John O’Connell

This is a very important topic for managers of multinational companies (MNCs). The rights of employees, compensation items, severance pay, benefits, right to strike, and other important labor issues are often spelled out in the labor laws of each country. Because such laws vary so greatly between countries it is extremely import ant for someone in a company to be responsible for becoming familiar with them. A few examples will verify the importance of labor law knowledge and understanding. Some coun tries make it very difficult to fire an employee or to downsize an operation. One way to make it difficult is to require severance payments, which can exceed US$100,000 per employee in some countries. In some countries employers are legally responsible for work related injuries or diseases contracted by the employee. This causes high insurance rates and other additional costs for employers. Some countries require an em ployer to provide retraining for employees re leased from employment. Others require an extension of certain employee benefits for em ployees and family members for a period of time after the employee leaves employment. Knowing the laws which apply to workers will allow an organization to make better decisions regarding location of operations or the most effective entry strategy. It may be that franchising or some other form of partnership is best in countries with strict and costly labor laws, while a subsid iary is better in another country. Bibliography Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing.

A labor market is the source of employment for workers in a particular country. This means the industries and institutions which offer employ ment and the methods used to link workers to those sources of employment. When the labor market is good, jobs are plentiful. When the labor market is poor, jobs are scarce. With the opening of international borders and the p r i v a t i z a t i o n of former government operations in some countries, the labor market is becoming more regional. Thus, workers are prone to move from country to country in search of employ ment opportunities.

LAFTA

see l a t i n a m e r i c a n f r e e t r a d e a s s o c i ation

lags John O’Connell

When local companies enter into j o i n t v e n t u r e s or borrow funds from foreign investors, payments made to partners or debt payments are usually made in the home currency of the local company (unless the contractual arrangements specify otherwise). Under these circumstances it may be beneficial from time to time to delay (lag) payments to partners or creditors. For example, if the value of the local currency has increased, delaying payments will allow the local company to take advantage of the situation. See also leads

Latin American Integration Association

233

landing costs

Bibliography Celi, L. J. and Rutizer, B. (1991). Global Cash Manage ment, 1st edn. New York: Harper Business. Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

John O’Connell

A charge made for unloading cargo from a ship when it reaches its destination. Such charges become a part of the ultimate price of the goods.

LAIA

see l a t i n a m e r i c a n i n t e g r a t i o n a s s o ciation

Latin American Free Trade Association (LAFTA) John O’Connell

land bridge John O’Connell

The old adage ‘‘a straight line is the shortest distance between two points’’ applies to the shipping of goods as well. This poses problems, however, when shipment is to be made by sea but a continent lies between the point of origin and the point of destination. For example, to ship by sea from Europe to Hawaii one would have to face the treacherous seas off the tip of South America, as well as travel thousands of miles away from a straight line course. The concept of a land bridge is a simple one: where land interrupts the sea transport of goods, ship across the land and reload on ships to complete the voyage. Thus, goods shipped by sea from Europe to Hawaii may go by ship to New York, by land to California, and back on ship for the remainder of the journey. Efficient use of land bridge shipping requires a good deal of coordination between modes of shipment.

This was one of the original regional organiza tions seeking to improve trading conditions be tween member countries. Founded in 1960, LAFTA attempted to promote trade between member nations by eliminating tariffs and other b a r r i e r s between association countries. LAFTA consisted of eleven countries: Argen tina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Vene zuela. The association was reorganized into the Latin American Integration Association in 1980. The membership in the old and new organiza tion remained the same. See also Latin American Integration Association Bibliography Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

Latin American Integration Association (LAIA) landed value

John O’Connell John O’Connell

Landed value is the market value of goods on the day they are offloaded from a vessel. It is possible that the market could change substantially on long voyages. Thus, the landed value of goods could be different from the value of the same goods when first shipped.

The LAIA is the successor of the Latin American Free Trade Association (LAFTA). The LAIA carries on the same types of activities to increase the possibility of trade between association countries. The association is developing agreements between its members which are planned to lead to a trading bloc

234

laundering

of Latin American countries. This should prove to be a very important economic development for the region. Members of the Latin American Integration Association are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Para guay, Peru, Uruguay, and Venezuela. The asso ciation is located in Montevideo, Uruguay.

leads and lags John O’Connell

The acceleration (lead) or delay (lag) in paying foreign partners or creditors in order to take advantage of changing currency valuations. See also lags; leads

Bibliography Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

League of Arab States John O’Connell

In 1945 a group of Arab nations entered into an agreement forming the League of Arab States. The league is currently involved in promoting economic and cultural cooperation among its members. The members of the League are Al geria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Syria, Tunisia, the United Arab Emir ates, and Yemen. The league has sponsored the arab bank for economic development and the a r a b m o n e t a r y f u n d to assist with economic development of the region. The League is also known as the Arab League.

laundering

see m o n e y l a u n d e r i n g

law of the sea

see m a r i t i m e l a w

LDC

see l e s s d e v e l o p e d c o u n t r y

learning curve John O’Connell

leads John O’Connell

To pay financial obligations before they are due. Unless the contractual agreement specifies otherwise, joint venture partners or other inter ests are paid in the currency of the host country. When this occurs, there may be times when it is beneficial to the host organization to pay off debt or other obligations prior to the date actually due. For example, if a currency is devalued it benefits the local company to pay foreign part ners or creditors with low value currency ahead of time. That is, the local company ‘‘leads’’ its payments. See also lags

This represents the outcome of a company’s ex perience when developing a product. As the com pany becomes more experienced, it is able to develop a better product more efficiently at a reduced cost. The learning curve effect has a significant role in helping companies benefit from the f i r s t m o v e r a d v a n t a g e , as first movers release additional versions of the product.

least developed country (LLDC) John O’Connell

A least developed country is the lowest on the scale of economic development. Generally, an LLDC has few natural resources, lacks an indus trial base of almost any kind, has problems in

legal system continually feeding its population, has a very high rate of illiteracy, and has a government which is prone to instability. The largest number of least developed countries is in Africa. Al though the United Nations and other organiza tions have special programs for such countries, the economic problems are so great that even assistance from outside sources does little to stem the tide of poverty.

2

Bibliography Kozminski, A. K. (1993). Catching Up? Organizational and Management Change in the Ex Socialist Bloc. Albany: State University of New York Press.

legacy business John O’Connell

A traditional business that develops a Web pres ence to transact business. Barnes and Noble is an example. This is in contrast to a p u r e p l a y b u s i n e s s , which is developed as a new entity for the Web and had no prior presence, such as amazon.com.

legal system John O’Connell

A legal system dictates the process used to arrive at decisions concerning disputes between parties. Although the exact nature of legal systems varies throughout the world, there are three major categories into which most systems would fit. 1 Civil law. This system of law depends upon a written body of laws to determine the out come of legal disputes. Unlike common law, which relies upon past decisions, civil law is linked to the codes and statutes in force in a particular country. This means that as one moves from country to country (assuming all have civil law systems) the legal interpret ation of an action or a contract will vary. When organizations seek to become multi national, they should also seek expert assist ance in reviewing the various codes and

3

235

statutes which demand their compliance. Civil law systems exist in most of Europe, Latin America, some African countries, and Japan. Common law. Under this system of law each situation is subject to review based upon the precedents established through prior court rulings and from custom of the country. Although not restricted to them, common law is found mainly in English speaking countries. Matters of law and dispute are dealt with by the system employing a judge and jury. Contract interpretation under common law is often more liberal than under other systems. Thus the terminology used in contractual agreements must be pre cise and clearly express the intent of the parties. Code law. A system of law based upon the interpretation of teachings included in a religious text. For example, Muslim Law is a code law based upon the Koran. Because of its deep religious roots, code law is sometimes referred to as revealed law or in being sent from the scriptures. For inter national businesses from common or civil law countries, code law is probably the most difficult of all to understand. Since the basis of code law is a religious text, those not familiar with the writing may be at a great disadvantage in seeking decisions under its rules.

A problem associated with varying legal systems is determining which system has jurisdiction over contracts or dispute settlement. This problem is normally dealt with in the contractual arrangement between the parties and also on the basis of the jurisdiction in which the contract was signed. Because of problems deal ing with different systems of law, many organ izations rely upon other methods of settling legal differences. These methods are referred to as alternative dispute resolution methods (ADR). Arbitration is probably the most common ADR. Bibliography Enderlein, F. and Maskow, D. (1992). International Sales Law: UN Convention on Contracts for the International Sale of Goods. Dobbs Ferry, NY: Oceana.

236

less developed country

Kiss, A. and Sheeton, D. (1994). International Environ mental Law: 1994 Supplement. Irvington, NY: Transnational Publishers. Litka, M. (1991). International Dimensions of the Legal Environment of Business, 2nd edn. Boston, MA: PWSKent Publishing. Sarachek, B. (1994). International Business Law: A Guide for Executives with Case Examples. Pennington, NY: Darwin Press. Weiss, E. B. (1995). Compliance with International Law. Irvington, NY: Transnational Publishers.

less developed country (LDC) John O’Connell

Although better off than least developed coun tries (LLDCs), LDCs are still impoverished with little hope of overcoming their economic problems without further industrialization. LDCs are mainly agrarian economies that rely on exports of coffee, fruits, and other commod ities for income. Hope for some LDCs rests with the development of mineral or energy resources and the accompanying industrial growth which normally follows. Those countries seeking growth because of natural resources may still be considered less developed if the funds from those resources do not go to education, infra structure building, and further economic devel opment. As a group, LDCs are also known as the Third World countries. LDCs include most Middle Eastern countries, China, India, Brazil, and Malaysia, as well as many other mainly southern hemisphere countries.

versus locally sold items the importing country may impose duties to offset the lower price. In this way local producers and markets can be protected against low priced imports.

letter of credit (L/C) John O’Connell

A document which provides payment to a seller of goods upon proof of the seller’s compliance with requirements set forth by the document. A letter of credit is normally issued by a bank (which represents the purchaser – importer – of goods) to the exporter of goods. The exporter may then draw payments from the letter of credit upon submitting proof to the bank that the details of the purchase transaction have been strictly complied with. The term i s s u i n g b a n k refers to the importer’s bank which issues the letter of credit. There are a number of different kinds of letters of credit. The exact nature of the letter of credit used in any particular situation is based upon specific needs of a particular transaction or set of transactions, as well as the degree of trust between buyer and seller. Letters of credit differ from one another in many areas. It is very im portant to understand the exact content and requirements of a letter of credit or difficulties in securing payment may occur. In alphabetical order, the types of letters of credit are: 1

less than fair value (LTFV) John O’Connell

When the sales price of an item exported from a country is significantly lower than the price for the same item sold in the exporting country, it may be that the item is being sold at less than fair value. When it is shown that this price differen tial occurs, it is probable that the exporting country is d u m p i n g the item on the inter national market. Anti dumping regulations in many nations forbid this type of pricing struc ture. When lower prices are charged for exports

2

Advised letter of credit. When an exporter’s bank informs the exporter of the require ments to collect payment on a letter of credit, the exporter is said to be ‘‘advised.’’ Thus, the term ‘‘advised letter of credit.’’ Back to back letter of credit. Often, an ex porter does not have the goods on hand to fill the orders of foreign buyers. An exporter commonly relies upon payment from the foreign buyer to pay its own suppliers. When this occurs a back to back letter of credit may be required. Whereas a letter of credit from the foreign buyer agrees to pay the exporter, it guarantees nothing for the exporter’s supplier. If, however, the exporter causes a second letter of credit to be issued in favor of the supplier with the original letter

letter of credit

3

4

5

6

7

8

acting as collateral, both the exporter and the supplier are guaranteed payment. When de livery of goods is made to the buyer, the bank honors both letters of credit, paying off the supplier and remitting the remainder to the exporter. Without such financing, many export transactions would be impossible to complete. Circular letter of credit. A circular letter of credit is also referred to as a traveler’s letter of credit or traveler’s credit. This document is used to provide payments to a person who will be traveling in a foreign country. The person holding the letter of credit presents it to a bank specified in the letter and is able to withdraw funds up to the limit established by the letter. Confirmed letter of credit. This form of letter of credit poses the least risk for the exporter of goods. A bank in the exporter’s own country guarantees payment even if the importer, or the importer’s bank, fails to remit funds to the exporter. Normally, the local bank requires the foreign bank to deposit funds before the goods are shipped, in order to guarantee pay ment. Upon presentation of the letter of credit and compliance with all terms of the letter, payment is made to the exporter. Documentary letter of credit. A seller under this form of letter of credit is paid by a bank upon presentation of the shipping papers. By itself, this type of letter of credit does not guarantee that the letter might not be revoked by the bank prior to presentation or that any other safeguards for the seller are in effect. Green clause letter of credit. A letter of credit which does not allow an exporter to draw against the letter until such time as all re quired documentation is presented to the advancing bank. Guaranteed letter of credit. Another name for a confirmed letter of credit. This letter guar antees payment by a bank from the exporter’s country if the importer and the importer’s bank default on the letter of credit. Irrevocable letter of credit. One of the problems associated with international trade is the risk the seller of goods takes with respect to pay ment for those goods upon delivery. In order to make the transaction more palatable to the seller, non cancelable letters of credit were

9

10

11

12

237

devised. An irrevocable letter of credit cannot be canceled, amended, or rescinded by the buyer unless agreed to by all parties to the transaction (buyer, seller, and applic able banks). Irrevocable transferable letter of credit. This type of letter of credit allows the exporter to convey a portion of its proceeds to another party. For example, this type of letter may be used as a guarantee of payment to an exporter’s suppliers or for anyone else’s benefit as determined by the exporter. Red clause letter of credit. Often, an exporter does not have the funds to produce products to fill current orders. A letter of credit may have already been issued by the importer in anticipation of goods being exported. If allowed by the terms of the letter of credit, the exporter may draw upon the letter to obtain funds to produce goods. Once the goods are delivered the exporter may then submit the proper documentation to obtain the balance of the letter of credit. This type of interim financing is referred to as coming from a red clause letter of credit. Revocable letter of credit. A revocable letter of credit may be withdrawn by the issuing bank without prior notice or explanation. Unlike the irrevocable letter of credit, this type does not require the permission of the other part ies to the transaction. As such, this letter ex poses the seller of goods to more risk. Sellers seeking to reduce their risk should always demand an irrevocable letter of credit. Revolving letter of credit. This type of letter of credit is used for an exporter with whom the issuing bank has had favorable past experi ence. The exporter also deals with customers of the issuing bank on a continuous basis over a period of time. Instead of issuing a new letter of credit each time this exporter sells to a given importer, the issuing bank arranges to offer a revolving letter of credit. This document allows the exporter to use the same letter for each transaction with the amount of payment on the letter being recre dited after the completion of each transac tion. As long as a single draw is for less than the overall limit, the letter’s line of credit is renewed automatically over a specified period of time.

238

letter of indication

13 Standby letter of credit. A letter of credit may perform the same function as a surety bond in terms of being used as a financial guaran tee of performance. International transac tions may not be easily bondable, but a letter of credit may perform the same func tion. For example, an organization is seeking to bid on the construction of a dam in another country. Generally, bids on such projects require a good faith guarantee on the part of the bidder to insure that the bid will be accepted if granted and that work will be done on time and in a workmanlike manner. Ten percent of the bid amount is not uncom mon. One of the methods of securing this guarantee is to obtain a standby letter of credit in favor of the government of the foreign country. If the bidder defaults, the foreign government is paid from the letter of credit. The bank issuing the letter then has recourse against the bidding company. 14 Traveler’s letter of credit. A letter of credit is sued to a person who will be traveling in another country. The letter allows drafts to be written against the letter up to the value set forth in the letter. Another name for this type of letter of credit is circular letter of credit. Bibliography Albawn, G., Strandshov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom. United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing. Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

letter of indication John O’Connell

A person traveling overseas may purchase a l e t t e r o f c r e d i t from a bank. The letter can be drawn upon by the traveler, by writing

drafts against the credit amount. A letter of indication is provided by the bank to the traveler in order to identify the traveler as the party to whom the letter of credit was issued.

level John O’Connell

In order to determine the approximate value of a currency a person may seek the level at which the currency is being traded. A level is an informal quotation indicating the present rate at which a currency is being traded. Parties indicating the level of a currency are not bound by the level quoted.

licensed production John O’Connell

The holder of a patent, trademark, or copy right may allow another organization to use its property rights in the production of goods. An organization is ‘‘licensed’’ to use the rights or processes of another. A commission or royalty is commonly paid in such l i c e n s i n g arrangements. This arrangement is common when an organization in one country desires to legally use the rights or processes of an organiza tion in another country.

licensing John O’Connell

Licensing provides the right to a foreign company to use trademarks, patents, and other protected property rights in return for a licens ing fee. The company holding the property rights is able to obtain distribution through an established business in a foreign country and avoid the problems associated with high capital outlays and competing in a country in which it is relatively unknown. Licensing may also be a way of gaining some protection against pirating or other invasion of i n t e l l e c t u a l

lingua franca 239 p r o p e r t y rights because it sells these rights to an existing foreign company which is more likely to be able to protect them in the host country. Licensing also allows a company to enter a market in which foreign entry restrictions are high or currency c o n v e r t i b i l i t y problems exist. A license fee flows out of the country as an expense of the local business, instead of a repatriation of profits to a foreign parent company. See also market entry strategies Bibliography Root, E. R. (1994). Entry Strategies for International Markets. New York: Lexington Books.

licensing agreement John O’Connell

The written document specifying the details of the understanding between two companies re lated to use of proprietary rights in a second country. The agreement authorizes a second com pany to use a patented process or produce a patented product in a second country in return for a royalty or fee payment. See also licensing

licensing fees John O’Connell

In international business it is common for one organization to allow another to use its patented products, copyrighted processes, or trademarks in return for a royalty payment or fee. It is also possible for a multinational com pany to charge fees to its subsidiaries for use of the MNC’s proprietary processes or products. This type of payment is usually treated as a franchise or other type of royalty (therefore, an expense to the subsidiary). In countries having restrictions on the flow of currency, the above arrangement may be a way of repatri ating funds to the parent company (since

funds flow as an expense instead of profits or dividends). See also licensing

lifetime employment John O’Connell

Some cultures promote the well being of the employee to such an extent that employment is considered a right and may be expected to be offered for the lifetime of the employee. Japan’s culture has been a supporter of lifetime employ ment for many decades. Lifetime employment is not expected (or offered) in most countries. Even in Japan, lifetime employment is not as certain as it used to be because of recent reversals in Japan’s economy and stagnation of certain industries.

lifetime value John O’Connell

The lifetime value of a customer determines the value of a customer to a firm over the life cycle of that customer. This removes the focus on individual transactions with customers and has become increasingly used with developments of technology and market research, and thus the ability to focus on narrower target markets, even to the individual consumer in some cases. Life time value is an important measure used for ‘‘re lationship marketing’’ programs.

lingua franca John O’Connell

The extensiveness of today’s international activ ities makes it common for two people to meet who do not speak one another’s language, but share a third language. By speaking the common third language, communication between the parties is possible.

240

linkage

Lingua franca can also refer to the language of business in any particular area. For example, the language of business in Latin America is Spanish between Latin American countries but English with most other countries. In the Middle East, the native language is Arabic but the business language with the rest of the world is English. Knowing the lingua franca of an area can assist a traveler or business person in effectively commu nicating without having to know a large number of different languages. English is the most com mon business language used between nations.

linkage John O’Connell

A very large industry can have a major impact on a country’s economy in terms of employment, productive capacity, and balance of trade. As such, that industry also may be able to exert a tremendous amount of pressure on the remain der of the economy. This pressure is referred to as linkage. For example, a very large company may be able to obtain preferential tax treatment or land use permits from its own government. The automobile industry is an example of an industry able to exert great pressure in the United States. Energy related extractive indus tries (oil especially) are also capable of exerting tremendous amounts of pressure in their coun try of origin. Without these industries entire economies could fail or be heavily damaged.

liquid assets John O’Connell

Liquid assets are those which can be easily and quickly converted to cash. Liquid assets include hard currencies, marketable securities, and vari ous kinds of negotiable papers or documents.

the amount of duty determined. Once this is accomplished, the importer pays any fees or duties then due and the liquidation is normally complete. Goods are then released to the im porter. See also entry documents

liquidity John O’Connell

This term is associated with two meanings: (1) The ability of an organization to convert its assets into cash. One of the measures of the ability of a firm to respond to current cash needs is its liquidity position. (2) In international monetary dealings, the amount of transferable currency available to a particular country to meet balance of payments needs. The more currency held in reserve the greater the ability of a country to satisfy any temporary imbalances in its bal ance of payments accounts.

living allowance John O’Connell

An additional amount of compensation to ac count for additional costs of living in an expatri ate’s host country versus the home country. Examples of costs of living which are commonly higher in other countries are food, housing, transportation, and services. If the e x p a t r i a t e would normally take advantage of certain goods and services while in the home country, a living allowance is normally provided for those same goods and services in a host country. This is an important consideration for an employee con sidering an overseas a s s i g n m e n t . It is also important to recognize that the degree or quality of goods or services may also vary and must be taken into consideration as well. See also compensation package (expatriate)

liquidation of entry John O’Connell

An importer may not receive imported items until all entry requirements have been met. Goods must be classified by customs and

Bibliography Reynolds, C. (1986). Compensation of overseas personnel. In Handbook of Human Resource Administration, 2nd edn. New York: McGraw-Hill.

localization of employees LLDC

241

local responsiveness

see l e a s t d e v e l o p e d c o u n t r y

Jeanne McNett

A representative of Lloyd’s of London. A Lloyd’s agent’s responsibility, however, is dif ferent than what may first come to mind. In marine insurance, a Lloyd’s agent is responsible for surveying and certifying losses on property insured by Lloyd’s. Lloyd’s agents are located throughout the world to assist in the fair settle ment of claims. Information provided by Lloyd’s agents is invaluable to insurance companies, shipping companies, and others with interests in the movements of vessels and cargo.

Local responsiveness, also known as localization, is the willingness of firms to make adjustments to their products, services, and ways of conducting business at the local level, taking into consider ation local culture and needs. Local responsive ness is at one end of the standardization spectrum. Although it is costly, local responsiveness is driven by consumer tastes and preferences, local, traditional business practices, distribution channels, and host government demands. Such customization may also be motivated by local content rules, local manufacturing and testing requirements, and threats of protectionism. It reduces the potential benefits to be gained from manufacturing a standardized product in the lowest cost location and then selling it globally, the basic approach to standardization.

Bibliography

Bibliography

Lloyd’s of London Press Staff (1991). Leading Develop ments in International Marine Insurance: An Industry Report. New York: Lloyd’s of London Press.

Bartlett, C. A. and Ghoshal, S. (1989). Managing Across Borders. Boston, MA: Harvard Business School Press. Begley, T. M. and Boyd, D. P. (2003). The need for a corporate global mindset. Sloan Management Review, 44 (2), 25 33. Lessard, D. R. (2003). Frameworks for global strategic analysis. Journal of Strategic Management Education. Dublin: Senate Hall Academic Publishing. Luo, Y. (2002). Organizational dynamics and global integration: A perspective from subsidiary managers. Journal of International Management, 8 (2), 189 216. Prahalad, C. K. and Doz, Y. (1987). The Multinational Mission. New York: Free Press. Roth, K. and Morrison, A. J. (1990). An empirical analysis of the integration responsiveness framework in global industries. Journal of International Business Stud ies, 21 (4), 541 65.

Lloyd’s agent John O’Connell

local hire John O’Connell

This is a person hired to do a job at the location of the job. Thus, if a British citizen applied for and was hired for a job in the United States, he or she would be considered a local hire. The place where the actual hiring takes place is more important to this term than the nationality of the person being hired.

local national John O’Connell

Multinational companies commonly operate through subsidiaries in various countries. Citi zens of the host country are sometimes referred to as local nationals. See also employee categories; host country nationals

localization of employees John O’Connell

This concerns replacing expatriates with host country nationals (HCNs) as the opportunity arises. The cost of sending expatriates overseas is extremely high. High level management per sonnel may cost an additional several hundred thousand dollars to send overseas. Although that

242

localization of industry

figure may be extreme, the cost for any e x p a t r i a t e is much higher than local labor. Localization of employees is the process of replacing expatri ates with local hires as expatriate assignments come to an end. The need for expatriates is usually the greatest in the early periods of a company’s overseas activities. Once time has allowed local labor to be trained (in technical as well as man agerial pursuits) lower cost employees can suc cessfully take the place of expatriates. Bibliography Black, J. S. (1988). Work role transitions: A study of American expatriate managers in Japan. Journal of International Business Studies, 19 (2), 277 94. Pulatie, D. (1985). How do you insure success of managers going abroad? Training and Development Journal, December, 22 4. Ronen, S. and Tung, R. L. (1981). Selection and training of personnel for overseas assignments. Columbia Jour nal of World Business, spring, 68 78.

localization of industry John O’Connell

Industries tend to locate in areas in which there is a ready supply of raw materials, labor, or other services necessary for the production of goods. In the past some organizations developed ‘‘com pany towns’’ where workers not only lived but also shopped for goods and services and went to work in the company facility. With the advent of global enterprises the tendency to localize indus try has declined. With the entire world as a potential location for various segments of a com pany’s operations, localization of industry is not as common as in the past.

lockout John O’Connell

Lockout occurs when employees are kept from work by the employer in order to influence col lective bargaining. Employer–employee bar gaining does not always result in a labor agreement. When failure occurs management may decide that employee demands or actions are unacceptable and attempt to force conces sions by not allowing employees to work until an agreement is reached. This is referred to as a lockout. Lockouts may be considered an unfair labor practice in some countries.

log file John O’Connell

A file which records many activities on a server, counting the number of times each event took place. Among other measurements, Web server logs typically record each time a page on a web site is requested, when it was requested, the type of browser that requested the page, whether the visitor was visiting the site for the first time or a repeat visitor, and possibly the domain name of the visitor who requested the page. Traffic an alysis software can operate on log files to deter mine how successful the website is and to suggest ways the website might be improved.

logic bomb John O’Connell

A malicious program similar to a virus except that it does not replicate itself.

location theory John O’Connell

An economic theory that a manufacturer will consider transportation costs as a major location determinant. The theory states that a manufac turer will locate its manufacturing and distribu tion activities at locations having the lowest transportation costs for incoming raw materials and outgoing finished products.

logistics John O’Connell

The overall costs to supply a product to a user are determined by factors associated with the production and distribution process. Logistics is the study of relationships between these pro cesses. Theoretically, if one could optimize the securing and storage of raw materials and

low context culture inventory, the cost and timing of production, and the distribution process, the cost to supply goods to the user would be the lowest. See also just in time

long service leave John O’Connell

An Australian business practice which allows an employee to take a leave of absence with pay after working for a company a minimum number of years. Years of employment must generally exceed ten to fifteen years. Duration of leave time varies from three to six months.

low context culture John O’Connell

A culture in which communications must be clearly expressed either in writing or in words.

243

Low context cultures do not rely upon b o d y l a n g u a g e , facial expression, or tone of voice to complete the communication. Examples of countries having low context cultures are the United States, Canada, Germany, and Switzer land. In this type of culture important informa tion must be set out and if problems exist they must be explained fully. Although working within a low context culture is generally not a problem for people from that culture, people from other cultural backgrounds may have con siderable trouble adapting. See also high context cultures Bibliography Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

M

The risk associated with changes in the overall economy of a country. This is contrasted with risks associated with sets of individual factors which cause uncertainty.

can directly impact the exchange rate. When a central bank contributes to the control on ex change rates, the country has what is referred to as a managed currency. The currency in the free market operates on the forces of supply and demand alone, but this is not common with most of the predominant currencies in the world today.

Madrid Agreement

managed float

macrorisk John O’Connell

John O’Connell

John O’Connell

The full name of this multilateral treaty is the Madrid Agreement Concerning the Inter national Registration of Marks. This was one of the early agreements related to the protection of industrial trademark rights. The Madrid Agree ment allows a company from one of the signatory countries to obtain international protection through a single application. The agreement is overseen by the World Intellectual Property Or ganization (WIPO). Signatories to the agree ment also provide an automatic additional 20 years protection for a trademark.

A floating currency in the foreign exchange market which is not being allowed to float freely along with the direction of the open market, but is being managed in a desired direction, is con sidered a managed float. The central bank ac complishes this through the buying and selling of the currency. This is done quite often and is not considered unusual, as the central bank re vises its monetary policies and exerts its influ ence on the markets.

Bibliography

managed floating exchange system

Stewart, G. R. (1994). International Trade and Intellectual Property: The Search for a Balanced System. Boulder, CO: Westview Press.

managed currency John O’Connell

Central banks often seek to control fluctuations in their currency exchange rate. Through the pur chase and/or sale of its currency the central bank

John O’Connell

This term itself is an example of how far we have come to accept at least some governmental inter vention in most levels of an economy. One could make a point that you either have a ‘‘managed exchange rate system’’ in which government monetary authorities are heavily involved in curing the problems of fluctuating exchange rates; or you have a ‘‘floating exchange rate system’’ in which market forces determine values. A ‘‘managed floating exchange system’’

manufacturing is one in which there is some monetary authority activity to control short term exchange rates.

managed trade John O’Connell

Trade is ‘‘managed’’ when it is impacted in any way by restrictions or b a r r i e r s set forth by an individual country or a group of countries. The term does not infer that managed trade is good or bad, but merely that it does not flow of its own accord. Managing trade includes actions to limit exports/imports, a system of tariffs, quotas, taxation differences on domestic versus imported goods, and many other govern mental activities. With a definition this broad, it is difficult indeed to find a situation involving trade between two countries which is not man aged in some fashion. See also reciprocity

management contracting

245

management contracts John O’Connell

Many organizations do not have the desire or the experience to manage their operations in every country. When this occurs the organiza tion may arrange with another company to manage and operate its foreign subsidiary. Man agement contracts are normally compensated by means of a fee for services or a percentage of profits.

management fee John O’Connell

Many organizations use the services of a profes sional fund manager to invest their capital. In return the investment manager normally charges a fee based on the value of the portfolio or the amount of profit made during a given period of time. In international business a management fee may also be charged by a foreign partner to operate a j o i n t v e n t u r e for the remaining partners.

John O’Connell

A firm can enter foreign markets under a contract to manage a new or existing commercial operation in those markets. For example, a manu facturer has a proven record of aggressive and efficient management in its home country. The manufacturer may be approached not to provide product but instead management expertise for a start up operation or an existing operation having problems in a foreign country. This places the management of the original manufacturer into a foreign operation in which international experi ence may be gained. Success in one management contract may lead to additional contracts and eventually equity ownership in foreign firms. The only real problems associated with manage ment contracts is that they remove top man agement from the home country operation, are normally temporary, and may incur the blame for a problem which previously existed in a foreign company. See also market entry strategies

manufacturing John O’Connell

The establishing of capability to produce goods in a foreign country is one method of entering into international operations. This method allows the greatest control of the over seas operation, but also the greatest investment in capital, management time, and effort. Often, direct investment in facilities is achieved through the purchase of an existing company’s assets in a foreign country, but many large companies build new facilities when they expand. The decision to purchase or build manufacturing plants in another country may be forced upon a company by competition or foreign government demands for local represen tation. See also market entry strategies

246

Map, Bridge, Integrate model

Bibliography Dunning, J. (1981). International Production and Multi national Enterprise. London: Allen and Unwin. Mefford, R. N. (1986). Determinants of productivity differences in international manufacturing. Journal of International Business Studies, 17 (1), 63 82. Miller, J. G., Demeyer, A., and Nakane, J. (1994). Bench marking Global Manufacturing: Understanding Inter national Suppliers, Customers and Competitors. Hinsdale, IL: Irwin Professional Publishing. Steudel, H. J. (1992). Manufacturing in the Nineties: How to Become A Mean, Lean, World Class Competitor. New York: Van Nostrand Reinhold.

Map, Bridge, Integrate model (MBI) Jeanne McNett

This model for managing cultural diversity is commonly known as the MBI model and in volves three steps. Mapping is the deliberate representation of major, relevant cultural differ ences and similarities within a group or team. It provides a lens through which others see the world. One or a combination of the c u l t u r a l d i m e n s i o n models may be used to map these differences. Caution should be taken to remember that variations exist in all cultures and that national level cultures and subcultures found in the same country may vary considerably. One should not confuse personality and culture, remember that cultures do change over time, be aware that people may be members of many cultures simul taneously, and realize that integrating an under standing of cultural differences into behavior may be difficult. What is important in this pro cess is that one be explicit about one’s own culture; that the knowledge about another cul ture is organized; that there is a way to compare dominant values; and that values differences are noted. The locations of value differences are the areas most likely to generate managerial problems. Bridging is the process of communicating ef fectively among group or team members. Pre paring, decentering, and recentering support bridging. Preparing involves both being motiv ated to be understood and to understand the meaning of others, and having confidence that you can overcome barriers and communicate

effectively. Decentering draws on empathy, trying to understand the way the other under stands, while recentering establishes a shared reality and rules. Integrating brings the perspectives together so the team can build on them. It involves build ing participation,resolvingconflicts, andbuilding on ideas. Each of these activities may be influ enced by cultural communication patterns. Bibliography Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Maznevski, M. (1994). Synergy and performance in multicultural teams. Unpublished doctoral dissertation, University of Western Ontario.

maquiladora John O’Connell

This Spanish term refers to a special area in Mexico along the US border. In this area many firms carry out the production of goods for export. The Maquiladora area was created by the Mexican government to offer employment to Mexican workers. To make the area more at tractive from a business point of view, firms doing business in the area are granted certain tax exemp tions. Goods produced in the area are taxed on the basis of a type of value added tax (on only the value of labor and materials added during production). Maquiladoras have become very popular not only with parent companies from the United States but also with companies from Europe and Asia. Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley.

marine insurance John O’Connell

Insurance on ocean going vessels and their cargo – marine insurance – is the oldest form of insurance protection. In addition to a vessel and

maritime law its cargo, marine insurance can also be written on offshore drilling rigs and sometimes even for inland pipelines and facilities connected to port oil facilities. In addition to the perils of the sea, marine insurance is one of the only forms of coverage which can cover war risks. War risk insurance is normally not a standard part of a marine contract, but must be requested at an additional premium. Marine insurance is very important to international commercial transac tions because it is usually required to be pur chased by one of the parties to the transaction. The party responsible for purchasing marine cargo insurance is determined by the terms of the purchase agreement. There is no standard policy to cover marine risks. However, coverage is generally divided into four areas: 1 Hull coverage. Coverage against damage or destruction to the ship itself. Coverage may be written for a ship under construction (builder’s risk), a ship in active use, or when in dry dock for repairs. Policies may provide coverage on a worldwide basis or for operation of a ship only within a specified port of call (port risk only). Coverage may be written on a ship as a single entity or on a number of jointly owned ships (fleet). Hull coverage can also be written on a total loss only basis. Under a total loss only form there is no coverage for partial losses. A deductible normally applies to hull losses. The deductible can be as high as 25 percent of the loss. A ‘‘collision’’ clause may be included in a hull policy to provide coverage for damage to other ships caused by the negligence of the insured. This is actually a liability coverage but is an option to hull coverage under marine forms. 2 Cargo coverage. Coverage against damage or loss to goods being carried by a vessel. Policies may be written for a single voyage (single risk or trip policies) or for all trips over an extended basis (open policy). Most marine cargo insurance is written on open forms of coverage. Open cargo forms may be written on a warehouse to warehouse basis. This means that coverage is provided for not only the ocean portion of transit but also the land portion if necessary to reach the buyer’s warehouse.

3

4

247

Freight coverage. This is the cost of hauling goods or the charges made by the carrier for transporting goods. This cost is often in cluded in the insurance for cargo. It is common to insure cargo for 110 percent of its value to include the value of insurance premiums and freight charges. Freight cov erage may also be included with hull cover age to protect the shipowner from loss of income for hauling goods. Protection and indemnity (P&I) coverage. This is a form of liability coverage for owners/operators of vessels. However, P&I provides more than just normal liability pro tection. P&I provides coverage for injury or illness to crew members, injury or illness to passengers, negligent damage to cargo carried by the vessel, and damage to docks or piers caused by the vessel. Additional amounts of coverage may be obtained through the purchase of excess protection and indemnity protection.

See also INCOTERMS; perils of the sea Bibliography International Chamber of Commerce (ICC) (1990). Incoterms 1990. New York: ICC Publishing. Rejda, G. E. (1995). Principles of Risk Management and Insurance, 5th edn. New York: HarperCollins. Rodda, W. H., Trieschmann, J. S., and Hedges, B. A. (1978). Commercial Property Risk Management and In surance. Malvern, PA: American Institute for Property and Liability Underwriters Trieschman, J. S. and Gustavson, S. G. (1993). Risk Management and Insurance, 9th edn. Cincinnati, OH: Southwestern College Publishing.

marine perils

see p e r i l s o f t h e s e a

maritime law John O’Connell

The branch of law that relates to navigation or trade on the high seas or other areas under the jurisdiction of Admiralty courts. These special

248

maritime perils

courts oversee disputes and enforce the laws of the sea.

market entry strategies

See also admiralty court

The method chosen by a company to begin selling, or conduct other activities, in a foreign country. Entry into a foreign market can be as easy as picking up a telephone and contacting an overseas buyer for your goods. Entry could also involve a start up operation which duplicates a company’s operations in its home country. The type of market entry strategy chosen depends upon a number of factors, including the following: amount of available investment cap ital; degree of risk one is willing to assume; knowledge of foreign markets; knowledge of working with diverse cultures; knowledge of export/import transactions; available distribu tion systems; time commitment; ability to handle stress and uncertainty; potential profit; and a number of other factors as well. The following lists some of the more common market entry strategies.

maritime perils

see p e r i l s o f t h e s e a

mark of origin John O’Connell

Goods traded internationally normally must be labeled in some fashion to allow customs and other inspectors to identify the shipment’s coun try of origin and its point of destination. The ‘‘mark’’ or label must appear on the cargo itself and the b i l l o f l a d i n g .

John O’Connell

1 mark sheet John O’Connell

The Japanese government requires importers seeking to use f o r e i g n e x c h a n g e to pay for imports to submit a mark sheet to the Bank of Japan. Mark sheets are used only for imports with total values in excess of 1 million yen. A mark sheet allows the government to control the flow of large amounts of foreign exchange out of the country. Thus, mark sheets assist the government in managing foreign exchange.

market disruption John O’Connell

This refers to the situation which is created when a surge of imports in a given product line causes sales of domestically produced goods in a particular country to decline to an extent that the domestic producers and their employees suffer major economic hardship.

2

Assembly operations. An organization sends parts for a product to a foreign plant for final assembly. The products are then sold in the foreign market or exported to other countries. Assembly plants may allow a com pany to take advantage of low cost labor in the most labor intensive portion of produc tion. There may also be lower duties and other taxes because unfinished products are imported instead of finished products. As sembly plants also allow a foreign manufac turer to meet host country requests for more domestic production while at the same time allowing the manufacturer to maintain con trol over production by using its own sub products as supplies and materials for the foreign assembly plant. A potential problem, especially with plants located to meet foreign governments’ needs for domestic produc tion, is that the foreign government may institute quotas on the amount of foreign parts which may be used in the host country. Contract manufacturing. Some companies use manufacturers in foreign countries to make (or assemble) their product and distribute them through the foreign manufacturer’s existing marketing channels. Thus, entry to the country is achieved with the assistance of

market entry strategies local companies using proven marketing channels. Although the cost of this type of method is usually a substantial portion of the product revenues, it allows a company to test the market for its goods and become more familiar with doing business overseas. 3 Exporting. This is one of the simplest methods of foreign market entry. The prod uct is exported to a buyer who then distrib utes it to the foreign market. Market entry of the product is achieved without considerable investment of either time or capital. The key to exporting is knowing the components of the export transaction very well. If know ledge is not present there are a number of export agents available to assist the exporter of products (see e x p o r t a g e n t ). 4 Franchise agreement. This is an agreement in which a company holding the rights to a product, trademark, process, etc., allows an other company to make and distribute the product or use the trademark under a con tractual agreement. The franchise agreement spells out the details, which usually include the geographic area in which the franchise is good, the fees to be paid to the franchisor, as well as any other requirements the franchisor is able to place in the contract. A franchise agreement is a method of entering a foreign market by having a local business (hopefully an established and highly reputable business) distribute and/or produce a foreign firm’s product. This builds name recognition and provides a good foundation from which to add more foreign franchises or to begin owned operations overseas. 5 Joint venturing. A j o i n t v e n t u r e is an agreement between two companies to co produce and distribute a product. A separate entity is commonly established to handle a joint venture arrangement. Joint ventures normally involve a foreign company and a host country company. Some countries re quire some local equity participation in all companies operating within their borders. A joint venture is a way of meeting equity participation requirements. One of the major problems associated with joint ven tures (in addition to usually high capital in vestment needs) is obtaining the right joint venture partner. If partners are not compat

249

ible, do not understand each other’s cultures, do not have a common language, or do not share basic intentions regarding the outcome of the joint venture, the chances of the ar rangement succeeding are reduced. 6 Licensing. Licensing provides the right to a foreign company to use trademarks, patents, and other protected property rights in return for a licensing fee. The company holding the property rights is able to obtain distribution through an established business in a foreign country and avoid the problems with high capital outlays and competing in a country in which it is relatively unknown. Licensing may also be a way of gaining some protection from pirating or other invasion of i n t e l l e c t u a l p r o p e r t y rights because it sells these rights to an existing foreign company, which is more likely to be able to protect them in the host country. Licensing also allows a company to enter a market in which foreign entry restrictions are high or currency convertibility problems exist. A license fee flows out of the country as an expense of the local business, instead of a repatriation of profits to a foreign parent company. 7 Management contracting. A firm can enter foreign markets under a contract to manage a new or existing commercial operation in those markets. For example, a manufacturer has a proven record of aggressive and effi cient management in its home country. The manufacturer may be approached not to pro vide product but instead management ex pertise for a start up operation or an existing operation having problems in a for eign country. This places the management of the original manufacturer into a foreign op eration in which international experience may be gained. Success in one management contract may lead to additional contracts and eventually equity ownership in foreign firms. The only real problems associated with man agement contracts are that they remove top management from the home country oper ation, are normally temporary, and may incur the blame for a problem which previously existed in a foreign company. 8 Manufacturing. The establishing of capabil ity to produce goods in a foreign country.

250

market penetration

This method allows the greatest control of the overseas operation but also the greatest investment in capital, management time, and effort. Often, direct investment in facil ities is achieved through the purchase of an existing company’s assets in a foreign coun try, but many large companies build new facilities when they expand. The decision to purchase or build a manufacturing plant in another country may be forced upon a company by competition or foreign govern ment demands for local representation. 9 Piggyback exporting. Piggyback exporting describes a situation in which one company markets its products through the distribu tion channels of a second company. Two major reasons for piggyback marketing are (1) a local company desires to enter multi national markets but lacks the money, ex perience, or possibly the inclination to learn what is necessary to be successful in the international marketplace; (2) an existing multinational company is seeking to fill out its product lines to stay competitive overseas. Piggybacking involves products which complement one another instead of competing. This method of exporting is one of the least problematic of all of the methods of entering foreign markets. Of course, suc cess is dependent upon who the partners are and the commitment to making the partner ship function effectively. 10 Wholly owned subsidiaries. This form of market entry provides a company full control over its foreign operations. This method of market entry requires large cap ital investment, commitment of time and effort, and normally a willingness of some employees/management to travel to and live in a foreign country. Fully owned sub sidiaries are commonly existing businesses acquired by the company. If this is so the investment in management and e x p a t r i a t e time and effort may not be as signifi cant as with a start up operation. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley.

Buzzell, R. D., Quelch, J. A., and Bartlett, C. A. (1995). Global Marketing Management: Cases and Readings. Reading, MA: Addison-Wesley. Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin. Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin. Kaynak, E. and Ghauri, P. N. (eds.) (1994). Euromarket ing: Effective Strategies for International Trade and Export. Binghamton, NY: Haworth Press. Majaro, S. (1977). Marketing: A Strategic Approach to World Markets. London: George Allen and Unwin. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell. Toyne, B. and Walters, G. P. (1993). Global Marketing Management. Boston, MA: Allyn and Bacon.

market penetration John O’Connell

Generally expressed as a percentage, market penetration is a measure of a particular product’s or an entire company’s share of any given market. The greater the percentage share the greater the penetration. Market pene tration may be difficult to measure in some foreign markets because of the difficulty in obtaining data from which to measure share. Companies seeking to determine how well they are doing overseas (and possibly how to do better) may be assisted by a g a p analysis.

marketing intelligence John O’Connell

There is a tremendous supply of information that must be continually evaluated in order to make informed and effective marketing decisions. Information on competitors’ prod ucts, research and development efforts, con sumer wants and needs, and hundreds of other types of information may assist a company in its marketing efforts. The more useful the information that is available for input, the more valuable and accurate the analysis will be. Marketing intelligence is the process of

matrix organizational structure securing information from all available sources (internal and external to the company), screening that information for relevant data, and using that data to make more informed marketing decisions. An interesting sidelight to marketing intelli gence has arisen over the past several years in terms of who gathers the intelligence. With the fall of communism and the end of the Cold War many former government workers or contractors are becoming consultants gathering various kinds of intelligence information for business interests. Using the most up to date methods, information of many kinds may be identified and transferred to clients.

251

massify John O’Connell

To massify is to produce a standard product with attributes which are sufficient to meet the demand of buyers. Essentially, a company seeks to produce a product for the masses or the largest group possible. A product with sufficient qual ities (but not all available qualities) to meet the needs of most consumers should be cheaper to produce than a product which must be tailor made for one market and changed for each dif ferent market.

master air waybill John O’Connell

marking John O’Connell

In international trade the term ‘‘marking’’ refers to the conspicuous placement of the name of an import’s country of origin and final destination point. Marking helps customs officials easily identify property which may be subject to special duties or import restric tions.

A single shipper of goods may have a number of cargoes destined for a single destination. Once these cargoes are put together (consolidated) for shipment the air carrier issues an a i r b i l l as a receipt for the cargo. Included in the airbill is a master air waybill which lists the details of the air shipment (destination, owner of goods, types of goods, values, etc.).

matrix organizational structure marking duty

John O’Connell John O’Connell

Marking is the indication on imports as to the country of origin. If improper marking occurs an additional d u t y is applied as a penalty.

married status John O’Connell

When an employee is sent on an overseas a s s i g n m e n t and is accompanied by his or her spouse or children, the employee’s a s s i g n m e n t s t a t u s is ‘‘married.’’ Assign ment status determines many of the compensa tion allowances and benefits available to an employee when transferred overseas.

Generally, organizations are structured so that clear chains of command, communication, reward, and responsibility are provided for em ployees. In these organizations, employees have responsibility for one area and usually answer to one manager or department. The matrix organ ization is one in which employees have at least a dual responsibility. International organizations are very often matrix organizations due to the complexity of the international business process. Employees and managers must successfully operate the foreign subsidiary, but do so in a way that meets the objectives of the parent or ganization. Thus, responsibility is dual: to the foreign operation and to the parent organization. Such a system usually results in less formal communications channels; use of task forces to solve problems or discover opportunities;

252

mature economy

an emphasis on the ability to adapt to situations; and a constant reminder of the overall organiza tional goals and objectives, lest they be forgotten in the stressful times often associated with man aging a foreign operation. Managers are hired for their ability to be flexible in their actions and ability to display independence, while continuing to meet the objectives of the parent company. Bibliography Adler, N. J. (1991). International Dimensions of Organiza tional Behavior, 2nd edn. Belmont, CA: Wadsworth. Bleicher, K. (1986). Corporate governance systems in a multinational environment: Who knows what’s best. Management International Review, 3, 4 15. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

Medivac John O’Connell

Medivac is the name given to services which are available to transport an ill or injured employee from one place to another for medical care. Evacuation for medical purposes may be to an other part of the host country, to the closest country in which appropriate care may be pro vided, or to the home country. Commercial ser vices are available to companies who can sign up for either group or individual plans in anticipa tion of possible medical problems. Remember, the medical care and facilities in a host country may be quite different and possibly inferior to those provided in the home country. Medivac services not only provide security for the e x p a t r i a t e , but also possible reduction of potential employer liability for placing an em ployee in a known area of danger without pro viding for proper medical care.

mature economy John O’Connell

An economy experiencing stable growth – usu ally, a nation which has industrialized to the point that continued capital investment is not as essential as it once was. Purchases of goods change from factory equipment to automobiles and other personal goods. The economy is not stagnant, but its growth pattern is moving from industrial goods to consumer goods production.

m-commerce John O’Connell

Refers to access to the Internet via a mobile device, such as a cell phone or a PDA. Once m commerce becomes ubiquitous (it has greater rates of acceptance in places like Europe and Japan than it does in the US, due to standards that have developed) it will change the utility of the Web from a business standpoint. Contextual marketing, the ability to communicate with a person when the person is likely to be receptive to the communication, will begin to occur, due to the mobility of access versus a PC. SMS is the messaging system across mobile devices that complements m commerce.

meet and greet John O’Connell

Many organizations who send employees over seas make it a practice for someone representing the organization to meet the e x p a t r i a t e at the airport when he or she first arrives. Problems concerning immediate transportation, customs, or obtaining a meal, as well as providing a certain comfort level, can be dealt with more readily by a person familiar with the host country. Meet and greet is not just a problem solving gesture; it is also a morale booster for the expatriate and any accompanying dependants.

merchant bank John O’Connell

As with the ordinary definition of the term, a ‘‘merchant’’ bank is in the buying and selling business. The buying is the arrangement of com mercial loans and the selling is the transfer of the loan to another bank prior to its maturity. Thus, a merchant bank is not in business to make loans to hold until maturity. Instead, loans are made

mindful communication with the intention of reselling them. Merchant banks also underwrite securities, provide invest ment assistance to companies, and may become an investor in corporate acquisitions or other types of restructuring. Merchant banks also fa cilitate international trade by often accepting bills of exchange. Merchant banks perform in much the same manner as investment banks in the United States.

253

ask price is 1.550, the middle rate is 1.525 (the average of the bid and ask prices). The middle rate is used to determine the per centage spread between bid and ask prices of currency.

MIGA

see m u l t i l a t e r a l i n v e s t m e n t g u a r a n tee agency

See also investment banking Bibliography Logue, D. E. (1995). The WG&L Handbook of Inter national Finance. Cincinnati, OH: South-Western.

mindful communication Jeanne McNett

meta-market John O’Connell

A Web based market centered around an event or an industry, rather than a single product. These are markets of complementary products that are closely related in the minds of con sumers, but spread across different industries. The Web allows us to match the producer’s desire for economies of scale and the consumer’s desire for variety of choice to satisfy a set of needs. Thus we can have a meta market for weddings (event) that includes honeymoon rec ommendations and sources of engagement rings and wedding gowns. Equally, we can have a meta market for an entire industry (e.g., chem icals) where the industry can trade excess inven tory, source new suppliers, and find new vendors. These type of markets are easier to establish in the Web world than they were before the Web and can prove very effective. Edmonds.com is an example of a meta market for the auto industry.

middle rate John O’Connell

The middle is merely the mid point between the quoted bid and ask prices for f o r e i g n e x c h a n g e . If the bid price is 1.500 and the

This term is used to denote the skills necessary to communicate across cultural borders. Inter cultural communication involves significantly more than speaking the same language because communication involves transmission of a message whose receiver gives it a meaning so that a shared understanding is reached (Thomas and Osland, 2004). Mindful communi cation is a symbolic exchange in which individ uals interactively negotiate shared meanings. Mindful communication competence rests on the attributes of a g l o b a l m i n d s e t and is a critical skill for the international manager. Com petence involves heightened mindfulness, the acquisition of in depth knowledge, and the de velopment of communication skills. The MBI model is one approach to mindful commu nication. The communication process is embedded in culture and tends to proceed in a routine manner without much conscious thought unless it is mindful. Thus, knowledge of the culture of the other party is an important prerequisite in nego tiating a shared meaning. Cultural values include varying communication norms that individuals use to guide their communication behaviors. These behaviors may be misunderstood by someone who does not share the same cultural grounding. In addition to the spoken language, culturally influenced aspects of communication include tone of voice, proxemics (spatial aspects of communication), body position, gestures, facial expression, and eye contact.

254

Ministry of International Trade and Industry

Mindful communication can be judged by three criteria: appropriateness, effectiveness, and satisfaction. Appropriate communication matches the expectations of both sender and receiver. Effectiveness indicates that shared meaning has been achieved. Satisfaction occurs when a communicator’s identity image is affirmed rather than disconfirmed as a result of the interaction. Bibliography Adler, N. J. (1997). International Dimensions of Organiza tional Behavior, 3rd edn. Cincinnati, OH: South-Western. Bennett, M. (1993). Towards ethnorelativism: A developmental model of intercultural sensitivity. In R. M. Paige (ed.), Education for the Intercultural Experience. Yarmouth, ME: Intercultural Press. Benson, P. G. (1978). Measuring cross-cultural adjustment: The problem of criteria. International Journal of Intercultural Relations, 2 (1), 21 37. Brein, D. and David, K. H. (1971). Intercultural communication and the adjustment of the sojourner. Psycho logical Bulletin, 76 (3), 215 30. Clark, H. H. and Brennan, S. E. (1991). Grounding in communication. In L. B. Resnick, J. M. Levine, and S. D. Teasley (eds.), Perspectives on Socially Shared Cog nition. Washington, DC: American Psychological Association. Gallois, C. and Callan, V. (1997). Communication and Culture: A Guide for Practice. Chichester: John Wiley. Gudykunst, W. B., Ting-Toomey, S., and Chua, E. (1988), Culture and Interpersonal Communication. Newbury Park, CA: Sage. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Langer, E. (1989). Mindfulness. Boston, MA: AddisonWesley. Taylor, S. and Osland, J. S. (2002). The impact of intercultural communication on global organizational learning. In M. Easterby-Smith and M. A. Lyles (eds.), Handbook of Organizational Learning and Knowledge. Oxford: Blackwell. Thomas, D. and Osland, J. S. (2004). Mindful communication. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Ting-Toomey, S. (1999). Communicating Across Cultures. New York: Guilford Press. Triandis, H. C., Marin, G., Lisansky, J., and Betancourt, H. (1984). Simpatia as a cultural script of Hispanics. Journal of Personality and Social Psychology, 47 (6), 1363 75.

Ministry of International Trade and Industry (MITI) John O’Connell

The responsibility for regulating Japan’s mas sive industrial base and coordinating the distri bution of resources to keep industry strong is given to the Japan Ministry of International Trade and Industry. Among other responsibil ities, it is MITI’s task to develop strategies which lead to further exports of Japanese goods.

MNC strategy Allen J. Morrison

Value activities form the building blocks of a multinational company’s strategy and structure. Value activities are the functions performed by an MNC that either directly or indirectly generate revenues. Common activities include R&D, purchasing, logistics, component manu facturing, assembly, marketing, sales, and ser vice, as well as the support activities of finance, human resource management, and control. One fundamental choice for an MNC involves determining how these value activities will be geographically configured; a second choice involves determining the degree to which these activities should be coordinated. An MNC’s international strategy is manifest in the con figuration and coordination of its activities. As MNCs configure their activities, they typ ically think in terms of ‘‘concentrating’’ them in a single country or ‘‘dispersing’’ them in mul tiple countries. For example, an MNC which concentrates research and development will per form all R&D functions in one central location from which the rest of the world will be served. In contrast, when an activity is dispersed, the activity is replicated in each country in which the MNC competes. As an example, an MNC which disperses sales activities will employ separate sales teams in each country in which it competes. Several researchers have found that patterns of MNC configuration vary according to home country affiliation. Japanese based MNCs, for example, have traditionally relied much more heavily on stand alone distribution based affiliates than US based MNCs, which tend to

MNC strategy combine overseas manufacturing with sales. Some have argued that Japanese based MNCs tend to concentrate activities at home because they are at an earlier stage in their efforts to transnationalize operations than are US based MNCs. The geographic proximity of concen trated activities generally makes them easier for MNC managers to control. How an MNC configures its operations directly impacts its capacity to exploit the differ ences in comparative advantage across countries. Differences in comparative advantage can stem from a variety of factors, including variations in labor rates, unequal levels of labor productivity, and disparities in raw material costs and energy costs. MNCs that exploit differences in compara tive advantage concentrate activities in whichever location an advantage can be gained. In theory, this concentration should produce an advantage over MNCs which broadly dispersed their activ ities or over wholly domestic competitors. In practice, however, exploiting differences in com parative advantage can be more difficult than suggested by theory. The evidence suggests that most world trade takes place within developed countries where differences in comparative ad vantage are often small. Governments also often subsidize or tax away differences in comparative advantage. Transportation expenses can also di minish the impact of comparative advantages. In addition to making decisions about the geo graphic configuration of activities, MNCs also decide the degree to which activities are coordin ated. Coordination is related to the integration or interdependence of value activities within an MNC. Coordination can range from very low – where each value activity is performed independ ently – to very high, where like activities are tightly integrated across geographic locations. For example, if an MNC has highly coordinated manufacturing, each manufacturing facility will have identical control systems, use common pro duction processes, rely on the same parts, and have integrated production schedules. Manufac turing facilities that are loosely coordinated have a high degree of autonomy and would produce output with different designs, relying on differ ent equipment, and utilizing unique parts. One advantage of tight coordination is the minimization of redundancies. Tight coordin ation also leads to greater power over buyers and

255

sellers. For example, coordinated purchasing saved automobile MNCs billions of dollars in the 1990s. Other advantages stemming from tight coordination include savings through the use of common brand names, speedier communi cation of market knowledge, and ease of manage ment functions through standardization of control procedures. While coordination focuses on horizontal link ages between similar activities, MNCs are also concerned about vertical linkages – say between R&D and manufacturing, or between manufac turing and marketing. Vertical linkages can min imize internal transaction costs, insure product supply and quality, improve scheduling, and pro vide important barriers to entry for competitors. Tight vertical integration also insures maximum consistencies in interfacing with customers. To be effective, vertical integration requires enormous teamwork. At AT&T, for example, development work on the company’s cordless telephone Model 4200 was cut from two years to one year through the use of integrative teams including engineers, manufacturers, and marketers. Vertical teams have been used effectively at companies as diverse as Boeing, Toyota, and IBM. Configuration and coordination reflect an MNC’s existing strategy. They indicate where an MNC competes and determine how an MNC interacts with different countries. MNCs can ex ploit particular patterns of configuration and co ordination to produce a competitive advantage under appropriate industry conditions. While every MNC strategy has idiosyncratic compon ents, broad patterns of configuration and coord ination are generally observable. These patterns make it possible to classify MNC strategies. Research on MNC strategies has generally recog nized three broad based patterns of configuration and coordination. These include stand alone, simple integration, and complex integration strategies. Under a traditional stand alone strategy, ac tivities are both loosely coordinated and geo graphically dispersed. Affiliate managers are given a high degree of autonomy and control most decision making; each overseas affiliate acts as an independent profit center. The general pattern is to absorb home country offerings and adapt the resulting products to meet local demand. Production, marketing, sales, and

256

monetary union

service activities tend to be located in each coun try, with little coordination across countries. Because of the emphasis on generally independ ent affiliates, stand alone strategies have also been referred to as multidomestic strategies. The essence of a simple integration strategy is to design and develop a product to international specifications, produce it in large scale, modern factories to high quality standards, and sell it around the world at competitive prices. Much of Japan’s high profile successes in international markets came from the adoption of simple inte gration strategies. In that simple integration strategies are designed to leverage company com petencies on a multi country basis, they are sometimes referred to as integrated regional or pure global strategies. Competitors are defined on a regional or global basis, with the cross subsidization of national market share battles a common practice. Complex integration strategies received grow ing attention in the 1990s. Sometimes referred to as a multifocal or transnational strategy, a com plex integration strategy is designed to concur rently respond to industry pressures to be both globally integrated and locally responsive by em phasizing efficiency, affiliate responsibility, and organizational learning. A complex integration strategy is an attempt to capture the advantages of both stand alone and simple integration strat egies. In order to achieve these benefits, the configuration and coordination of activities are mixed; affiliates play leadership roles for some activities and supporting roles for others. Com plex integration strategies can either have a re gional or global focus. Under a regionally focused complex integration strategy, activities are con figured and coordinated within a region. Under a globally focused complex integration strategy, the world becomes the focus. In both cases, the MNC operates as a network of multifunction affiliates. See also multinational corporation

total freedom of money movement between members. This is one of the steps toward complete economic integration which is some times sought after by members of a common market. Such a system would result in fixed exchange rates between countries and full freedom to invest, repatriate, or otherwise use money in any of the member countries.

money laundering John O’Connell

The process of transferring money from one country to another or from one business concern to another in order to conceal the money’s original source. Generally, money which is laundered is obtained through illegal sources. Huge sums of money obtained through illegal drug trafficking have been laundered (sometimes successfully and sometimes not) through various countries of the world. Although many countries have laws against such activity, as well as banking procedures to report large sums of cash deposited, money laundering activities are extremely difficult to trace.

money market John O’Connell

Compared to other securities exchanges the money market is a rather unstructured grouping of investors and dealers. Investors represent a broad spectrum of business and government interests. Money market trades are in short term (normally 90 days or less) liquid invest ments. Financial institutions that participate in money markets provide much of the financing necessary for local and international commercial ventures and trade finance.

monetary union John O’Connell

A monetary union establishes a single currency for all c o m m o n m a r k e t members and

money market hedge

see h e d g i n g

Multilateral Investment Guarantee Agency 257 money market instruments John O’Connell

Money market instruments are debt contracts comprised of very liquid investments, including commercial paper, CDs that are negotiable, T Bills, and other government short term paper and short term tax exempt securities, among others. The London, Tokyo, and New York financial markets (and other large financial markets) are heavily into trading money market instruments.

most favored nation status (MFN) John O’Connell

This is generally the highest status a nation can receive with respect to international trade matters between nations. A nation granting most favored status to another nation agrees to offer all tariff reductions it offers to all other MFN countries. Thus, when the United States offered China most favored nation status, the US agreed to provide China with reduced tariffs and other concessions offered to all other MFN countries. A nation not offered most favored nation status (or one which has MFN status revoked) normally faces large increases in tariff charges. MFN status, in addition to being a powerful economic tool, can also be used as leverage to attain political and other concessions. For example, MFN status has been used by the United States to reward or punish countries with respect to human rights issues.

today’s world that managers must become aware of differences and learn how to deal with common problems that arise. See also cross cultural training

multidomestic company John O’Connell

When a company decides to allow each facility to operate independently (or is forced to in order to deal with local conditions in various countries), instead of attempting to integrate each under a single corporate operation, that organization is referred to as a multidomestic company or mul tidomestic industry. See also multinational corporation

multidomestic strategies John O’Connell

When a multinational organization elects to es tablish subsidiaries in different countries and allow each subsidiary to function as if it was a local firm, this is referred to as a multidomestic strategy. Each subsidiary acts as if it were a domestic firm in order to be able to respond more effectively to local conditions. In the final analysis each firm is still a member of the parent organization, but also has roots in the country in which it was formed. See also multinational corporation

Bibliography Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

Bibliography Kim, W. C. and Mauborgne, R. A. (1993). Effectively conceiving and executing multinationals’ worldwide strategies. Journal of International Business Studies, 24 (3), 419.

multicultural John O’Connell

Multiculture may be defined as having more than one culture represented. The term is used to denote culturally diverse workplaces, living units, and any other situation or activity where more than one culture exists. The existence of multicultural conditions is so prominent in

Multilateral Investment Guarantee Agency (MIGA) John O’Connell

The Multilateral Investment Guarantee Agency (MIGA) was formed by the World Bank in 1987.

258

multilateral netting

The purpose of MIGA is to offer support for World Bank member country investors in for eign countries through the provision of country risk (p o l i t i c a l r i s k ) insurance. MIGA offers coverage against e x p r o p r i a t i o n of property, contract repudiation, breach of con tract, war, civil commotion and rebellion, and currency inconvertibility. Insurance of this type reduces the overall risk faced by an investor. Often, providers of funds for investors require the purchase of political risk and inconvertibility coverage.

multilateral netting John O’Connell

Multilateral netting is an important c a s h m a n a g e m e n t tool for organizations having operations and currency flows between a number of nations. Each time currency pay ments must be made there are transaction costs and delays. If an organization could make fewer but larger currency transfers, transaction costs could be reduced and delays minimized. This is where multinational netting comes in. As an example, assume an organization has operations in three countries. Each operation transfers cur rency to each other country once per day. Each operation is paying for some goods or services from a country while at the same time receiving payment from that country for goods or services it provided. Thus, a total of six transactions take place (payments and receipts flowing back and forth between each of the three operations). In stead of transferring money directly to the coun try, a multilateral netting approach would have each operation transfer its payments to a single ‘‘coordination center.’’ The coordination center would ‘‘net out’’ (deduct the outflows from the inflows) the individual transactions between the three country operations. The difference would then be sent to each operation (a total of three transactions) at a lower transaction cost and with greater speed. Bibliography Celi, L. J. and Rutizer, B. (1991). Global Cash Manage ment, 1st edn. New York: Harper Business.

Kuhlmann, A. R., Mathis, F. J., and Mills, J. (1991). First Steps in Treasury Management: Prime Cash, 2nd edn. Toronto: Treasury Management Association of Canada.

multilateral trade agreement John O’Connell

The term ‘‘multilateral’’ means that several countries have entered into an agreement. A multilateral trade agreement is one that a number of countries have promised to uphold. Trade agreements commonly reduce trade b a r r i e r s between countries, thereby improving the possibility of successful and growing trade between those nations.

multimodal bill of lading John O’Connell

A b i l l o f l a d i n g is normally issued for a single mode of transportation. However, when two or more modes of transportation are used (truck, rail, water, or air) a single bill of lading for the entire trip may be issued. When a multi modal bill of lading is used, each carrier is re sponsible only for its portion of the trip. Thus, the air carrier is responsible only for the air portion of the trip, the water carrier for its por tion, and the truck carrier for the land portion. See also combined transport bill of lading

multinational corporation (MNC) John O’Connell

An MNC is a corporate entity that is involved in operations in a number of countries. Multi national companies generally view the entire world as their market, taking or making oppor tunities wherever they arise. Although there is some discussion about whether a multinational company must be very large to properly be re ferred to as an MNC, there is strong support for the position that the way a company acts is more

multiplicity a determinant of it being classified as an MNC than is its size. See also MNC strategy

multinational enterprise (MNE)

259

facility. Securing large amounts of funds by a corporation or government is sometimes diffi cult unless a loan is syndicated (a number of banks share in providing the loan). Some syndi cated loans offer a variety of financial instru ments to choose from. Choices to fill out a loan may include Euronotes, various currencies, or straight syndication.

John O’Connell

A multinational enterprise is very similar to a m u l t i n a t i o n a l c o r p o r a t i o n except that it does not have to be incorporated. Thus, MNE describes a larger number of organizations working across borders. MNEs include multi national partnerships, trusts, and other non corporate entities. As with a multinational corporation, MNEs are multinational because they think and act as if the world is their place of business.

multinational firm (MNF)

see m u l t i n a t i o n a l c o r p o r a t i o n

multiple column tariff John O’Connell

A multiple column tariff discriminates between countries by assessing different rates for the same types of goods imported from different countries. Multiple column tariffs may be used when imports are purchased from less developed countries (LDCs) in order to make their goods more competitive. Many countries offer prefer ential tariffs to LDCs to assist in their economic development. See also duty

multiple option facilities John O’Connell

When lenders offer choices of financial instru ments it is referred to as a multiple option

multiplicity Jeanne McNett

Multiplicity is one of the three conditions of the complexity that constitutes g l o b a l i z a t i o n , the other two being i n t e r d e p e n d e n c e and ambiguity. In this sense, multiplicity refers to the many different models available to organizations for organizing and conducting business, and the increasing numbers of organizations, govern ments, and people involved in the process, all of which are culturally different. There is a multiplicity of competitors (some of which are global), a multiplicity of customers (some of whom are culturally different and differ signifi cantly in their needs), a multiplicity of govern ments (many of which want to regulate), and a multiplicity of shareholders, including NGOs whose goal is to monitor corporate activities (Lane, Maznevski, and Mendenhall, 2004). All of these entities, competitors, customers, gov ernments, and other stakeholders differ from each other in terms of their structure, motiv ations, and traditions. Managing multiplicity ef fectively is a challenging part of globalizing. Bibliography Bartlett, C. A. and Ghoshal, S. (1998). Managing Across Borders: The Transnational Solution, 2nd edn. Boston, MA: Harvard Business School Press. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Porter, O. and Steger, U. (eds.) (1998). Discovering the New Pattern of Globalization. Ladenburg: Ladenburg Kolleg, Daimler Benz Foundation.

260

Muslim law

Prahalad, C. K. (1990). Globalization: The intellectual and managerial challenges. Human Resource Manage ment, 29 (1), 30. Prahalad, C. K. and Doz, Y. L. (1987). The Multinational Mission: Balancing Local Demands and Global Vision. New York: Free Press. Prahalad, C. K. and Lieberthal, K. (1999). The end of corporate imperialism. Harvard Business Review, July August, 69 79. Rugman, A. and Moore, K. (2001). The myths of globalization. Ivey Business Journal, Sept. Oct., 64 8. Sachs, J. (2000). International economics: Unlocking the mysteries of globalization. In P. O’Meara, H. D. Mehlinger, and M. Krain (eds.), Globalization and the Chal lenges of a New Century: A Reader. Bloomington, IN: Indiana University Press. Waldrop, M. M. (1992). Complexity: The Emerging Science at the Edge of Order and Chaos. New York: Touchstone.

Weick, K. E. and Van Orden, P. (1990). Organizing on a global scale: A research and teaching agenda. Human Resources Management, 29 (1), 49 61.

Muslim law

see c o d e l a w

mutuality of benefits

see r e c i p r o c i t y

N national culture John O’Connell

When research and other publications dealing with cultural questions are reviewed it may appear that each country has its own unique culture. This is because most research is carried out in a specific country and the assumption is often made that ‘‘country’’ corresponds with ‘‘culture.’’ Nothing could be further from the truth. A ‘‘national’’ culture is that of the majority of a country’s citizens. The values, beliefs, and attitudes of the majority can and do coexist with a large number of other cultures. One has only to look at the diversity of cultures within the United States for an example of a m u l t i c u l t u r a l country. Still, the US national culture would probably include descriptors such as in dividualism, creative, oriented towards accumu lation of material goods, and others. As for cultures remaining only within a certain coun try’s boundaries, one may look to Great Britain as a bold example of national culture spreading to many other parts of the world. If a person goes to most of the former British colonies he or she will find a multitude of British cultural attri butes alive and well. A national culture may be capable of definition and useful as a first look at what will face a future e x p a t r i a t e . Closer inspection of most countries will reveal the ex istence of a great number of other cultures.

approved establishment. Debts and other obli gations of a country are normally paid using the national currency of that country. At last count there were almost 200 different national curren cies. A number of countries do not have their own national currency, but instead use the cur rency of another country (e.g., the Isle of Man uses the pound sterling). When dealing in the currencies of different countries it is extremely important to know exactly which currency is being quoted. For example, the currency unit 1 franc could mean the Swiss franc, the Burundi franc, or the Central African Republic franc.

national treatment John O’Connell

An agreement between countries to treat imported products and services (between signa tories of the agreement) in the same manner as domestically produced goods and services. This is an example of free trade at its highest level. Essentially, national treatment removes b a r r i e r s which may have hampered free trade. National treatment is the basic goal of the Gen eral Agreement on Tariffs and Trade (GATT).

national treatment with access John O’Connell national currency John O’Connell

National currency is the monetary unit and legal tender of a particular country. It is the official currency of a country issued by a government

n a t i o n a l t r e a t m e n t is defined as treating imported goods and services on the same basis as domestically produced goods and services. Essentially, this means the removal of b a r r i e r s for imported goods and services between agree ing countries. The ‘‘with access’’ terminology is

262

nationalism

the result of problems in the past with one coun try offering national treatment to goods of a second country, only to find the second country not completely complying with the agreement. ‘‘With access’’ means that country number one will offer national treatment to country number two only if country number two allows import ation of country number one’s goods and ser vices. ‘‘With access’’ wording formalizes what is being expected by each country.

projects quality and credibility. Other times it projects mistrust, poor quality products, and even hostile feelings. Care must be taken to view the nationality image of a company or product with the eyes of the host country, in stead of the eyes of a market researcher in the home office.

nationalization

See also reciprocity

John O’Connell

nationalism John O’Connell

At its best, nationalism portrays a citizen’s or government’s pride in being a part of their coun try. At its worst, nationalism results in conflict against those not from a particular country, dis crimination, protectionism, and other b a r r i e r s to free flow of people, materials, and thoughts. Nationalism is a very powerful force. It is a force that shows itself in patriotic celebra tions and in trade negotiations. With the world seemingly moving to c o m m o n m a r k e t and trade bloc existence, nationalism is being tested. For true economic and other integration to occur countries will have to become a part of some larger political and economic system. Although national feeling will not cease, such feeling may slowly be adapted to a larger national (supra national) allegiance.

nationality image

Nationalization is the action of a government to transfer possession of private property to the government. Many countries have nationalized whole industries on the premise that ownership transfer is in the public’s best interests. Com pensation is generally offered, but there are no guarantees it will be sufficient to pay for loss of value and future profits of the nationalized firm. Nationalization has been most common in ex tractive industries (mining, energy) and commu nications and financial services (insurance companies and banks). Nationalization is con sidered a p o l i t i c a l r i s k for which insurance coverage may be available. See also political risk insurance Bibliography Coplin, W. D. and O’Leary, M. K. (1994). The Handbook of Country and Political Risk Analysis. New York: Political Risk Services. Gregory, A. (1989). Political risk management. In A. Rugman (ed.), International Business in Canada. Scarborough: Prentice-Hall, Canada. Kennedy, C. R., Jr. (1991). Managing the International Business Environment: Cases in Political and Country Risk. Englewood Cliffs, NJ: Prentice-Hall.

John O’Connell

This term refers to a company’s desire to project its association with a particular country. A com pany desiring to project its home country nation ality image may keep the same brand name for its products and use similar advertising and dis tribution as in the home country. If a company desires to project the image of the host country, product naming, advertising, and distribution will resemble that of other local products. Nationality image is important. Sometimes it

negotiation Max H. Bazerman

When two or more parties need to reach a joint decision but have different preferences, they negotiate. They may not be sitting around a bargaining table; they may not be making expli cit offers and counter offers; they may not even

negotiation be making statements suggesting that they are on different sides. However, as long as their prefer ences concerning the joint decision are not iden tical, they have to negotiate to reach a mutually agreeable outcome. Over the last decade, the topic of negotiation has captivated the field of organizational behav ior, and more broadly, business schools. It has grown to be one of the most popular topics of instruction, and the current state of research is very different as a result of the interest in this topic. This review will highlight the five domin ant areas of research in negotiation: 1 2 3 4 5

Individual differences Situational characteristics Game theory Asymmetrically prescriptive/descriptive Cognitive

More detailed reviews can be found elsewhere (Neale and Bazerman, 1991).

Individual Differences During the 1960s and early 1970s, the majority of psychological research conducted on negoti ations emphasized dispositional variables (Rubin and Brown, 1975) or traits: individual attributes such as demographic characteristics, personality variables, and motivated behavioral tendencies unique to individual negotiators. Demographic characteristics (e.g., age, gender, race, etc.), risk taking tendencies, locus of control, cognitive complexity, tolerance for ambiguity, self esteem, authoritarianism, and machiavellianism were all hot research topics in 1960s negotiation literature. Since bargaining is clearly an interpersonal activity, it seems logical that the participants’ dispositions should exert significant influence on the process and outcomes of negotiations. Unfortunately, despite numerous studies, dispo sitional evidence is rarely convincing. When effects have been found, situational features im posed upon the negotiators often reduce or negate these effects. As a result, individual attri butes typically do not account for significant variance in negotiator behavior. A number of authors have reached the con clusion that individual differences offer little insight into predicting negotiator behavior and

263

negotiation outcomes: ‘‘there are few significant relationships between personality and negoti ation outcomes’’ (Lewicki and Litterer, 1985). In addition to the lack of predictability from individual differences research, this literature has also been criticized for its lack of relevance to practice. Bazerman and Carroll (1987) argue that individual differences are of limited value because of their fixed nature (i.e., they are not under the control of the negotiator). Further more, individuals, even so called experts, are known to be poor at making clinical assessments about another person’s personality in order to formulate accurately an opposing strategy (Bazerman, 1994). In summary, the current literature on disposi tional variables in negotiation offers few concrete findings. Future research in this direction re quires clear evidence, rather than intuitive asser tions, that dispositions are important to predicting the outcomes of negotiations.

Situational Characteristics Situational characteristics are the relatively fixed, contextual components that define the negotiation. Situational research considers the impact of varying these contextual features on negotiated outcomes. Examples of situational variables include the presence or absence of a constituency, the form of communication be tween negotiators, the outcome payoffs available to the negotiators, the relative power of the parties, deadlines, the number of people repre senting each side, and the effects of third parties. Research on situational variables has contrib uted much to our understanding of the negoti ation process and has directed both practitioners and academics to consider important structural components. For example, situational research has found that the presence of observers in a negotiation can dramatically affect its outcome. This effect holds whether the observers are phys ically or only psychologically present. Further, whether the observers are an audience (i.e., those who do not have a vested interest in the outcome of the negotiation) or a constituency (i.e., those who will be affected by the negotiation) is of little importance in predicting the behavior of the negotiator (Rubin and Brown, 1975). One of the main drawbacks of situational re search is similar to that of individual differences

264

negotiation

research. Situational factors represent aspects of the negotiation that are usually external to the participants and beyond the individual’s control. For example, in organizational settings, partici pants’ control over third party intervention is limited by their willingness to make the dispute visible and salient. If and when the participants do make the issue visible and salient, their man ager usually decides how he or she will intervene as a third party (Murnighan, 1987). The same criticism holds true for other situ ational factors, such as the relative power of the negotiators or the prevailing deadlines. While negotiators can be advised to identify ways in which to manipulate their perceived power, ob vious power disparities resulting from resource munificence, hierarchical legitimacy, or expert ise are less malleable. Negotiators are often best served by developing strategies for addressing these power differentials instead of trying to change them.

The Economic Study of Game Theory The earliest attempts at providing prescriptive advice to negotiators were offered by econo mists. The most well developed component of this economic school of thought is game theory. In game theory, mathematical models are de veloped to analyze the outcomes that will emerge in multiparty, decision making contexts if all parties act rationally. To analyze a game, specific conditions are outlined which define how deci sions are to be made (e.g., the order in which players get to choose their moves) and utility measures of outcomes for each player are at tached to every possible combination of player moves. The actual analysis focuses on predicting whether or not an agreement will be reached, and if one is reached, what the specific nature of that agreement will be. The advantage of game theory is that, given absolute rationality, it pro vides the most precise prescriptive advice avail able to the negotiator. The disadvantages of game theory are twofold. First, it relies upon being able to completely describe all options and associated outcomes for every possible com bination of moves in a given situation – a tedious task at its best, infinitely complex at its worst. Second, it requires all players to act rationally at all times. In contrast, individuals often behave irrationally in systematically predictable ways

that are not easily captured within rational analyses.

Asymmetrically Prescriptive/ Descriptive As an alternative to game theoretic analyses of negotiation which take place in a world of ‘‘ultra smart, impeccably rational, supersmart people,’’ Howard Raiffa developed a decision analytic ap proach to negotiations – an approach more ap propriate to how ‘‘erring folks like you and me actually behave,’’ rather than ‘‘how we should behave if we were smarter, thought harder, were more consistent, were all knowing’’ (Raiffa, 1982: 21). Raiffa’s decision analytic approach focuses on giving the best available advice to negotiators involved in real conflict with real people. His goal is to provide guidance for a focal negotiator given the most likely profile of the expected behavior of the other party. Thus, Raiffa’s approach is prescriptive from the point of view of the party receiving advice, but de scriptive from the point of view of the competing party. Raiffa’s approach offers an excellent framework for approaching negotiations. How ever, it is limited in the insights that it provides concerning the behaviors that can be anticipated from the other party. Raiffa’s work represents a turning point in negotiation research for a number of reasons. First, in the context of developing a prescriptive model, he explicitly acknowledges the import ance of developing accurate descriptions of op ponents, rather than assuming they are fully rational. Second, by realizing that negotiators need advice, he recognizes that they do not in tuitively follow purely rational strategies. Most importantly, he has initiated the groundwork for dialogue between prescriptive and descriptive researchers. His work demands descriptive models which allow the focal negotiator to an ticipate the likely behavior of the opponent. In addition, we argue that decision analysts must acknowledge that negotiators have decision biases that limit their ability to follow such pre scriptive advice.

Cognitive The cognitive approach (Neale and Bazerman, 1991; Bazerman and Neale, 1992) addresses many of the questions that Raiffa’s work leaves

network service provider behind. If the negotiator and his or her opponent do not act rationally, what systematic departures from rationality can be predicted? Building on work in behavioral decision research, a number of deviations from rationality have been identified that can be expected in negotiations. Specifically, Neale and Bazerman’s research on two party ne gotiations suggests that negotiators tend to: 1 be inappropriately affected by the positive or negative frame in which risks are viewed; 2 anchor their number estimates in negoti ations on irrelevant information; 3 over rely on readily available information; 4 be overconfident about the likelihood of attaining outcomes that favor them; 5 assume that negotiation tasks are necessarily fixed sum and thereby miss opportunities for mutually beneficial trade offs between the parties; 6 escalate commitment to a previously selected course of action when it is no longer the most reasonable alternative; 7 overlook the valuable information that is available by considering the opponent’s cog nitive perspective; 8 retroactively devalue any concession that is made by the opponent (Ross, 1994). These tendencies seriously limit the usefulness of traditional prescriptive models’ rationality as sumption (i.e., the belief that negotiators are accurate and consistent decision makers). Fur ther, these findings better inform Raiffa’s pre scriptive model by developing more detailed descriptions of negotiator behavior. Collectively, these five perspectives provide a summary of the recent history and current state of knowledge of the topic of negotiation. Future research is moving in a cognitive direction, which will hopefully serve the need to better resolve disputes in personal, organizational, and societal affairs. Bibliography Bazerman, M. H. (1994). Judgment in Managerial Decision Making, 3rd edn. New York: Wiley. Bazerman, M. H. and Carroll, J. S. (1987). Negotiator cognition. In B. Staw and L. L. Cummings (eds.), Research in Organizational Behavior, Vol. 9. Greenwich, CT: JAI Press, 247 88.

265

Bazerman, M. H. and Neale, M. A. (1992). Negotiating Rationally. New York: Free Press. Lewicki, R. J. and Litterer, J. A. (1985). Negotiation. Homewood, IL: R. D. Irwin. Murnighan, J. K. (1987). The structure of mediation and ‘‘intravention.’’ Negotiation Journal, 2 (4), 351 6. Neale, M. A. and Bazerman, M. H. (1991). Cognition and Rationality in Negotiation. New York: Free Press. Raiffa, H. (1982). The Art and Science of Negotiation. Cambridge, MA: Belknap Press. Ross, L. (1994). Psychological barriers to dispute resolution. In K. Arrow, R. Mnookin, L. Ross, A. Tversky, and R. Wilson (eds.), Barriers to Conflict Resolution. New York: Norton. Rubin, J. Z. and Brown, B. R. (1975). The Social Psych ology of Bargaining and Negotiation. New York: Academic Press.

nepotism John O’Connell

Nepotism is favoritism toward relatives in hiring, advancement, job reviews, etc. In many countries nepotism is frowned upon and com panies have written rules against such behavior. In some countries, however, nepotism is a way of life in business. Family owned businesses make it a practice to place relatives in positions in their companies based upon family ties rather than job competence. Workers and/or managers not used to nepotism in the workplace should be aware of local practices, or misunderstandings and un comfortable situations may arise.

netting

see m u l t i l a t e r a l n e t t i n g

network service provider (NSP) John O’Connell

As opposed to Internet service providers (ISPs) who sell to end users, network service providers sell high volume Internet backbone capacity to Internet service providers. Network service pro viders often sell to end users as well. Sometimes called carriers, network service providers include

266

networks

MCI, AT&T, Sprint, and European Postal, Telegraph and Telephone (PTT) agencies.

networks Jeanne McNett

A network is a web of interconnected relation ships that individuals enter to achieve specific objectives. Networks can also be thought of as connecting groups or organizations. They are also the primary means to create and maintain social capital. Increasingly, firms are leveraging the social capital that is created among networks of people both within and outside of the firm who have access to particular knowledge in different parts of the world. Such leveraging of social capital results in an ability to create innovative solutions that can function as a firm’s sustainable competi tive advantage.

newly industrialized countries (NICs) John O’Connell

A newly industrialized country is one which has moved beyond the low income level, agrarian based economy of a less developed country (LDC). It has not yet achieved, however, the full industrialization, increased personal income, educational opportunities, etc. of an industrial ized nation. Although this category of nation may seem superficial or useless, it does have an impact on a country, especially in the area of available economic development funds from various sources. Many providers of funds offer them only to LDCs. Thus, when a country moves from that category to higher level eco nomic status it loses the ability to secure economic development funds from some sources. Countries currently falling into the newly industrialized category include Thailand, Malaysia, Brazil, and Mexico.

Bibliography Athanassiou, N. and Nigh, D. (1999). The impact of company internationalization on top management team advice networks: A tacit knowledge perspective. Strategic Management Journal, 19 (1), 83 92. Burt, R. (1992). Structural Holes: The Social Structure of Competition. Cambridge, MA: Harvard University Press. Cohen, D. and Prusak, L. (2001). In Good Company: How Social Capital Makes Organizations Work. Cambridge, MA: Harvard Business School Press. Cross, R. and Parker, A. (2004). The Hidden Power of Social Networks: Understanding How Work Really Gets Done in Organizations. Cambridge, MA: Harvard Business School Press. Krackhardt, D. and Hanson, J. R. (1993). Informal networks: The company behind the chart. Harvard Busi ness Review, July Aug., 104 11. Lin, N. (1999). Building a network theory of social capital. Connections, 22 (1), 28 51. Lin, N. (2001). Social Capital: A Theory of Social Struc ture and Action. Cambridge: Cambridge University Press. Nohria, N. and Eccles, R. G. (1992). Networks and Organ izations. Boston, MA: Harvard Business School Press. Wasserman, S. and Faust, K. (1994). Social Network Analysis. Cambridge: Cambridge University Press. Watson O’Donnell, S. (2000). Managing foreign subsidiaries: Agents of headquarters, or an interdependent network? Strategic Management Journal, 21 (5), 525 48.

non-commodity agreement John O’Connell

These are agreements between countries dealing with things other than products or other goods. Non commodity agreements address areas such as i n t e l l e c t u a l p r o p e r t y rights, applica tion of laws, technology transfer, human rights, and other intangible concerns.

non-financial incentives John O’Connell

Non financial incentives are those not measured in increased pay to an employee, but instead are related to status (a new title or new office), greater feeling of stability or well being (being placed on exempt status instead of hourly payroll), assist ance with coping with overseas a s s i g n m e n t problems (training in stress management and cul tural awareness), and others. Often, the non financial benefits are more important to success than are monetary compensation items. It is im portant to determine not only what incentives are normal for a country or culture but also for

non-verbal communication individual workers. Although information collec tion concerning viable incentives is a time con suming task, the resulting information will allow the structuring of an overall compensation (finan cial and non financial) system that will be more effective in motivating employees. See also compensation package (expatriate) Bibliography Harvey, M. (1985). The executive family: An overlooked variable in international assignments. Journal of Inter national Business Studies, Columbia Journal of World Business, 785 800. Pulatie, D. (1985). How do you insure success of managers going abroad? Training and Development Journal, December, 22 4.

non-resident convertibility John O’Connell

A non resident of a country normally has the right to exchange local deposits of that country’s currency for any other currency. Thus, a Can adian citizen with pound sterling in a London bank could exchange the pound sterling for any other currency. This is referred to as non resi dent convertibility.

non-tariff barriers John O’Connell

These are b a r r i e r s , other than tariffs or duties, which reduce or restrict the free flow of trade. Such barriers include customs delays, subsidies to local businesses, domestic content requirements, and others.

non-verbal communication Jeanne McNett

Non verbal communication includes body movements and gestures and is produced more automatically than words. Non verbal commu nication conveys important messages. Some

267

researchers suggest that as much as 70 percent of communication between people in the same language is non verbal and in cross cultural communication it is possible that people rely more heavily on the non verbal component. Categories of non verbal communication in clude tone of voice, proxemics (spatial aspects of communication), body position, gestures, facial expression, touch, and eye contact or gaze. Non verbal communication helps to regulate interaction by providing information about feel ings and emotional state, adding meaning to the verbal messages, and governing the timing and sequencing of interaction (Thomas and Osland, 2004). As with language, meanings in non verbal communication vary across cultures, so m i n d f u l c o m m u n i c a t i o n , including mindful listening, is necessary in order to build shared meaning. Failures in communicating can occur because the same non verbal communication signals may have different meanings across cultures. For example, in Samoa, sitting down is a sign of respect, whereas in many cultures, standing conveys a similar meaning. Many aspects of non verbal communication differences are less obvious than this example’s, yet their misinter pretation still can derail a communication com pletely. It might be a lack of eye contact, or too much face gazing, standing too close or too dis tant, use of a tone that is meant to be sincere and is decoded as imperious, or tap on the arm to show agreement and involvement in the conver sation that is decoded as patronizing and rudely aggressive. Because most aspects of non verbal communication are learned and reinforced in early socialization, they tend to be semi automatic and below awareness unless a special effort is made to be mindful of them. Bibliography Adler, N. J. (1997). International Dimensions of Organiza tional Behavior, 3rd edn. Cincinnati, OH: South-Western. Bennett, M. (1993). Towards ethnorelativism: A developmental model of intercultural sensitivity. In R. M. Paige (ed.), Education for the Intercultural Experience. Yarmouth, ME: Intercultural Press, 21 71. Benson, P. G. (1978). Measuring cross-cultural adjustment: The problem of criteria. International Journal of Intercultural Relations, 2 (1), 21 37.

268

North American Free Trade Agreement

Brein, D. and David, K. H. (1971). Intercultural communication and the adjustment of the sojourner. Psycho logical Bulletin, 76 (3), 215 30. Clark, H. H. and Brennan, S. E. (1991). Grounding in communication. In L. B. Resnick, J. M. Levine, and S. D. Teasley (eds.), Perspectives on Socially Shared Cog nition. Washington, DC: American Psychological Association. Gallois, C. and Callan, V. (1997). Communication and Culture: A Guide for Practice. Chichester: John Wiley. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Gudykunst, W. B., Ting-Toomey, S., and Chua, E. (1988), Culture and Interpersonal Communication. Newbury Park, CA: Sage. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Taylor, S. and Osland, J. S. (2002), The impact of intercultural communication on global organizational learning. In M. Easterby-Smith and M. A. Lyles (eds.), Handbook of Organizational Learning and Knowledge. Oxford: Blackwell. Thomas, D. and Osland, J. S. (2004). Mindful communication. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Ting-Toomey, S. (1999). Communicating Across Cultures. New York: Guilford Press. Triandis, H. C., Marin, G., Lisansky, J., and Betancourt, H. (1984). Simpatia as a cultural script of Hispanics. Journal of Personality and Social Psychology, 47 (6), 1363 75.

North American Free Trade Agreement (NAFTA) John O’Connell

NAFTA is a trilateral agreement between Canada, Mexico, and the United States. The agreement seeks to reduce or eliminate tariffs and other trade b a r r i e r s between the signa tory countries. NAFTA is seen as potentially the first step in uniting all of North and South America into a Hemispheric Trading Zone. Re laxation of restrictions should quicken Mexico’s economic development, making it into even more of an importer of Canada’s and the United States’ goods and services. Mexico, on the other hand, offers both of its partners inexpensive labor (which is certain to increase in cost as development occurs) and a genuine need for the partner’s industries. The agreement is still too new to determine its impact, but all indications seem to point to a successful trade relationship. Bibliography Bowker, R. R. (1994). The North American Free Trade Agreement: A Guide to Customs Procedures. Chester, PA: Diane. Bowker, R. R. (1994). The NAFTA: Supplemental Agree ments. Chester, PA: Diane.

O ocean bill of lading John O’Connell

A b i l l o f l a d i n g used when goods are con signed to an ocean going transportation com pany for shipment to a foreign country. The ocean bill provides details of the shipping trans action as well as of the goods, buyers, sellers, etc.

agreements between parties to exchange goods for goods instead of goods for money. This is a c o u n t e r t r a d e transaction.

offshore John O’Connell

see c o u n t e r t r a d e

In international trade and finance the term off shore refers to any situation in which deposits, investments, production, or other activities take place in a country other than the home country of the investor, producer, or owner of the de posits. Thus, a US resident placing dollars in a bank in Switzerland would have an offshore deposit. The Swiss bank would be considered an offshore banking facility.

offset trade

offshore banking

Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

offset deals

see c o u n t e r t r a d e

John O’Connell

offsets John O’Connell

Offsets can refer to financial transactions in which an investor nullifies a requirement im posed by a previous purchase or to an agreement between importers and exporters. An example of the financial transaction offset is when a person buys a future contract for the delivery of a com modity at a specific time and then purchases another contract for the sale of the same com modity at the same future date. The two trans actions cancel or offset each other. With respect to import–export agreements, offsets refer to

Locations that offer services, tax benefits, and confidentiality to foreign depositors. The term offshore banking is often synonomous with t a x haven.

offshore financial centers John O’Connell

An offshore financial center is a place (city or country) to which foreign currency (Eurocur rency) is drawn for deposit. Offshore financial centers usually offer lower tax rates, more confi dentiality for transactions, a variety of financial services and security, and lower rates of interest

270

offshore funds

for loans to multinational companies. The most important offshore financial centers are located in Bahrain, the Bahamas and Cayman Islands, Hong Kong, London, New York, Singapore, and Switzerland. A point of confusion may be associated with the term o f f s h o r e . It does not mean an island nation, but rather that the cur rency center is in another country than most of the parties transacting business there.

to white collar and professional functions in IT, publishing, and customer service. Bibliography

See also offshore financial centers; tax haven

Barthelemy, J. and Adsit, D. (2003). The seven deadly sins of outsourcing. Academy of Management Executive, 17 (2), 87 101. Bettis, R. A., Bradley, S. P., and Hamel, G. (1992). Outsourcing and industrial decline. Academy of Man agement Executive, 6 (1), 7 23. Bhagwati, J. (2004). In Defense of Globalization. New York: Oxford University Press. Dess, G. G. and Rasheed, A. M. A. (1995). The new corporate architecture. Academy of Management Execu tive, 9 (3), 7 19. Greer, C. R., Youngblood, S. A., and Gray, D. A. (1999). Human resource management outsourcing: The make or buy decision. Academy of Management Executive, 13 (3), 85 97. Insinga, R. C. (2000). Linking outsourcing to business strategy. Academy of Management Executive, 14 (4), 58 71.

offshoring

on-board bill of lading

See also tax haven

offshore funds John O’Connell

Funds kept in banks outside of the owner’s country are referred to as offshore funds.

Jeanne McNett

John O’Connell

The term offshoring indicates the international outsourcing of services, which involves a com pany’s decision to outsource to an overseas loca tion. Nike has offshored its production to developing countries, largely in order to draw on well trained, low cost labor. Other benefits of off shoring are also possible, such as the establish ment of 24 hour operations when work is shared among locations with time zone differences. The term outsourcing describes the organization’s decision to obtain services from an external firm. With the growth of g l o b a l i z a t i o n , out sourcing has taken on an increasingly active pol itical life, thanks to its economic impact. From a developed nation point of view, offshoring may be seen as the practice of exporting jobs to foreign locations, to reduce labor costs and perhaps to circumvent unions. The other side of this phe nomenon is that such offshoring represents eco nomic growth in developing nations. It is one of their benefits of globalization. It also is a way for companies to create jobs in markets where they expect to grow market share. Recently offshoring has moved from labor intensive manufacturing

When cargo is placed on board a ship for trans portation, an on board b i l l o f l a d i n g is given to the exporter when the ship leaves port. The bill provides a list of goods loaded by the carrier. An on board bill is used as proof of shipment and is often part of the documentation required for the exporter to be paid. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley.

on-deck bill of lading John O’Connell

When cargo is placed on the deck of a ship for delivery, an on deck b i l l o f l a d i n g is given to the exporter when the ship leaves port. The bill provides a list of goods loaded on the deck of the ship. An on deck bill is used as proof of ship ment and is often part of the documentation

opt-out

271

required for the exporter to be paid. On deck transit is more dangerous than if cargo is carried in the hold of a ship. Insurance and financing for such transit may be more difficult to obtain or may be more costly.

allow free (or with very few restrictions) flow of goods between countries. Also called equal treatment.

Bibliography

open insurance policy

Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley.

see c a r g o i n s u r a n c e

operational centers John O’Connell

online broker John O’Connell

A retail securities broker that either provides all its services over the Internet (e.g., E*TRADE) or is an important competitor for online broker age business (e.g., Charles Schwab).

A financial center in which actual banking trans actions take place. A center where money is deposited or passed through is referred to as a booking center. New York financial centers are considered operational centers, whereas a finan cial center in the Bahamas is usually considered a booking center.

OPEC

see organization of exporting countries

petroleum

OPIC

see o v e r s e a s corporation

private

investment

open account John O’Connell

A method of arranging payment for exports which provides a stated number of days in which the importer must make payment. Open accounts are normally used only when the im porter is well known to the exporter.

open cargo policy

opt-in John O’Connell

The express act by a customer of granting a marketer permission to deliver marketing mes sages to the customer. The permission is typic ally granted by registering on a website or responding to an unsolicited email and the mes sages are typically delivered by email. See also opt out; permission based marketing

see c a r g o i n s u r a n c e

opt-out open door treatment

John O’Connell John O’Connell

Generally, the result of a reciprocal trade agree ment in which two or more countries agree to

The instruction by a customer to a marketer to halt the delivery of marketing messages, typic ally periodic emails. Most responsible marketers

272

options

embed opt out procedures in their marketing messages and make it easy for customers to opt out.

options John O’Connell

An option gives the right to its owner to pur chase a specified amount of securities, currency, or commodities at a specified price at a stated time in the future. Options are commonly used to hedge purchases or sales of securities, currency, or commodities. An option is a right and not an obligation, thus the holder does not have to exercise his or her rights under the option. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. Luft, C. F. (1994). Understanding and Trading Futures: A Hands On Study Guide for Investors and Traders. Hinsdale, IL: Probus. Robbins, J. (1994). High Performance Futures Trading: Power Lessons From the Masters. Hinsdale, IL: Probus.

Organization for Economic Cooperation and Development (OECD) John O’Connell

In the late 1950s and early 1960s representatives from a number of developed nations began meet ing to examine ways to stimulate economic growth in developing countries. In 1961 the Organization for Economic Cooperation and Development was founded. Membership in the OECD includes Australia, Austria, Belgium, Canada, Denmark, Germany, Finland, France, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. The organization has established committees and centers which assist in its goal of promoting economic development and trade. See also Development Assistance Committee; De velopment Center of the Organization for Economic Cooperation and Development Bibliography Ludlow, N. H. (1988). A Practical Guide to the Develop ment Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

order bill of lading John O’Connell

This type of b i l l o f l a d i n g is a negotiable instrument. That is, it may be used to transfer title to goods being shipped to another party. The transfer may occur at any time during the transit process simply by conveying the order bill to another party. This form of bill of lading was previously referred to as a uniform bill of lading. See also straight bill of lading Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

Organization of Petroleum Exporting Countries (OPEC) John O’Connell

This is probably the best known of the producer cartels. OPEC was formed in 1960 by a number of major oil producing nations. The intent of the organization is to establish oil production limits and pricing structures for members. OPEC membership includes Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. See also cartel; international commodity group

organizational culture 273 organizational culture Michael Brocklehurst

The interest in organizational culture during the 1980s – to practitioners and researchers alike – was stimulated by two factors. The first of these was the impact of Japanese enterprises in inter national markets, and the search to identify a possible link between national culture and or ganizational performance. The second factor was the perceived failure of the ‘‘hard S’s’’ – systems, structure, and strategy – to deliver a competitive advantage, and the belief that this elusive success was more a matter of delivering the ‘‘soft S’s,’’ such as staff, style, and shared values. However, the early attempts to prescribe a specific culture and manipulate cultural change met with little success, and have led to a re appraisal of what the concept of culture involves. Smircich (1983) provides a useful framework for reappraising the concept. She classifies the perspectives of culture as falling into two broad camps. In the first perspective culture is seen as a product, something an organization has. In such an approach, organizational culture is deemed to be capable of classification and manipulation (usu ally by management). By contrast, in the second perspective, organizational culture is regarded as more of a process, something an organization is. According to this perspective, culture is much more difficult to pin down and pigeon hole, and does not lend itself to manipulation.

Culture as a Product This perspective generates a spectrum of defin itions, ranging from those that emphasize the surface indicators to those that try to tap some deeper meaning. The surface manifestations in clude definitions such as ‘‘how things get done around here,’’ or culture as a ‘‘stock of values, beliefs, and norms widely subscribed to by those who work in an organization.’’ In this vein, an influential approach has been Handy’s (1978) division of cultures into four types: power, role, task, and person. Deeper definitions refer more to culture as ‘‘mental processes or mindsets characteristic of organizational members.’’ Hofstede (1991) defines culture as the ‘‘soft ware of the mind.’’ His work, conducted in over

50 countries, has concentrated on unearthing national cultural differences and determining how these influence organizational life. He claims that organizations have to confront two central problems: how to distribute power and how to manage uncertainty. He then identifies five value dimensions which, he claims, discrim inate between national groups, and which influ ence the way in which people perceive that an organization should be managed to meet these two key problems. The dimensions are as follows: . Power distance: the extent to which people accept that power is distributed unequally. . Uncertainty avoidance: the extent to which people feel uncomfortable with uncertainty and ambiguity. . Individualism/collectivism: the extent to which there is a preference for belonging to tightly knit collectives rather than a more loosely knit society. . Masculinity/feminity: the extent to which gender roles are clearly distinct (masculine end of the spectrum) as opposed to those where they overlap (feminine end of the spectrum). . Confucian dynamism: the extent to which long termism or short termism tends to pre dominate. Hofstede’s work is only based on employees of one organization. Furthermore, the extent to which one country can be said to have a homo geneous culture is problematic. Nevertheless, Hofstede’s work has been highly influential. It attempts to explain why differing national cul tural mindsets will cause difficulties when a manager from one country goes to work abroad. Difficulties can also be predicted when two or ganizations from countries with different cul tural mindsets attempt to merge. Adler’s (1991) work on differing national negotiating styles is also useful for gaining an understanding of cul tural differences between nations. It is interest ing to speculate whether g l o b a l i z a t i o n will increase the need to understand national cultural differences (as multinationals seek to manage diverse workforces) or whether the need will

274

organizational culture

decrease as globalization brings about a hom ogenization of national cultures. In terms of the desire to ‘‘learn from Japan,’’ it is possible to identify specific cultural values in Japanese society which might influence eco nomic performance, such as the importance at tached to reciprocity between those of different status. However, there are successful organiza tions in other parts of the world in which these conventions are flouted. Indeed, even within Japan, there is a range of organizational practices as to how employees are treated. It is also diffi cult to disentangle the effects of culture on per formance from other factors, such as industrial structure, manufacturing practices, and the role of the state (Dawson, 1992). The evidence on the attempts to introduce Japanese practices in other countries is also mixed (for the UK experience, see Oliver and Hunter, 1994). The ‘‘culture as a product’’ perspective has also focused on the role of comparative organiza tional cultures within a country. Here an attempt has been made to provide a rigorous test as to what sort of a culture will lead to high perform ance. Denison (1991) argues that the four spe cific variables that influence performance are involvement, consistency, adaptability, and mis sion. Denison notes how these variables are, to some extent, contradictory: for example, consist ency in terms of having agreement can some times inhibit adaptability. It is also important that a culture is appropriate to its environment, so it is unlikely that there is one universal culture that suits all environments. On the other hand, environments change much more rapidly than organizational cultures, which can take many years to develop. Kotter and Heskett (1992) claim that in cultures in which there is a strong consensus that key stakeholders should be valued, leadership at all levels is seen as import ant, and the culture underpins an appropriate strategy, can serve as valid generalizations, but these claims have yet to be put to the test. Brown (1994) carries a useful summary of both this issue and of the literature on models of organiza tional cultural change, of which Schein’s (1985) model is the best known.

Culture as a Process Smircich’s other perspective sees culture as a root metaphor for understanding organizations.

This perspective makes it difficult to define culture. Organizations do not so much have cultures; it is more that they are cultures. This has implications for those who wish to try to change a culture. The ‘‘culture as root metaphor’’ concept sees culture as something that is collectively enacted, where all who experience a culture at first hand become part of its generation and reproduction. To assume that one group (usually management) can unilaterally modify a culture is thus to mis take its essential properties. This is not to deny that culture changes – indeed, its enactment is a continuous process – but it usually changes in unintended ways. It is important also to recog nize that collective enactment does not mean harmony and agreement; the power to enact is not equally shared among all groups. The concept also has implications for those who wish to research cultures: the researcher inevitably becomes part of the enactment pro cess (Weick, 1983). Trying to fix a culture and establish typologies is just an interpretation, one more part of the enactment process. As Martin (1993: 13) puts it: ‘‘Culture is not reified – out there – to be accurately observed.’’ However, this does not mean that the concept of culture is valueless except as a stick to beat those who see it as a product. Morgan (1986) argues that culture can be a powerful metaphor for enabling thought about organizations, draw ing attention to the importance of patterns of subjective meaning, of images, and of values in organizational life.

Conclusion The life cycle of organizational culture mirrors that of many other alleged managerial panaceas, running through the stages of initial enthusiasm, followed by a critical backlash, and ending up with a more widely based consensus on the limited applicability of the concept, which often highlights the complexity of management as a discipline. Culture as a ‘‘product’’ has already gone through this cycle. It soon became clear that culture is not something that can easily be ma nipulated. Indeed, culture as a ‘‘process’’ seems a more powerful perspective in that it recognizes that culture depends upon human interaction – it is continuously being produced and

overbase compensation 275 re(created). To believe that one group can uni laterally change an existing culture according to some blueprint is mistaken. Culture does change – but often slowly and in unpredictable ways. Managers who wish to establish a blueprint might be better advised to go for a greenfield site and then carefully control recruitment and selection (Wickens, 1987). There is also the danger of thinking of culture as a monolithic entity to which all organizational members subscribe. Martin (1993) terms such a view ‘‘in tegrationist’’ and contrasts it with a ‘‘differenti ation’’ focus, which stresses the importance of subcultures and the potential for conflict be tween these subcultures. Even if a particular culture could be estab lished by managerial fiat, the links between cul ture and organizational performance are not well established. Assuming that cultures can be measured and pigeon holed, there is no clear evidence that one particular type of culture is always associated with success – indeed, some of the features which are claimed to be linked with success are themselves contradictory. Further more, the sheer complexity of the factors in volved in organizational performance makes it difficult to pin point the exact contribution made by culture alone.

Schein, E. H. (1985). Organizational Culture and Leader ship. London: Jossey-Bass. Smircich, L. (1983). Concepts of culture and organizational analysis. Administrative Science Quarterly, 28, 339 58. Weick, K. (1983). Enactment processes in organizations. In B. Staw and G. Salancik (eds.), New Directions in Organizational Behavior. Malabar, FL: Robert E. Krieger. Wickens, P. (1987). The Road to Nissan: Flexibility, Qual ity, Teamwork. London: Macmillan.

orientation John O’Connell

Orientation is a process that prepares an e x p a t r i a t e (and in some cases, family members) for an overseas a s s i g n m e n t . The orientation process can take little time or effort or may be very involved and time consuming, depending upon the person being transferred and the loca tion of the transfer. See also cross cultural training; expatriate training

overall reciprocity Bibliography Adler, N. (1991). International Dimensions of Organisa tional Behavior. Boston, MA: PWS-Kant. Brown, A. (1994). Organizational Culture. London: Pitman. Dawson, S. (1992). Analysing Organizations, 2nd edn. London: Macmillan. Denison, D. (1991). Corporate Culture and Organizational Effectiveness. New York: John Wiley. Handy, C. (1978). The Gods of Management. London: Penguin Books. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill. Kotter, J. P. and Heskett, J. L. (1992). Corporate Culture and Performance. New York: Free Press. Martin, J. (1993). Cultures in Organizations. Oxford: Oxford University Press. Morgan, G. (1986). Images of Organizations. Newbury Park, CA: Sage. Oliver, N. and Hunter, G. (1994). The financial impact of Japanese production methods in UK companies. Paper no. 24. Cambridge: Judge Institute of Management Studies.

John O’Connell

This takes place when two countries agree to offer one another virtually unrestricted trade concessions. It is the broadest form of r e c i p r o c i t y . Overall reciprocity is one of the ul timate goals of nations belonging to trading groups or blocs. Achievement of overall reci procity has been found to be an extremely diffi cult objective.

overbase compensation John O’Connell

Base salaries between the home country and the host country are usually equalized for an e x p a t r i a t e . That is, the pay in the host country would be the same for the same job in the home country. Adjustments in the form of higher pay to offset inconveniences and dangers not occur

276

Overseas Private Investment Corporation

ring in the home country or longer periods of work (as expected in some countries) are referred to as overbase compensation. See also compensation package (expatriate)

Overseas Private Investment Corporation (OPIC) John O’Connell

OPIC is a US government agency which is a part of the overall effort of the US government to encourage private business investment in de veloping countries as well as those countries

emerging from communist forms of govern ment. In order to encourage investment by US businesses, OPIC offers three important tools for their use: (1) business financing through direct loans and by guaranteeing loans to busi ness investors; (2) p o l i t i c a l r i s k i n s u r a n c e to cover many of the actions of a foreign government which may deprive the investor of some or all of the investment assets; and (3) a number of services to make the task of overseas investment simpler. OPIC is located in Wash ington, DC. See also political risk

P Pacific Economic Cooperation Group (PECG) John O’Connell

A number of Pacific Ocean region countries have entered into an agreement to pursue dis cussions of ways to promote cooperation and economic development in the area. Virtually all of the countries surrounding the Pacific Ocean are members of the group.

leaves a certain page and returns to it in the same visit to the website, two page views are counted. Page views are a more difficult measure than hits, but are a much more useful and relevant measure of the attention a page garners from viewers.

Pan American Copyright Convention John O’Connell Pacific Rim countries John O’Connell

The countries that surround the Pacific Ocean. These countries include some of the largest and most powerful economies in the world.

One of the early attempts to protect i n t e l l e c t u a l p r o p e r t y rights. Countries which are signatories to the agreement (many Latin Ameri can countries and the United States) will recog nize copyrights of other signatory countries as long as the copyrighted piece is properly marked as being protected. Bibliography

packing list John O’Connell

When goods are placed in a container a record of the contents is kept. This record is used to verify the container’s contents, if necessary, during shipment as well as when the goods are eventu ally delivered. A packing list is also helpful in verifying contents if a loss of the container was to occur.

page view John O’Connell

A unit for measuring website readership which corresponds to one person viewing one page, or at least a portion of a page, one time. If a person

Seminsky, M. and Bryer, L. G. (eds.) (1994). The New Role of Intellectual Property in Commercial Transactions. New York: John Wiley and Sons.

parallel loans John O’Connell

A loan between two organizations in a foreign country which turns out to actually involve four organizations in two countries. A parallel loan is a method of offsetting a loan made to a subsid iary in another country. Here is how it works. A subsidiary company in country A needs money to operate. Instead of getting money dir ectly from its parent company (which would involve selling parent company currency and buying subsidiary country currency) a parallel

278

parent company

loan agreement is worked out. Subsidiary com pany number 1 borrows local funds from subsid iary company number 2. The parent companies of both subsidiaries (which are both located in a second country) arrange another loan between each other in their home currency. The second loan offsets the first loan. Bibliography Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

parent company John O’Connell

Groups of companies are often formed by in corporating companies as the need may arise or through acquisition of organizations. Generally, one company in the group owns the majority of shares in each of the other companies. The ma jority shareholder is usually referred to as the parent company. Other terms also refer to parent companies: (1) a holding company is a parent, but has no actual business of its own except buying, selling, and holding other companies (e.g., a holding company may buy and sell a variety of other organizations – from financial organizations to manufacturers and processors); (2) an operating company is the parent of similar subsidiaries (e.g., one insurance company owns other insurance companies).

parent country national (PCN) John O’Connell

Citizens of the country in which the parent com pany is established. Parent country nationals may be called upon to become expatriates if the company decides to offer them overseas pos itions.

Paris Union John O’Connell

Formally known as the Paris Convention for the Protection of Industrial Property, the Paris Union is an early example of a multilateral agreement to protect patents, trademarks, and industrial designs. The agreement afforded na tional treatment (same protections as in each signatory country’s laws) for property rights registered in any signatory country to the agree ment. The agreement also supports the so called ‘‘first to file’’ standard, which gives exclusive rights to the individual who first files for regis tration of a patent or other right in any of the member countries. Thus, if two inventors filed for the same invention, the one with the earliest filing date would receive the patent. See also World Intellectual Property Organization Bibliography Leaffer, M. A. (1990). International Treaties on Intellectual Property. Washington, DC: BNA Books.

particularism Jeanne McNett

This is the second element of Trompenaars’ Universalism–Particularism dimension. It de scribes an emphasis on exceptions to the rule and special, particular cases. With particularism, circumstances do matter and relations (people, history, and geography among them) are import ant. This contrasts with universalism, an em phasis on rules applying to all people in the group, equally. With universalism, codes, laws, and generalizations matter. The US is an example of a universalist culture, while France is a particularist one. Particularist cultures are seen to be oriented towards aesthetic experience and creativity, valuing intimacy and personal relationships. For elaboration, see c u l t u r a l d i m e n s i o n s . Bibliography

Paris Convention

see p a r i s u n i o n

Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage.

Patent Cooperation Treaty Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Hall, E. T. and Hall, M. R. (1995). Understanding Cultural Differences. Yarmouth, ME: Intercultural Press. Hampden Turner, C. and Trompenaars, F. (2000). Build ing Cross Cultural Competence: How to Create Wealth from Conflicting Values. New Haven, CT: Yale University Press. Kluckhohn, F. and Strodtbeck, S. F. (1961). Variations in Value Orientations. Evanston, IL: Row, Peterson. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Vinken, H., Soeters, J., and Ester, P. (eds.) (2003). Com paring Cultures: Dimensions of Culture in a Comparative Perspective. Leiden: Brill.

partner program

see a f f i l i a t e p r o g r a m

passive attack John O’Connell

An attempt to break security by capturing infor mation without altering it. See also replay attack

patent John O’Connell

A government license granting exclusive rights to an invention. Exclusive rights include the right to use, sell, or produce the patented item. Patent rules and procedures vary from country to country. An inventor or possessor of a patent is well advised to seek professional assistance in seeking protection for patents in other nations. There is a serious international prob

279

lem regarding unauthorized use of patents and other i n t e l l e c t u a l p r o p e r t y rights. Most nations have some form of intellectual property rights protection (for properly applied for and issued patents, etc.), but the enforcement of such rights varies from strict to almost nil. See also Patent Cooperation Treaty; World Intel lectual Property Organization Bibliography Leaffer, M. A. (1990). International Treaties on Intellectual Property. Washington, DC: BNA Books. Stewart, G. R. (1994). International Trade and Intellectual Property: The Search for a Balanced System. Boulder, CO: Westview Press.

Patent Cooperation Treaty (PCT) John O’Connell

The Patent Cooperation Treaty is one of the most beneficial treaties in existence with respect to the international protection of patents (at least, among the signatory nations of the treaty). Under this treaty an inventor begins the inter national p a t e n t process by making a single PCT application in his or her own country (as suming the country has membership in PCT). The application is then reviewed to insure that it meets the criteria set forth for the granting of a patent. An international search takes place of member country records, to ascertain if a patent has already been issued. If no problems arise, a patent will be issued which is honored by all signatory countries. The applicant pays only once for the application process and that is in the home country of the prospective patent holder. There are approximately 50 signatories to the PCT, including most European nations, Australia, Japan, and the United States. The PCT program operates under the w o r l d intellectual property organization. See also intellectual property Bibliography Leaffer, M. A. (1990). International Treaties on Intellectual Property. Washington, DC: BNA Books.

280

pay equity

Stewart, G. R. (1994). International Trade and Intellectual Property: The Search for a Balanced System. Boulder, CO: Westview Press.

Changes in the value of the base currency result in corresponding changes in the pegged cur rency.

pay equity

pegged exchange rates John O’Connell

John O’Connell

A government regulation requiring all organiza tions in a country to provide equal pay for equal work. Not all countries have such laws. The law’s intent is to correct past discrimination in pay between men and women or between differ ent ‘‘races.’’ Organizations seeking to do busi ness in a country with pay equity statutes (the United States, for example) must strictly comply with the law. This means that some companies will have to treat workers in the United States differently than in the company’s home country. Severe penalties apply to those not following the law.

Pegged exchange rates are those which are tied to a specific currency or a derived monetary unit such as the Euro of the European Union. If a currency is pegged its value rises or falls with that of the currency to which it is tied. Pegging a currency to a more stable currency or to a market basket currency such as the Euro acts to stabilize the first currency.

See also affirmative action; equal opportunity

Any d u t y which is in addition to regular duties. Penalty duties are imposed to add add itional costs on an exporter/importer for not complying with fair trade practices or the customs laws of a country. Penalty duties include marking duties, exclusionary duties, anti dumping duties, and retaliatory duties.

pay-per-click John O’Connell

The ability to pay, typically in very small amounts or micro payments, for information or entertainment received over the Internet or the Web. The term implies that each payment is automatic and that simply requesting the infor mation provides the agreement to pay for it.

PCN

see p a r e n t c o u n t r y n a t i o n a l

penalty duty John O’Connell

See also anti dumping duty Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

performance evaluation (international managers) John O’Connell

peg John O’Connell

To peg is to stabilize or link the value of some thing to some base value or other measure. For example, the value of a currency may be pegged or linked to the value of another currency.

Managers (or any other employee) are expected to successfully perform a number of tasks and/ or assignments for an organization. In order to determine the extent of a manager’s success in carrying out required activities, periodic ap praisals of performance are strongly advised. To be effective, a performance evaluation must concentrate on those factors which are within

permanent assignment a manager’s control and are included in a clear statement of the manager’s scope of authority and responsibility. To judge the performance of a manager on the basis of factors which are uncontrollable or not within the scope of author ity or responsibility granted is unfair and not responsive to the purpose of an evaluation. Al though an evaluation system that includes factors over which a manager has no control may not result in a poor rating of the manager, it will result in a rating that does not realistically portray the achievements of the manager within his or her stated job objectives. Areas of performance measurement usually used for managers include meeting budgets, pro duction goals, and sales goals; quality of product or service measures; profitability of department; and market share. All of these items are normally subject to measurement and control on the part of the manager when a domestic operation is being reviewed. However, international man agers may not have the same degree of control over these or other factors when business is carried out in another country. Evaluation factors must be reviewed in terms of the condi tions in the host country. Profits may be re stricted because of local laws or tax structures; m a r k e t p e n e t r a t i o n may be closely moni tored and governed by the host government; production figures, etc. may be partially deter mined by the continued availability of trained labor, raw materials, and other resources, some of which may be in short supply or in intermit tent supply in a foreign country; and quality and service measures may not be comparable with home country operations because of the inability to obtain data or different standards which may apply in the host country. Evaluating the managers of foreign operations requires a good deal of work to establish the standards by which comparisons will be made. Using the experience of former e x p a t r i a t e managers and sharing of ideas in professional meetings are two ways of gaining additional in sight into the problem. The three most import ant things to remember are: (1) the areas of evaluation must be under the control of the manager to be evaluated; (2) the evaluators must be well versed and aware of the host coun try environment in which the manager is expected to perform; and (3) the input of the

281

expatriate manager must become a part of the evaluation process in order to explain the pecu liar differences the manager has encountered in running an overseas operation. Bibliography Carroll, S. J. and Schneier, C. E. (1982). Performance Appraisal and Review Systems. Glenview, IL: Scott, Foresman. Caudron, D. (1991). Training insures success overseas. Personnel Journal, 70, 27 30. Dowling, P. J. and Schuler, R. S. (1990). International Dimensions of Human Resource Management. Boston, MA: PWS-Kent.

perils of the sea John O’Connell

A m a r i n e i n s u r a n c e term used to describe some of the causes of loss which may affect property on an ocean voyage. Generally speak ing, perils of the sea are those causes over which the captain of a vessel has no control. Thus, if a peril of the sea causes damage to cargo, the carrier may or may not be responsible, depending upon the nature of the loss. If there was no negligence on the part of the captain of the ship, the carrier would probably not be held responsible for compensating cargo owners for loss or damage. Cargo insurance coverage is available to cover for such losses for the benefit of the cargo owner. Perils of the sea include severe weather causing high waves, high winds, lightning strikes, fog, striking ice, stranding, sinking, and collision with another vessel.

permanent assignment John O’Connell

Permanent assignment infers that the employee will not return from the a s s i g n m e n t during his or her work career with the company. Per manent assignment actually has different mean ings in different companies. Some companies use the term to mean an assignment of at least one year, while other companies use two, three, or more years. Each company will have its own

282

permission-based marketing

way of describing assignment duration. There is no standard which is used throughout the world.

might damage the health or agriculture of the importing country.

permission-based marketing

piggyback exporting John O’Connell

John O’Connell

The sending of multiple marketing messages, typically email messages, to individuals who have given the marketer permission to send the messages to the individual. The messages are often embedded in free email newsletters that provide news and information.

Piggyback exporting describes a situation in which one company markets its products through the distribution channels of a second company. Two major reasons for piggyback marketing are (1) a local company desires to enter multinational markets but lacks the money, experience, or possibly the inclination to learn what is necessary to be successful in the international marketplace; (2) an existing multinational company is seeking to fill out its product lines to stay competitive overseas. Pig gybacking involves products which complement one another instead of competing. This method of exporting is one of the least problematic of all of the methods of entering foreign markets. Of course, success is dependent upon who the part ners are and the commitment to making the partnership function effectively.

See also opt in; opt out

perq

see p e r q u i s i t e ; f r i n g e b e n e f i t s

perquisite John O’Connell

Generally, a perquisite refers to an indirect form of compensating an employee which results in favored tax treatment of that compensation. For example, in some countries the premium paid by an employer for company paid insurance pro grams is not taxable as income to the employee. Thus, the employee gets the additional benefit (insurance) with no income tax payable and the employer is able to deduct the premium pay ment as a business expense.

See also market entry strategies Bibliography Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin.

piracy John O’Connell

This term is used to denote two situations related to the management of international enterprises. Both definitions are related to the illegal taking of property but in vastly different contexts.

See also fringe benefits

phytosanitary inspection certificate John O’Connell

A phytosanitary inspection certificate is an offi cial government statement from the exporting country that exports of plants, animals, meat, and other commodities have been inspected and are free from disease or insects which

1 The unauthorized use of a p a t e n t , trade mark, copyright, or other protected i n t e l l e c t u a l p r o p e r t y . This form of illegal activity removes billions of dollars of income from companies each year. The issuance of fakeproductsusingthenameoffamousmanu facturers; illegally copying and distributing

political risk computer programs, videotapes, and sound recordings as if they came from the original manufacturer; producing and distributing pharmaceuticals without permission; and using patented industrial processes and ma chinery without permission are only a few piracy techniques. 2 Piracy of cargo and/or ships. Many people believe that piracy on the seas is a thing of the past, but it is not. There are many specific areas of the world in which armed pirates seize ships and cargo on a frequent basis. The waters just south of Singapore are well known for this problem, as are some of the waters of the southern Caribbean. Piracy also takes place at the hands of bandits who attack overland transportation vehicles in some countries. Regions of the world with special problems with any type of piracy can be identified by request ing information from the i n t e r n a t i o n a l c h a m b e r o f c o m m e r c e or domestic govern mental officials charged with overseeing trade activities. See also World Intellectual Property Organization Bibliography International Intellectual Property Alliance Staff (1992). Copyright Piracy in Latin America: Trade Losses Due to Piracy and the Adequacy of Copyright Protection in 16 Central and South American Countries. Washington, DC: International Intellectual Property Alliance.

country. The actual hiring takes place in the student’s home country, which can often dra matically reduce the company’s overall em ployee cost. If point of hire is in a more expensive labor cost or benefit country, the em ployee will cost the company more than if point of hire is in a less expensive country.

political risk John O’Connell

Political risks are associated with government actions which deny or restrict the right of an investor/owner to use or benefit from his or her assets or which reduce the value of a firm. The best known of the political risks include war, revolution, government seizure of property (e x p r o p r i a t i o n , n a t i o n a l i z a t i o n , or con fiscation), and actions to restrict the movement of profits or other revenues from within a coun try. The impact of political risk sources of loss varies from the total destruction of assets (war), to the ability to operate but without the right to return profits to a home country (currency i n c o n v e r t i b i l i t y ), to the taking of private property for the social good. The following is a listing of governmental actions which could affect the value of a business or restrict an owner’s rights to use or benefit from the business. 1

point-of-hire John O’Connell

The country in which an employee was origin ally hired. Point of hire generally determines salary range, benefits package, and other com pensation items. Many international companies are sending fewer expatriates to foreign oper ations because of the great expense involved, as well as the increase in host country persons who are qualified to take up positions. It is not un common for a company to seek out the top foreign students in local universities and colleges to hire them for positions in the student’s home

283

2

Confiscation. This is one of the major polit ical risks faced by multinational enterprises. Confiscation is the taking of private property by a government without any offer of com pensation. Governments which confiscate privately owned property of foreign organ izations usually use the excuse that the for eign firm was exploiting the country or that relations between the government and the foreign country are too strained to allow any representative of the foreign country to continue in business. Businesses considering large capital investment in a country should check the status of political risk before such investment takes place. Contract repudiation. From time to time a contractor will enter into a contract with a foreign government only to find that the con tract cannot be fulfilled. This may be because

284

political risk

the government terminates the contract with out showing cause, refuses to pay for de livered goods, cancels the contractor’s license to operate, or otherwise causes cancel lation of the contract. Contracts with private buyers are subject to the same set of circum stances, although legal remedies may be avail able which are lacking when dealing directly with government contracts. Although most contracts are fulfilled without problem, a sufficient number are not honored to support the growth of a specific type of insurance to protect against contract repudiation. 3 Currency inconvertibility. A government may restrict the right of foreign firms to repatri ate (send home) profits to their home coun try. Thus, all profits remain in the foreign country. If an organization does not have other operations in that country, or the owners do not have residence there, this may cause great hardship. Inconvertibility may arise because of the passage of new laws or because of administrative slowdown. Administrative slowdown refers to situations in which the government bureaucracy of a foreign country slows (either intentionally or unintentionally) the process to convert cur rency to such a point that it becomes a finan cial burden to foreign owned companies. Insurance is available for both causes of cur rency inconvertibility. 4 Discriminatory taxation. Charging higher tax rates to foreign companies than for domestic companies. This type of protectionist action is not as common as it has been in the past but it still exists in many countries. The system of taxation in a foreign country must be considered when determining the method by which a company will enter that country. For example, if a local company is charged lower tax rates than a foreign owned company, a local j o i n t v e n t u r e may be in order. 5 Embargo. To embargo is to prohibit or forbid the movement of certain or all goods to a certain country or countries. One of the most recent embargoes was that placed against Iraq after its invasion of Kuwait in the early 1990s. As with the United Nations sanctioned embargo of Iraq, most embargoes are implemented in times of war or to at tempt to force political change by other than

6

7

8

military force. Embargoes are difficult to implement and even more difficult to en force over long periods of time. Embargoes not only harm the country upon which they are imposed, but also harm all of the inter national export of goods to that country. Expropriation of property. The government seizure of private property owned by a foreign company, with compensation being offered. Expropriation is normally aimed at a specific company, whereas nationalization generally affects an entire industry. Expropriation may occur because of host country feelings that the foreign company is taking advantage of the host country and its people, or because of disagreements between the company and the government, or for any other reason deemed acceptable to the host government. Nationalization. Nationalization is the action of a government to transfer possession of private property to the government. Many countries have nationalized whole industries on the premise that ownership transfer is in the public’s best interests. Compensation is generally offered, but there are no guarantees it will be sufficient to pay for loss of value and future profits of the nationalized firm. Nationalization has been most common in extractive industries (mining, energy) and communications and financial services (in surance companies and banks). Nationaliza tion is considered a political risk for which insurance coverage may be available. War risk. Actual damage caused by war, re bellion, insurrection, invasion, or use of mili tary force to invade sovereign territory with the intent of exerting governing control. Al though the definition of war varies consider ably depending upon the legal jurisdiction, the fact that war or warlike actions cause severe damage to property is of the greatest interest in the present context. Generally, war risk insurance is not available in any standard market. When war risk is covered by insurance it is most likely to be under a m a r i n e i n s u r a n c e policy with war risk added. Land based property damage by war is rarely covered by any insurance contract, although it is sometimes available through insurance companies that write p o l i t i c a l risk insurance.

political risk insurance 9 Wrongful calling of guarantees. The unfair collection of a l e t t e r o f c r e d i t , on demand bond, or other guarantee of per formance established by a company on behalf of a government. Companies are often re quired to put up a good faith guarantee of their performance before being allowed to begin work on a contract for a foreign gov ernment. For example, a road contractor may be required to provide 10 percent of the bid amount to a government before the government will allow construction to begin. The guarantee is supposed to provide the government with leverage to force the con tract to be completed on time and in a work man like manner. Wrongful calling takes place when the government causes non per formance to occur. Cancellation of the con tractor’s permit to work in a country or restrictions on working hours could result in non performance, thereby making the guarantee collectible by the government. Such collection is an example of a wrongful calling of a guarantee.

285

investor/owner to use or benefit from his or her assets or which reduce the value of a firm. The best known of the political risks include war, revolution, government seizure of property (e x p r o p r i a t i o n , n a t i o n a l i z a t i o n , or confiscation), and actions to restrict the move ment of profits or other revenues from within a country. Although not all political risks are sub ject to insurance coverage, insurance is available for a number of government actions which act to take away or reduce the value of a foreign firm. Political risk insurance is usually not available for the actions of a company’s home govern ment. Thus, if a US company was subjected to high taxes or fines, political risk insurance would not provide coverage. However, if a US com pany was confiscated by the Libyan government, the confiscation losses could be covered by pol itical risk insurance. The discussion which follows is meant to provide general information on common coverages and restrictions in polit ical risk insurance. Each insurer writing such coverage must be contacted to determine the exact details of their various political risk pro grams. Common political risk coverage includes:

Bibliography Cosset, J. and Roy, J. (1991). The determinants of country risk ratings. Journal of International Business Studies, 22 (1), 135 42. Gregory, A. (1989). Political risk management. In A. Rugman (ed.), International Business in Canada. Scarborough: Prentice-Hall, Canada. Howell, L. D. (1994). The political sociology of foreign investment and trade: Testing risk models for adequacy of protection. AGSIM Faculty Publication, No. 94 105. Mathis, F. J. (1990). International risk analysis. In R. T. Moran (ed.), Global Business Management in the 1990s. Washington, DC: Beacham. Micallef, J. V. (1981). Political risk assessment. Columbia Journal of World Business, 16 (2), 47 52. Yaprak, A. and Sheldon, K. T. (1984). Political risk management in multinational firms: An interrogative approach. Management Decisions, 53 67.

1

2 political risk insurance John O’Connell

Political risks are associated with government actions which deny or restrict the right of an

Comprehensive export credit insurance cover age. This insurance provides coverage for losses (above those normally expected in the course of business) caused by a buyer failing to make payment due to political and com mercial risks. Political risks are those associ ated with acts of government, whereas c o m m e r c i a l r i s k includes insolvency of a buyer or other economic reasons for non payment. Another type of loss commonly covered by the broader forms of this coverage is if a foreign buyer cannot convert currency in order to make payment to the insured. Coverage is generally very broad, but one cannot rely on the name of an insurance contract (e.g., ‘‘comprehensive’’) to imply coverage. Each contract must be carefully reviewed in making a purchase decision. Confiscation, expropriation, and nationaliza tion coverage. Insurance companies usually do not differentiate between confiscation, ex propriation, and nationalization because each involves the actions of a government to de prive a company of its assets or the profits derived from those assets. If compensation is

286

political risk insurance

paid by a government the amount received acts to reduce the payment by the insurance company. Depending on the insurance com pany, coverage is often found for buildings, inventory, or mobile equipment, all of which is located in a foreign country. Policies covering worldwide exposure are preferred by insurers because they provide a good spread of risk. Although single country cov erage is available, the company that picks and chooses countries to insure and those to go without, often pays as much as if its entire worldwide exposure was covered. The reason for this is that the countries chosen offer the greatest risk, and thus carry the highest pre miums. The insurer would probably be willing to offer an average rate for all expos ures which would have been much lower than that offered for the highest risk countries. 3 Contract repudiation coverage. This type of political risk insurance provides coverage for non compliance with contracts by a for eign government. An insured doing business with a foreign government faces the risk that the government will not comply with the contract, thereby causing loss to the insured. For example, a building construction con tractor expects to be paid when the building is completed, but may not be paid if the government terminates the contract or makes it impossible for the contractor to complete the project on schedule, thereby forcing a default. Insurance against contract repudiation commonly provides coverage for unilateral government termination of a con tract without cause, non payment of a gov ernment for service or other contracts, license termination which forces the com pany to default, embargoes which make completion impossible, and other govern ment actions as outlined in each policy. Some insurers will also offer coverage for war risk which causes contract cancellation. 4 Inconvertibility of currency coverage. The inability to convert local currency into a com pany’s home currency. This is an important consideration for an organization seeking to repatriate profits or dividends from a foreign operation. Insurance against losses arising from i n c o n v e r t i b i l i t y is available from speciality international insurance markets.

Insurance commonly protects against one or both of the following situations: (a) A change in a law or regulation which restricts the right to convert currency. As long as there is an official method of cur rency conversion before the insurance con tract goes into force, coverage usually applies for changes in the law from that point for ward. Most policies require that normal con vertibility be delayed at least 60 to 90 days beyond the normal conversion period. (b) An administrative delay on the part of the country’s exchange authority which delays the ability to exchange currency. Most pol icies require the delay to be a minimum number of days beyond the period normally required for conversion. If either of these situations occurs, the insurer converts the currency for the insured into the currency designated in the contract. 5

Wrongful calling of guarantees coverage. The unfair collection of a l e t t e r o f c r e d i t , on demand bond, or other guarantee of per formance established by a company on behalf of a government. Companies are often re quired to put up a good faith guarantee of their performance before being allowed to begin work on a contract for a foreign gov ernment. For example, a road contractor may be required to provide 10 percent of the bid amount to a government before the government will allow construction to begin. The guarantee is supposed to provide the government with leverage to force the con tract to be accomplished on time and in a workman like manner. Wrongful calling occurs when the government causes non performance to occur. Cancellation of the contractor’s permit to work in a country or restrictions on working hours could result in non performance, thereby making the guar antee collectible by the government. Such collection is an example of a wrongful calling of a guarantee. Exporters are also subject to wrongful calls of guarantees when required to bid on supplying goods to foreign govern ments. Insurance policies for wrongful calling usually provide coverage if the call on the guarantee was caused by the action

portal of a government, such as the cancellation of an import or export license or other action that causes the non performance. This is one type of political risk insurance in which the actions of a home government may also be covered. Persons interested in this type of coverage must contact their insurer or broker because coverage details periodically change and differ between insurers. See also political risk

287

hiring. One of the biggest problems relates to parent company control over the foreign subsid iary. The question arises: ‘‘Will host country managers be loyal to the parent or to the local operation?’’ A potential problem arises with co ordination of activities, goals, and objectives be tween parent and subsidiary. The fact remains, though, that polycentric staffing and operation of foreign subsidiaries is successfully being ap plied by organizations. The parent company must be aware of potential problems and intro duce control systems to uncover these problems before they are allowed to get out of hand. See also staffing

political union John O’Connell

A political union exists when two or more coun tries agree to allow some or all of their individual political decisions to be made by a body outside of their own, existing, governments. A third party government to which countries transfer governing power is referred to as a supranational organization or one which spans national bound aries. A good example of a supranational organ ization is the e u r o p e a n p a r l i a m e n t , which exercises control over the EU, thereby taking some of the powers previously held by each member country of the community.

Bibliography Acuff, F. (1984). International and domestic human resource functions. Innovations in International Compen sation, September, 3 5. Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Dowling, P. J. and Schuler, R. S. (1990). International Dimensions of Human Resource Management. Boston, MA: PWS-Kent. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

polycentric organization John O’Connell

polycentric approach to hiring John O’Connell

Polycentrism is the belief that managers and employees in a foreign operation should be from the host country. The feeling is that people native to the host country will not have problems with c u l t u r e s h o c k , knowing the language, realizing and adhering to the local customs, values, and attitudes, and being effective imme diately instead of after a learning process has taken place. Key positions in the foreign oper ation are filled with host country nationals (HCNs). This saves money associated with re cruiting, training, and transferring expatriates from other countries in which the company also has operations. There are, however, possible negative aspects of a polycentric approach to

A polycentric organization is one that believes that foreign subsidiaries are best operated with as little parent company input as possible. Host country nationals will staff the subsidiary and local decisions will be made about local product pricing and distribution. Of course, the parent company has review power and probably the right to overrule local decisions, but this does not happen without considerable thought by parent company management and counsel with the foreign subsidiary’s management.

portal John O’Connell

The entry point webpage for a particular theme, whether it be an industry (chemical or auto

288

portfolio foreign investment

industry sales perhaps) or an occasion (wedding purchases). Portals serve as the one stop shop starting point to execute all transactions within the theme. They are also referred to as an info mediary.

portfolio foreign investment John O’Connell

Portfolio foreign investment is the purchase of stock, etc. in a foreign company for an investment, rather than seeking to gain a sub stantial amount of control over the company. Generally, the amount of stock purchased is so small as to offer no possibility of exerting any control.

pourboire

see b r i b e r y

power distance Jeanne McNett

This term represents a measure of the degree of inequality among a people that the population of a country considers as normal on h o f s t e d e ’ s c u l t u r a l d i m e n s i o n s . In small power distance cultures, little power distance is tolerated and equality of opportunity is seen as important. In the US, for example, the idea of providing a level playing field for citizens (an equal chance) is a positive one. Germany and the Netherlands are other countries with small power distance. In large power distance cultures, there is more tolerance for unequal distribution of wealth and status; such distribu tion tends to seem normal and right to people in these cultures. Indonesia, Hong Kong, and France have high power distance. This dimen sion has significance in international manage ment for effective management models and styles.

Bibliography Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Bing, J. W. (2004). Hofstede’s consequences: The impact of his work on consulting and business practices. Academy of Management Executive, 18 (1), 80 8. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Hofstede, G. (1983). The cultural relativity of organizational practices and theories. Journal of International Business Studies, fall, 75 89. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill. Hofstede, G. (2001). Culture’s Consequences: Com paring Values, Behaviors, Institutions, and Organi zations Across Nations, 2nd edn. Thousand Oaks, CA: Sage. Lane, H. W. and Maznevski, M., Mendenhall, M., and McNett, J. (eds.) (2004). The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

pre-departure briefing John O’Connell

A pre departure briefing is normally given to expatriates to make certain that important items have been taken care of, both as an individ ual and as an employee of the company. It is the final discussion and farewell before the em ployee leaves for an a s s i g n m e n t . This briefing should emphasize the support systems for the employee and family members which are available, as well as bolster their confidence prior to the actual move. The real reason for a pre departure briefing is to make certain that ‘‘surprises’’ during travel or upon arrival are kept to a minimum.

privacy pre-shipment inspection (PSI) John O’Connell

A buyer may decide that it is appropriate to inspect goods before they are delivered to a carrier for shipment. When this occurs the pro cess is referred to as a pre shipment inspection. Such inspections are normally carried out at the buyer’s expense.

predatory dumping John O’Connell

When a country sells goods in another country at much lower than market prices in either country the practice is called d u m p i n g . Dumping is an unfair trade practice which is subject to add itional tax and other penalties. If goods are sold in the manner described above with the intent of putting local competition out of business, the practice is referred to as predatory dumping. Predatory dumping is used to achieve m a r k e t p e n e t r a t i o n much more quickly than other wise possible. It is also an unfair trade practice.

289

when they become exports instead of being con sumed locally. Usually, price increases are due to shipment costs and other expenses associated with the export process.

price suppression John O’Connell

Price suppression refers to the downward ad justments often made in domestic prices to stay competitive with low cost imports. Price sup pression could be a sign that domestic prices were too high and an adjustment was in order. However, price suppression could also be due to a foreign company d u m p i n g its products on the market. When foreign products are dumped on a market, it is considered an unfair trade practice. See also anti dumping duty Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

privacy John O’Connell

preferential duties John O’Connell

A preferential d u t y is one which is lower for one country than for others. Preferential duties may be the result of trade agreements or agree ments with international economic development organizations to reduce duties for less developed countries (LDCs).

price escalation John O’Connell

In the international trade context, price escal ation refers to the increase in prices of goods

Due to the need to disclose data during transac tions, privacy can be compromised. An individ ual’s right to privacy is becoming more of an issue as businesses are increasingly able to gather data and use it for multiple purposes. With the Internet, privacy issues are exacerbated, as data is not only captured more easily during transac tions, but data gathering is not exclusive to transactions (sites can track your movements, etc.). Customers must understand four things with respect to data transfer: How is data gathered? What data is gathered? When is data gathered? How is data being used subse quent to gathering? Another issue with respect to privacy is the ability for ‘‘outsiders’’ to view data that was not intended for them (either data that is stored or in transit). c r y p t o g r a p h y is

290

Private Export Funding Corporation

the science of protecting information from those for whom it is not intended.

Private Export Funding Corporation (PEFCO) John O’Connell

PEFCO is a private sector source of funding for financing exports from the United States. PEFCO was formed by a group of commercial banks with the assistance of the United States e x p o r t i m p o r t b a n k (EXIM Ba n k ). The EXIM Bank provides loan guarantees and add itional credit when necessary.

Private Sector Development Program (PSDP) John O’Connell

As the name implies, this program is aimed at encouraging the p r i v a t i z a t i o n of formerly governmental activities. It is believed that pri vate/market oriented economies are more efficient and will assist overall economic devel opment in a region more than a centralized economy approach. The PSDP is aimed at Latin American countries with hopes of eventu ally developing an effective economic force throughout the region. The program is intended to combine the resources and activities of the Inter American Development Bank (IDB), the Inter American Investment Corporation (IIC), and the i n t e r n a t i o n a l m o n e t a r y f u n d in the Latin American Region. Bibliography Ludlow, N. H. (1988). A Practical Guide to the Develop ment Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

vatize has been experienced by the former states of the Soviet Union and other Eastern European countries after the fall of communism in that region. Literally hundreds of thousands of former government owned and government operated businesses and industries were put out to sale to private investors. Privatization was a quick way to remove government from what might be the start of a market economy as well as to unburden busi nesses from inefficient and ineffective production systems. Privatization has occurred to one extent or another in virtually all industrialized nations. Some countries seem to go back and forth be tween privatization and government ownership, whereas others seem to be intent on ridding gov ernment of activities which may be accomplished by the private sector. Some former government operations hold out opportunities for investors. Facilities are intact, workers are on the job, and distribution systems are already in place. The major problem is deal ing with a workforce that has been under gov ernment control for decades. Waste runs rampant in many former government oper ations, with a workforce which may be lethargic and not used to working for a profit seeking organization. Still, many private companies see privatization as a means of quick market entry as well as a possibility of picking up some inexpen sive business opportunities. Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley. Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin. Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill.

privatization John O’Connell

The movement of ownership of industry and property from a government to the private sector. Probably the most significant movement to pri

pro forma invoice John O’Connell

A pro forma invoice is forwarded by the seller of goods to the buyer as notification that goods

protective duty (tariff) have been shipped and that the buyer should be preparing to finalize financing (if necessary) to pay for the goods when they arrive. The invoice provides details of the numbers of units shipped, values, shipping method, etc.

Bibliography

See also entry documents

profiling

291

Dunning, J. (1981). International Production and Multi national Enterprise. London: Allen and Unwin.

John O’Connell processing John O’Connell

When an employee is sent overseas a number of travel and other details have to be managed. The management of these details is referred to as processing. Details include travel documents (passports, health certificates, visas, etc.), trans portation arrangements (airline tickets, etc.), ar rival procedures (customs, person to meet e x p a t r i a t e , etc.), and shipment and/or stor age of personal property (how much can be taken, any restrictions on certain property, etc.). Failure to process these items properly can make the beginning of an expatriate’s a s s i g n m e n t very stressful.

product life cycle

Collecting and analyzing information that indi viduals have provided about themselves (see r e g i s t r a t i o n ) and information about their online behavior (e.g., sites visited and content viewed) for the purpose of targeting marketing campaigns.

prohibitive duty John O’Connell

A d u t y designed to stop the flow of imports of specific goods. Prohibitive duties may be ar ranged so as to apply at a low rate for a specified number or value of goods, and then at a much higher or prohibitive rate for additional numbers of imports.

protectionism

see i n t e r n a t i o n a l p r o d u c t l i f e c y c l e

production sharing John O’Connell

A creative arrangement under which companies in different countries agree to cooperate in the production and distribution of a product. Dif ferences in customs laws and the prices of re sources make such cooperative agreements feasible. m a q u i l a d o r a production in Mexico is an example of production sharing. Foreign countries ship unfinished or unassembled goods to plants located in special trade zones in Mexico. The goods are finished and/or assem bled (at low wage rates) and returned for distri bution. Another name for production sharing is outward processing.

John O’Connell

A government practising protectionist actions is attempting to protect local markets and industry from foreign competition. Thus, protectionist acts would include high duties, quotas on goods entering the country, difficulty in secur ing import licenses, stringent customs regula tions, and other actions aimed at reducing the flow of imported items. See also barriers

protective duty (tariff) John O’Connell

A tax placed on imported goods to carry out protectionist activities of a government. Taxes

292

PSI

increase the cost of imports to consumers, thereby reducing their demand. Properly applied duties will increase the development of local industry, as well as protect it from foreign competition.

designed to attract and serve Internet users. Some publishers accept advertising and derive revenue from it.

See also barriers; duty; protectionism pure play business John O’Connell PSI

see p r e s h i p m e n t i n s p e c t i o n

public ownership

A business that was established for the Web, but had no prior physical presence. Amazon.com is an example of a pure play business. This is in contrast to a l e g a c y b u s i n e s s : these busi nesses are the traditional businesses that are transforming to the Web.

John O’Connell

Public ownership is when property or organiza tions are owned by the government. Public own ership is very common around the world. Governmental ownership of property is the most pronounced in communist countries, but is common in many other countries as well. Recent developments in world politics and a general lean ing toward private enterprise have moved entire economies from virtual governmental control to attempts by government to relieve itself of as many functions and industries as possible.

put John O’Connell

The right to sell currency at a specified price. See also put option

put option John O’Connell

See also privatization

publisher John O’Connell

The owner of a website that provides informa tion, entertainment, software, or other content

A put is the right to sell currency. An option is a specific amount of currency that may be pur chased or sold at a stated price, at a stated time. Thus, a put option is the right to sell a stated amount of currency at a predetermined price within a certain period of time.

Q quad

quality control circle (QCC)

see q u a d r i l a t e r a l t r a d e m i n i s t e r s

quadrilateral trade John O’Connell

Trade taking place between four regions or countries. Bilateral trade is trade taking place between two regions or countries. Multilateral trade is trade between unspecified numbers of regions or countries.

John O’Connell

One of the objectives in most organizations is to improve productivity and the quality of prod ucts and/or services. Japanese organizations first introduced the idea of quality control circles to assist in meeting these objectives. A quality con trol circle consists of a group of employees (gen erally volounteers) who meet periodically to identify strengths and weaknesses in the produc tion process. Through the efforts of the circles, suggestions are provided on how to solve prob lems and increase productivity of quality goods and services. Bibliography

quadrilateral trade ministers John O’Connell

The quadrilateral trade ministers represent a group of four economically powerful countries or regions which have the ability to dramatically affect international commercial activities. The group is commonly referred to as the Quad. The Quad is comprised of the Canadian Minis ter of International Trade, the European Union’s Commissioner for External Relations, Japan’s Minister of International Trade and In dustry, and the United States Trade Represen tative. The Quad was originally referred to as the Group of Seven until the e u r o p e a n u n i o n (which included four members of the group of seven: France, Germany, Italy, and the United Kingdom) elected to be represented by a single member. Bibliography Springer, B. (1992). The Social Dimension of 1992: Europe Faces a New EC. New York: Greenwood Press.

Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

quality of working life Thomas G. Cummings

The term ‘‘quality of working life’’ (QWL) refers to people’s reactions to work, particularly personal outcomes related to job satisfaction, mental health, and safety. Attention to QWL issues started initially in Scandinavia and Europe in the 1960s and spread to North Amer ica in the 1970s. The major impetus was the growing concern among industrialized nations for the health, safety, and satisfaction of workers. In Norway and Sweden, QWL has become a national movement fostered by cultural and political forces advocating employee rights to meaningful work and participation in work deci sions. In the United States and Canada, QWL has been more pragmatic and localized, often

294

quantitative quota

limited to work situations where unions and management have a strong commitment to im proving working conditions. QWL research has focused on three major issues: 1 Identification of work conditions that con tribute to QWL. 2 Development of methods and techniques for enhancing those conditions. 3 Understanding how QWL affects product ivity. Researchers have discovered a number of condi tions that affect whether employees experience work as satisfying, psychologically healthy, and safe. These include challenging jobs, develop ment of human capacities, safe and healthy work environment, adequate and fair compensation, and opportunity for balancing work and home life. Considerable attention has been directed at developing methods for improving these condi tions. Among the QWL innovations that have been implemented successfully in modern or ganizations are job enrichment, autonomous work groups, flexitime, and employee involve ment. A key finding of this applied research is that the success of these QWL interventions depends on a variety of contingencies in the work setting having to do with individual differ ences, technology, and task environment. An assumption underlying QWL research is that there is a positive linkage between QWL and productivity. This derives from the idea that increased satisfaction with work will motiv ate employees to perform at higher levels. Research has shown, however, that the satisfac tion causes productivity premise is too simplis tic and sometimes wrong. A more realistic explanation for how QWL can affect productiv ity is that QWL innovations, such as job enrich ment and participative management, can improve employee communication, coordin ation, and capability. These improvements, in turn, can enhance work performance. QWL in novations can also improve the well being and satisfaction of employees by providing a better work environment and more fulfilling jobs. These positive work conditions can indirectly increase productivity by enabling the organiza tion to attract and retain better workers.

Over the past two decades, both the term QWL and the meaning attributed to it have undergone considerable change and develop ment. Concerns about employee well being and satisfaction have expanded to include greater attention to organization effectiveness, particu larly in today’s highly competitive, global envir onment. QWL research and practice have given rise to current attention to employee involve ment and empowerment, reflecting the need to make organizations more decentralized and re sponsive to customer demands. Today, QWL finds expression primarily in union–manage ment cooperative projects in both the public and private sectors. These involve committees, comprised of employees and managers, that seek to address common workplace issues falling out side collective bargaining, such as safety, quality, technology management, and job satisfaction. Bibliography Cummings, T. and Molloy, E. (1977). Improving Product ivity and the Quality of Work Life. New York: Praeger. Davis, L. and Cherns, A. (eds.) (1975). The Quality of Working Life. New York: Free Press.

quantitative quota John O’Connell

One of the ways to constrain the free flow of goods into a country is to institute regulations restricting the numbers or units of goods which can be imported in any given period of time. Generally, such regulations are referred to as quotas. For example, a limit of 10,000 of a certain type of automobile is a quantitative restriction. See also barriers; quota

quantity controls (foreign exchange) John O’Connell

Quantity controls are a type of restriction on foreign exchange. The amount of domestic cur rency which can be transferred (on one’s person or by other means) is subject to preset maximums.

quoted currency 295 quantity restrictions

see q u o t a

quarantine requirements John O’Connell

A number of countries regulate the importation of animals and plants as a way of reducing the potentially harmful spread of disease. Animals commonly subject to quarantine are monkeys, birds, cats, and dogs. Quarantine requirements usually include a health certificate and possible actual quarantine for a specified number of days until the animal may be released to its owners. Exporters and importers (and owners moving to another country) of plants and animals must carefully check quarantine requirements or face the possibility of not being able to obtain per mission to move some plants and/or animals across international borders.

for specific goods. A quota establishes a quanti tative limit on the amounts of goods that can be imported. Quotas may be expressed in terms of weight (so many tons of grain), value (no more than $1,000,000 in value of a good), units (no more than 1,000 trucks of a certain type), or more recently in terms of a percentage of final value (no more than 50 percent of the final value of a good may come from outside the country). Quotas are often used as retaliatory measures for what a country perceives as unfair trade practices of another nation. See also barriers

quotas (commodity agreements)

see i n t e r n a t i o n a l c o m m o d i t y a g r e e ment

Bibliography United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

quotation John O’Connell

questionable payments

see b r i b e r y

quitas fiscal John O’Connell

This is an Algerian term meaning that a clear ance is necessary for a foreign resident to leave the country. The clearance verifies that the for eign resident has paid any income taxes due prior to leaving the country.

A quotation is a statement by a seller as to the expected price (and terms of sale) of goods or services at a specific time. Because the quotation is not associated with an actual order, it is not binding. A quotation may become a binding price if the buyer seeks to enter into a formal purchase agreement. Failure to enter into an agreement in a timely manner usually makes the quotation useless.

quoted currency John O’Connell

See also fiscal clearance

quota John O’Connell

One of the most common ways of establishing a barrier to free trade is to establish a quota

Currencies that are traded on authorized currency exchanges are referred to as quoted currencies. This comes from the fact that a value of the particular currency is quoted or referenced in terms of other quoted currencies.

R R and R

see r e s t a n d r e l a x a t i o n l e a v e

Ramadan John O’Connell

Ramadan is one of the most important religious observances for Muslims. Ramadan is the holy month of fasting. It is the ninth month of the Muslim year. During this time Muslims refrain from food, drink, and sexual activity from sun rise to sunset. Ramadan begins and ends with the sighting of the new moon.

necessary staff, closing unprofitable operations, concentrating on profitable operations, and gen erally seeking out the most efficient ways to increase the long run viability and profitability of a firm. Rationalization became a very import ant part of international business activities in the 1990s.

reciprocal trade agreements

see r e c i p r o c i t y

reciprocity John O’Connell

rapid deployment system John O’Connell

A telecommunications system, often including video conferencing and a variety of data capabil ities, packaged in air transportable containers and permitting rapid setup. These systems are intended for establishing telecommunications and video conferencing in emergencies and crises.

Successful international trade sometimes means that countries enter into agreements to reduce b a r r i e r s to each other’s goods and services. Agreements can be as broad as virtually open and free trade to ‘‘I’ll open my borders for your product, if you will open yours for mine.’’ When an agreement concerning mutual conces sions is made it is referred to as reciprocity. There are a number of types of reciprocity, of which some are listed below: 1

rationalization John O’Connell

Rationalization involves seeking efficiency by restructuring an organization. Also known as re engineering a firm or downsizing, restructur ing seeks to reduce the costs of operation through streamlining processes, reducing un

2

Identical reciprocity. Each country allows or ganizations to do business across borders but foreign organizations are subject to the same internal regulations as are domestic organ izations. Foreign organizations also cannot undertake any activities not allowed in their own country (see i d e n t i c a l r e c i p r o c i t y ). National treatment. National treatment is one of the goals of the General Agreement on

reference price Tariffs and Trade (GATT). Under this form of reciprocity, countries enter into agreements with one another to treat speci fied foreign goods and/or services in the same manner as their own domestic goods. Barriers for specified goods and/or services between signatories to such agreements are virtually non existent. 3 Overall reciprocity. Essentially, doing away with special barriers and restrictions for all goods and services between two coun tries. 4 Sectoral reciprocity. Often, concessions re lated to trade begin with limited agreements that affect only portions (sectors) of the economy. For example, two countries may agree to reduce barriers on grains which both countries need. The countries would be exhibiting sectoral reciprocity in grain products.

redundancy (telecommunications)

The idea of equal treatment between foreign and domestic goods and services has been embodied in many trade agreements. The Organization for Economic Cooperation and Development (OECD) first outlined the con cept in 1976. Over the past three decades, how ever, few, if any, countries have achieved true national treatment in all sectors of their economies.

re-entry visa

red clause letter of credit John O’Connell

Often, an exporter does not have the funds to produce products to fill current orders. A l e t t e r o f c r e d i t may have already been issued by the importer in anticipation of goods being exported. If allowed by the terms of the letter of credit, the exporter may draw upon the letter to obtain funds to produce goods. Once the goods are delivered the exporter may then submit the proper documentation to obtain the balance of the letter of credit. This type of in terim financing is referred to as coming from a red clause letter of credit. See also green clause letter of credit

297

John O’Connell

Alternative and/or duplicate transmission paths, routes, equipment, and power in various combinations to enhance the reliability of a tele communications infrastructure.

re-entry (employee)

see r e p a t r i a t i o n o f e m p l o y e e s

re-entry shock

see r e v e r s e c u l t u r e s h o c k

John O’Connell

A re entry v i s a is issued to a foreign person who has been permitted to work in a country. If that person desires to leave the country for a short period of time a re entry visa may be issued to expedite the person’s readmittance to the host country. Re entry visas are commonly issued to business people who must return to their home country periodically, but will be back to the host country in a short while to continue their work. Business persons will also have to have a work permit in most countries if they remain resident more than a minimum amount of time.

reference price John O’Connell

In order to protect itself from predatory pricing practices or d u m p i n g , the European Union (EU) has established minimum prices which must be charged for certain imported commod ities. Agricultural commodities are the target of most reference prices. When the price of an import falls below its reference price, a surcharge is imposed on that item. Reference

298

regiocentric approach to hiring

prices are part of the EU’s attempt to protect local producers from foreign competition.

place are better able to deal with language and cultural problems than are managers from out side the region.

Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

See also ethnocentrism; geocentrism; polycentric approach to hiring Bibliography

regiocentric approach to hiring John O’Connell

A regiocentric approach to hiring selects man agement personnel from within a region of the world which most closely resembles that of the host country. The company has expanded its search beyond the borders of the host coun try, but has stopped short of seeking manage ment personnel from its operations throughout the world. The theory behind this selection pro cess is that nationals of the region in which operations actually take place are better able to deal with language and cultural problems than are managers from outside the region. The logic behind this hiring approach is probably sound, but it ignores the potential growth a manager goes through when forced to deal with different situations than those in which he or she is com fortable. See also staffing

Beamish, P. W., Killing, J. P., Lecraw, D., and Morrison, A. J. (1994). International Management: Text and Cases, 2nd edn. Burr Ridge, IL: Irwin.

regional development banks (RDBs) John O’Connell

Development banks are established by govern ments to foster economic growth in a particular country, region, or worldwide. There are five regional development banks: the a f r i c a n d e v e l o p m e n t b a n k ; the a s i a n d e v e l o p m e n t b a n k ; the c a r i b b e a n d e v e l o p m e n t b a n k ; the i n t e r a m e r i c a n d e v e l o p m e n t b a n k ; the i n t e r n a t i o n a l b a n k f o r r e c o n s t r u c t i o n a n d d e v e l o p m e n t (IBRD or World Bank). These banks are also referred to as multilateral development banks (MDBs). The purposes of development banks are to foster the economic development of member countries and to assist in implementing the development pro grams of the United Nations.

Bibliography Beamish, P. W., Killing, J. P., Lecraw, D., and Morrison, A. J. (1994). International Management: Text and Cases, 2nd edn. Burr Ridge, IL: Irwin. Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

Bibliography Ludlow, N. H. (1988). A Practical Guide to the Development Bank Business: How to Identify It, Market to It, and Win It. Washington, DC: Development Bank Associates.

regional economic integration John O’Connell

regiocentrism John O’Connell

An organization that chooses its management personnel from within a selected region of the world practices regiocentrism. The theory behind this selection process is that nationals of the region in which operations actually take

This involves the move by groups of countries to establish agreements to reduce trade b a r r i e r s between the group members as well as to pro mote cooperation in establishing trade policies between the group and the rest of the world. Trading blocs are either the result of economic integration or the vehicle chosen to assist in

regulatory cost advantage achieving economic integration. Examples of successful regional economic integration include the e u r o p e a n u n i o n , which has become one of the most formidable trading associations in the world, and the United States, Canada, and Mexico, who through NAFTA have strengthened economic ties. Regional economic integration allows countries to bring real strength of numbers to the international trade negotiating table, while at the same time encour aging internal development of each of the member countries. Other parts of the world are also seeking closer ties. Areas of most recent interest include Southeast Asia (Singapore, Hong Kong, Japan, Korea, and China, to men tion a few interested countries) and the Middle East. Regional economic integration is the wave of the future. It is expected that within a short period of time world economics will be con trolled by fewer and larger blocs of cooperating countries.

299

likelihood of users returning to the site, and usually gains permission to send marketing mes sages to the visitor (see o p t i n ; p e r m i s s i o n b a s e d m a r k e t i n g ). In return, the website owner may provide the registrant with access to restricted information (e.g., a research report), a website customized for the user, a free service (e.g., free email), a discount on products or ser vices, entry in a sweepstake, or some other in ducement to register. Users generally expect, and websites generally provide, a p r i v a c y statement describing how the information will be used.

registration service John O’Connell

See also common market; trading bloc

A generally free service on the Internet which requires registration by the user, sometimes in cluding detailed user information, in return for access to the service.

regional structure

regulatory cost advantage John O’Connell

John O’Connell

Sometimes called geographic structure, this term refers to a way of structuring an inter national business by separating responsibility areas into geographic divisions. This method of structuring an organization is commonly used when the organization feels that it is important to recognize cultural differences and local methods of doing business. By organizing on a geographic basis managers may be selected who are familiar with the region, speak the language, and are comfortable with any cultural differ ences.

Regulatory cost advantage occurs when the cost of complying with regulations governing an or ganization’s actions is extremely high in the home country, whereas those regulations do not exist (or if in existence, the cost of compli ance is far less) in a host country. Three current examples of regulatory cost advantage exist in the environmental pollution area, the legal liability arena, and health and safety work regulations. Do companies locate in countries because laws are less stringent than in the company’s home country? There is some evidence to indicate that companies have moved because of what they consider an oppres sive legal system in the United States (high cost of litigation; uncertainty; high liability insurance costs); because of strict pollution liability regu lations and responsibility; because of require ments to provide social types of insurance and pension plans; because of reduced safety and loss control requirements; as well as for other reasons. Regulatory cost advantages as a reason

registration John O’Connell

A website visitor’s input of personal or business information into a form provided on the website. Registration allows the website owner to better understand viewers and customers, increases the

300

reinvoicing

to locate a facility are transitory at best. Environ mental legislation is sweeping the globe; legal reform is beginning in the United States (the country facing the most serious legal liability exposure); and common markets are slowly equalizing social benefits and programs between member countries. The real question to be posed to companies taking advantage of regulatory cost advantages is an ethical one. Does an organization have the right to treat the environment or the people of a foreign nation with less respect than in the home country because there are fewer laws in that nation to offer protection? Sometimes taking advantage of reduced regulatory costs adds to the economic development of a nation, but the question must be asked: ‘‘At what cost?’’ Those firms which locate for cost advantages, but also are considerate of the host country, will have a better long run chance of succeeding than those that are inconsiderate.

Eiteman, D. K., Stonehill, A. J. and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

relationship marketing John O’Connell

This refers to the notion of marketing to a cus tomer with the expectation of a long term rela tionship. This removes the need to focus on each individual transaction needing to be profitable; rather, it is the relationship over its lifetime that is profitable. Marketers are now able to segment their target markets to the individual consumer (one on one marketing) and understand the value each consumer can bring to the relationship (life time value of the customer). Relationship market ing also focuses on customer share versus market share – the share of the customer dollar, rather than the number of customers in the market. Relationships between the buyer and the seller are also likely to incur lower transaction costs.

reinvoicing John O’Connell

Tax considerations play a large role in inter national trade. One of the methods used by multinational firms to reduce the impact of taxes is to establish an o f f s h o r e organization which acts as the receiver of imports for the parent corporation. The agent company is estab lished in a country with favorable corporate tax rates and regulations. Goods purchased on behalf of the parent company are sold to the offshore company which then reinvoices the goods to increase their price to the parent com pany. The parent company has a high cost of raw materials which lowers its domestic taxable income. The offshore company shows high profits which are taxed at favorable rates. The offshore company may then be able to finance the parent company’s activities through low or no cost loans or through other investments in the parent company. Bibliography Celi, L. J. and Rutizer, B. (1991). Global Cash Manage ment, 1st edn. New York: Harper Business.

relativism, cultural and moral Norman E. Bowie

Cultural relativism is a descriptive claim that eth ical practices differ among cultures; that, as a matter of fact, what is considered right in one culture may be considered wrong in another. Thus truth or falsity of cultural relativism can be determined by examining the world. The work of anthropologists and sociologists is most relevant in determining the truth or falsity of cultural relativism, and there is widespread con sensus among social scientists that cultural rela tivism is true. Moral relativism is the claim that what is really right or wrong is what the culture says is right or wrong. Moral relativists accept cultural relativ ism as true, but they claim much more. If a culture sincerely and reflectively adopts a basic moral principle, then it is morally obligatory for members of that culture to act in accordance with that principle. The implication of moral relativism for con duct is that one ought to abide by the ethical

relativism, cultural and moral norms of the culture where one is located. This position is captured by the popular phrase ‘‘When in Rome, do as the Romans do.’’ Rela tivists in ethics would say: ‘‘One ought to follow the moral norms of the culture.’’ In terms of business practice, consider the question: ‘‘Is it morally right to pay a bribe to gain business?’’ The moral relativist would answer the question by consulting the moral norms of the country where one is doing business. If those norms permit bribery in that country, then the practice of bribery is not wrong in that country. How ever, if the moral norms of the country do not permit bribery, then offering a bribe to gain business in that country is morally wrong. The justification for that position is the moral rela tivist’s contention that what is really right or wrong is determined by the culture. Is cultural relativism true? Is moral relativism correct? As noted, many social scientists believe that cultural relativism is true as a matter of fact. But is it? First, many philosophers claim that the ‘‘facts’’ aren’t really what they seem. Early twen tieth century anthropologists cited the fact that in some cultures, after a certain age, parents are put to death. In most cultures such behavior would be murder. Does this difference in behav ior prove that the two cultures disagree about fundamental matters of ethics? No, it does not. Suppose the other culture believes that people exist in the afterlife in the same condition that they leave their present life. It would be very cruel to have one’s parents exist eternally in an unhealthy state. By killing them when they are relatively active and vigorous, you insure their happiness for all eternity. The underlying ethical principle of this culture is that children have duties to their parents, including the duty to be concerned with their parents’ happiness as they approach old age. This ethical principle is iden tical with our own. What looked like a difference in ethics between our culture and another turned out, upon close examination, to be a difference based on what each culture takes to be the facts of the matter. This example does, of course, support the claim that as a matter of fact ethical principles vary according to culture. However, it does not support the stronger conclusion that underlying ethical principles vary according to culture.

301

Cultures differ in physical setting, in eco nomic development, in the state of their science and technology, in their literacy rate, and in many other ways. Even if there were universal moral principles, they would have to be applied in these different cultural contexts. Given the different situations in which cultures exist, it would come as no surprise to find universal principles applied in different ways. Hence, we expect to find surface differences in ethical be havior among cultures even though the cultures agree on fundamental universal moral prin ciples. For example, one commonly held univer sal principle appeals to the public good; it says that social institutions and individual behavior should be ordered so that they lead to the greatest good for the greatest number. Many different forms of social organization and indi vidual behavior are consistent with this principle. The point of these two arguments is to show that differences among cultures on eth ical behavior may not reflect genuine disagree ment about underlying principles of ethics. Thus, it is not so obvious that any strong form of cultural relativism is true. But are there universal principles that are accepted by all cultures? It seems so; there does seem to be a whole range of behavior, such as torture and murder of the innocent, that every culture agrees is wrong. A nation state accused of torture does not respond by saying that a condemnation of torture is just a matter of cul tural choice. The state’s leaders do not respond by saying: ‘‘We think torture is right, but you do not.’’ Rather, the standard response is to deny that any torture took place. If the evidence of torture is too strong, a finger will be pointed either at the victim or at the morally outraged country: ‘‘They do it too.’’ In this case the guilt is spread to all. Even the Nazis denied that genocide took place. What is important is that no state replies that there is nothing wrong with genocide or torture. In addition, there are attempts to codify some universal moral principles. The United Nations Universal Declaration of Human Rights has been endorsed by the member states of the UN, and the vast majority of countries in the world are members of the UN. Even in business, there is a growing effort to adopt universal principles of business practice. In a study of

302

relativism, cultural and moral

international codes of ethics, Langlois and Schlegelmilch (1990) found that although there certainly were differences among codes, there was a considerable area of agreement. William Frederick (1991) has documented the details of six international compacts on matters of inter national business ethics. These include the afore mentioned UN Universal Declaration of Human Rights, the European Convention on Human Rights, the Helsinki Final Act, the OECD Guidelines for Multinational Enter prises and Social Policy, and the United Nations Conduct on Transnational Corporations. The Caux Roundtable, a group of corporate execu tives from the United States, Europe, and Japan, is seeking worldwide endorsement of a set of principles of business ethics. Thus there are a number of reasons to think that cultural relativ ism, at least with respect to basic moral prin ciples, is not true; that is, that it does not accurately describe the state of moral agreement that exists. This is consistent with maintain ing that cultural relativism is true in the weak form, that is, when applied only to surface ethical principles. But what if differences in fundamental moral practices among cultures are discovered and seem unreconcilable? That would lead to a dis cussion about the adequacy of moral relativism. The fact that moral practices do vary widely among countries is cited as evidence for the correctness of moral relativism. Discoveries early in the century by anthropologists, sociolo gists, and psychologists documented the diver sity of moral beliefs. Philosophers, by and large, welcomed corrections of moral imperialist think ing, but recognized that the moral relativist’s appeal to the alleged truth of cultural relativism was not enough to establish moral relativism. The mere fact that a culture considers a practice moral does not mean that it is moral. Cultures have sincerely practiced slavery, discrimination, and the torture of animals. Yet each of these practices can be independently criticized on eth ical grounds. Thinking something is morally permissible does not make it so. Another common strategy for criticizing moral relativism is to show that the conse quences of taking the perspective of moral rela tivism are inconsistent with our use of moral language. It is often contended by moral relativ

ists that if two cultures disagree regarding uni versal moral principles, there is no way for that disagreement to be resolved. Since moral rela tivism is the view that what is right or wrong is determined by culture, there is no higher appeal beyond the fact that culture endorses the moral principle. But we certainly do not talk that way. When China and the United States argue about the moral rights of human beings, the disputants use language that seems to appeal to universal moral principles. Moreover, the atrocities of the Nazis and the slaughter in Rwanda have met with universal condemnation that seemed based on universal moral principles. So moral relativ ism is not consistent with our use of moral language. Relativism is also inconsistent with how we use the term ‘‘moral reformer.’’ Suppose, for instance, that a person from one culture moves to another and tries to persuade the other culture to change its view. Suppose someone moves from a culture where slavery is immoral to one where slavery is morally permitted. Normally, if a person were to try to convince the culture where slavery was permitted that slavery was morally wrong, we would call such a person a moral reformer. Moreover, a moral reformer would almost certainly appeal to universal moral principles to make her argument; she almost certainly would not appeal to a competing cultural standard. But if moral relativism were true, there would be no place for the concept of a moral reformer – slavery is really right in those cultures that say it is right and really wrong in those cultures that say it is wrong. If the re former fails to persuade a slaveholding country to change its mind, the reformer’s anti slavery position was never right. If the reformer is suc cessful in persuading a country to change its mind, the reformer’s anti slavery views would be wrong – until the country did, in fact, change its view. Then the reformer’s anti slavery view would be right. But that is not how we talk about moral reform. The moral relativist might argue that our language should be reformed. We should talk differently. At one time people used to talk and act as if the world were flat. Now they don’t. The relativist could suggest that we can change our ethical language in the same way. But consider how radical the relativists’ response is. Since

relativism, cultural and moral most, if not all, cultures speak and act as if there were universal moral principles, the relativist can be right only if almost everyone else is wrong. How plausible is that? Although these arguments are powerful ones, they do not deliver a knockout blow to moral relativism. If there are no universal moral prin ciples, moral relativists could argue that moral relativism is the only theory available to help make sense of moral phenomena. An appropriate response to this relativist ar gument is to present the case for a set of univer sal moral principles, principles that are correct for all cultures independent of what a culture thinks about them. This is what adherents of the various ethical traditions try to do. The reader will have to examine these various traditions and determine how persuasive she finds them. In addition, there are several final independent considerations against moral relativism that can be mentioned here. First, what constitutes a culture? There is a tendency to equate cultures with national boundaries, but that is naive, especially today. With respect to moral issues, what do US cul tural norms say regarding right and wrong? That question may be impossible to answer, because in a highly pluralistic country like the United States, there are many cultures. Furthermore, even if one can identify a culture’s moral norms, it will have dissidents who do not sub scribe to those moral norms. How many dissi dents can a culture put up with and still maintain that some basic moral principle is the cultural norm? Moral relativists have had little to say regarding criteria for constituting a culture or how to account for dissidents. Unless moral relativists offer answers to questions like these, their theory is in danger of becoming inapplic able to the real world. Second, any form of moral relativism must admit that there are some universal moral prin ciples. Suppose a culture does not accept moral relativism, that is, it denies that if an entire culture sincerely and reflectively adopts a basic moral principle, it is obligatory for members of that culture to act in accord with that principle. Fundamentalist Muslim countries would reject moral relativism because it would require them to accept as morally permissible blasphemy in those countries where blasphemy was permitted.

303

If the moral relativist insists that the truth of every moral principle depends on the culture, then she must admit that the truth of moral relativism depends on the culture. Therefore the moral relativist must admit that at least the principle of moral relativism is not relative. Third, it seems that there is a set of basic moral principles that every culture must adopt. You would not have a culture unless the members of the group adopted these moral prin ciples. Consider an anthropologist who arrives on a populated island: how many tribes are on the island? To answer that question, the anthro pologist tries to determine if some people on some parts of the island are permitted to kill, commit acts of violence against, or steal from persons on other parts of the island. If such behavior is not permitted, that counts as a reason for saying that there is only one tribe. The underlying assumption here is that there is a set of moral principles that must be followed if there is to be a culture at all. With respect to those moral principles, adhering to them deter mines whether there is a culture or not. But what justifies these principles? A moral relativist would say that a culture justifies them. But you cannot have a culture unless the members of the culture follow the principles. Thus it is reasonable to think that justification lies elsewhere. Many believe that the purpose of morality is to help make social cooperation pos sible. Moral principles are universally necessary for that endeavor. Bibliography Benedict, R. (1934). Patterns of Culture. New York: Penguin Books. Bowie, N. (1988). The moral obligations of multinational corporations. In S. Luper-Foy (ed.), Problems of Inter national Justice. Boulder, CO: Westview Press, 97 113. Frederick, W. C. (1991). The moral authority of transnational corporate codes. Journal of Business Ethics, 10 (3). Harman, G. (1975). Moral relativism defended. Philo sophical Review, 84, 3 22. Hatch, E. (1983). Culture and Morality. New York: Columbia University Press. Krausz, M. and Meiland, J. (1982). Relativism: Cognitive and Moral. Notre Dame: University of Notre Dame Press. Ladd, J. (1973). Ethical Relativism. Belmont, CA: Wadsworth.

304

relocation allowance

Langlois, C. and Schlegelmilch, B. B. (1990). Do corporate codes of ethics reflect national character? Evidence from Europe and the United States. Journal of Inter national Studies, 21 (9), 519 39. Mackie, J. (1977). Ethics: Inventing Right and Wrong. London: Penguin Books. Rachels, J. (1993). The Elements of Moral Philosophy, 2nd edn. New York: McGraw-Hill. Sayre-McCord, G. (1991). Being a realist about relativism (in ethics). Philosophical Studies, 61, 155 76. Wong, D. (1984). Moral Relativity. Berkeley: University of California Press.

relocation allowance John O’Connell

A payment given to employees to cover the cost of moving themselves, family, and personal pos sessions to the site of a f o r e i g n a s s i g n m e n t . The costs of transferring employees may be quite high depending upon the a s s i g n m e n t location. See also compensation package (expatriate)

relocation and orientation John O’Connell

international human resources man a g e m e n t involves preparing expatriates for transfer to overseas locations. The relocation and orientation process is carried out to insure that the e x p a t r i a t e suffers as little inconvenience as possible. One of the reasons for expatriate failure is improper preparation for the new assignment. Expatriates must be trained in the language, culture, values, forms of communication, and other nuances of the country of assignment. Preparations must also be completed for the move itself: passports and other travel papers; movement of personal property; temporary quarters; schools for chil dren; and other needs. The expatriate must also be compensated in a manner to take care of inconvenience and extra costs not found in the home country. The entire relocation and orien tation process is involved, time consuming, and expensive, but must be successfully accom

plished to give the expatriate the best chance for success. See also compensation package (expatriate); ex patriate training

remitting bank John O’Connell

When an international shipment of goods (import or export) is completed it is common for a bank to forward the shipping documents to a second bank for payment. The bank submit ting the documents for payment is referred to as the remitting bank.

repatriation of employees John O’Connell

This means moving an employee from a foreign country back to the home country. An e x p a t r i a t e is said to be repatriated when he or she is brought home after a foreign a s s i g n m e n t . Great care must be taken when bringing expatriates back to the home country. Many employees suffer r e v e r s e c u l t u r e s h o c k due to being out of the country for an extended period of time. Repatriation also may be required upon the illness, injury, or death of a foreign employee. Repatriation costs are nor mally paid by the employer, but few employers understand the potentially enormous costs asso ciated with bringing home a severely injured or ill employee. If repatriation cannot take place using scheduled commercial transportation methods, very expensive special medical evacu ation resources must be called upon. See also Medivac Bibliography Black, J. S. and Gregerson, H. B. (1991). When Yankee comes home: Factors relating to expatriate and spouse repatriation adjustment. Journal of International Busi ness Studies, 22 (4), 471 94. Feldman, D. C. and Thompson, H. B. (1993). Expropriation, repatriation, and domestic geographical reloca-

requisite variety tion: An empirical investigation of adjustment to new job assignments. Journal of International Business Stud ies, 24 (3), 507 30. Moran, R. T. (1989). Coping with re-entry shock. AGSIM Faculty Publication, No. 89-05. Napier, N. K. and Peterson, R. B. (1990). Expatriate reentry: What do repatriates have to say? Human Re source Planning, 14, 19 28.

repatriation of profits

305

reporting currency John O’Connell

A multinational organization normally uses the currency of its home country or place of incorp oration to prepare its financial statements. The effect of foreign exchange transactions is also reported in terms of this currency. Using a standard reporting currency assists in viewing the true financial status of an organization over time. The reporting currency is also referred to as functional currency.

John O’Connell

Organizations commonly enter into inter national commerce with the expectation of trans ferring profits from the foreign market to their home country. Problems arise when foreign countries implement controls over transfer of profits or dividends outside their borders. The foreign country desires to keep invest ment returns within the country in order to foster further economic growth and stability. Repatriation controls, however, normally have the effect of reducing investor interest in that country. See also barriers; blocked currency

repeat visitor John O’Connell

A visitor to a website who has visited the site previously. Repeat visitors are usually identified by a cookie placed on their machine when they visited the site before. They may also be identi fied if they registered previously on the site and must identify themselves at the start of each visit in order to access content on the site. Repeat visitors are often tracked in the l o g f i l e .

representative

see e x p o r t a g e n t

requisite variety Jeanne McNett

This principle, based on a law of systems theory developed in cybernetics by W. R. Ashby, states that the regulator of a system must have as much or more variety as the system it regulates. Ap plied to management, this concept suggests that organizations have to be as complex as their environments (Osland, 2004). In international management, where the firm faces an exceed ingly complex environment, designing hetero geneity and complexity within the firm helps it to perceive opportunities and solutions that a more homogeneous mindset would overlook. Yet, often, managers almost instinct ively try to do the opposite when faced with a complex environment: they simplify by reducing internal variety to achieve consensus (Morgan, 1997). Bibliography

replay attack John O’Connell

An attempt to break security by retransmitting information that was originally communicated legitimately (see p a s s i v e a t t a c k ).

Ashby, W. R. (1957). An Introduction to Cybernetics. London: Chapman and Hall. Lane, H. W., Maznevski, M., and Mendenhall, M. (2004). Globalization: Hercules meets Buddha. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

306

resident alien

Morgan, G. (1997). Images of Organization, 2nd edn. Thousand Oaks, CA: Sage. Osland, J. (2004). Building community through change. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

Bibliography Griffin, J. (1994). International Sales and the Middleman: Managing Your Agents and Distributors. London: Mercury.

resource exhaustion John O’Connell

resident alien

Resource exhaustion attacks involve tying up finite resources on a system, making them un available to others.

see a l i e n

resident buying agents John O’Connell

Most organizations conducting international trade do not use their own employees to either buy or sell goods in various countries. The dif ferences between business practices, language, and cultural problems usually make employee arrangements difficult at best. Instead of using employees, organizations may turn to intermedi aries in each country to secure goods needed by the organization in its home country (or other country of production). Intermediaries who pur chase goods for a foreign company (to be shipped to that foreign company) are referred to as resi dent buying agents.

rest and relaxation leave (R&R) John O’Connell

When an e x p a t r i a t e employee is assigned to a location which is exceptionally inconvenient compared to the employee’s home country (some Middle Eastern oil field locations, for example) companies often pay for a week or two week excursion away from the location to rest and relax. R&R allows employees to reacclimatize themselves in order to avoid burnout. See also compensation package (expatriate)

See also export agent rest day resident selling agents

John O’Connell John O’Connell

Most international enterprises do not have actual production taking place in each of the countries. They also normally do not have their own em ployees in each country because the costs would be prohibitive for all but the largest of organiza tions. It is very common under these circum stances to use the services of an intermediary to sell a company’s goods in overseas markets. Intermediaries who act on behalf of an organiza tion to sell its products in a given country are referred to as resident selling agents. See also export agent

The workweek is not the same in all countries or for all levels of employees. One variation on the workweek is one which includes a rest day. In some countries employees are paid for a full seven days per workweek, but one or two of the days are considered paid rest days. Although the total wages paid take into consideration the productivity of the workers during their actual work time, an e x p a t r i a t e manager’s failure to recognize this pay practice could result in embarrassment and potential labor problems. New managers must always be aware of local custom concerning wages/pay/work hours and other employment related practices.

reverse culture shock 307 restricted market John O’Connell

A restricted exchange market is heavily con trolled by the government. The government allows the free market (demand and supply) to contribute to the overall valuation of its currency, but the major factor affecting the market is the government’s willingness to buy or sell currency. A market could also be restricted by linking the value of a currency to that of another country’s. Any restrictions by the second country would also restrict the first country’s currency.

retaliation

or other commerce. When this occurs a country may introduce another currency to take the place of the old. This is thought to give the appearance of more stability and bring about a feeling that the government is actually succeeding in decreasing its monetary problems. Changes in currency names do not have to be substantial. For example, the latest currency could be known as the ‘‘new’’ currency unit as distinguished from the ‘‘old’’ devalued currency unit. There is usually a grace period during which old currency may be ex changed for new (old rubles for new rubles in Russia), but once the new currency is in place, all trading in the old currency ceases.

revaluation John O’Connell

Retaliation is normally a unilateral action of one country against another. In response to an unfair trade practice, a country may impose substantial duties on a second country’s imports. Retaliation is common when d u m p i n g of goods takes place. Retaliatory measures are usually rescinded after the countries come to an agreement regarding proper trade conduct.

retaliatory duty

John O’Connell

Customs officials in many countries routinely adjust the values of imports from those stated on the import documents. Revaluation or the adjustment of values results in higher import duties being charged. The theory behind revalu ation is that exporters routinely undervalue goods in order to decrease duty charges. Revaluation may also refer to a situation in which the central monetary authority of a coun try changes the value of its currency. Substantial revaluation may lead to the issuance of a new currency.

John O’Connell

A penalty d u t y (in addition to other duties) imposed by a country to punish another country for u n f a i r t r a d e practices. President Clin ton’s 1995 threat to increase United States duties to 100 percent on imported Japanese luxury cars was in retaliation for Japan’s closed markets with respect to most imports.

revalorization John O’Connell

When a country’s monetary system is subjected to numerous devaluations its currency becomes worthless in the eyes of its citizens and the re mainder of the world. Repeated devaluations may make the currency essentially unusable for trade

See also devaluation; revalorization

reverse culture shock John O’Connell

When an employee returns to the home country after an extended a s s i g n m e n t , he or she (or family members) may be subjected to what many refer to as reverse culture shock. Reverse culture shock occurs because things have changed in the home country. Friends and neighbors have moved, new schools are attended, fellow employ ees have gone into management or departed the company, the clothing fads are different, music has changed, and numerous other things have changed that the e x p a t r i a t e might have felt would be the same. c u l t u r e s h o c k may also

308

revocable letter of credit

be the result of a different standard of living than was achieved in the host country. Often, expatri ates have servants or chauffeurs for the first time, or a larger home, or any number of other items they will not have access to in the home country. Reverse culture shock can be anticipated and dealt with by an organization in the same manner as culture shock was anticipated when the em ployee first moved overseas. Orientation pro grams for coming home, and mentors or other contacts, can keep the family abreast of changes at home. Good communications allow the em ployee to be aware of what is happening in the home office. Bibliography Black, J. S. and Gregerson, H. B. (1991). When Yankee comes home: Factors relating to expatriate and spouse repatriation adjustment. Journal of International Busi ness Studies, 22 (4), 471 94. Feldman, D. C. and Thompson, H. B. (1993). Expropriation, repatriation, and domestic geographical relocation: An empirical investigation of adjustment to new job assignments. Journal of International Business Stud ies, 24 (3), 507 30. Moran, R. T. (1989). Coping with re-entry shock. AGSIM Faculty Publication, No. 89-05. Napier, N. K. and Peterson, R. B. (1990). Expatriate reentry: What do repatriates have to say? Human Re source Planning, 14, 19 28.

The reinstated amount equals the amount of repayment. Revolving lines of credit have a max imum amount which may be outstanding at any one time.

revolving letter of credit John O’Connell

This type of l e t t e r o f c r e d i t is used for an exporter with whom the i s s u i n g b a n k has had favorable past experience. The exporter also deals with customers of the issuing bank on a continuous basis over a period of time. Instead of issuing a new letter of credit each time the ex porter sells to a given importer, the issuing bank arranges to offer a revolving letter of credit. This document allows the exporter to use the same letter for each transaction with the amount of payment on the letter being recredited after the completion of each transaction. As long as a single draw is for less than the overall limit, the letter’s line of credit is renewed automatically over a specified period of time.

right of entry (proof of ) John O’Connell

revocable letter of credit John O’Connell

A revocable l e t t e r o f c r e d i t may be with drawn by the i s s u i n g b a n k without prior notice or explanation. Unlike the i r r e v o c a b l e l e t t e r o f c r e d i t , this type does not require the permission of the other parties to the transaction. As such, this letter exposes the seller of goods to more risk. Sellers seeking to reduce their risk should always demand an irrevocable letter of credit.

Documents used to prove ownership or legal possession of goods are needed in order to allow their passage through the customs system of a country: in other words, proof that the goods are being brought to a country by a party who has the legal right to seek entry for those goods. Proof required is normally a b i l l o f l a d i n g or other evidence of title or possession. See also entry documents

right of establishment John O’Connell

revolving credit facility John O’Connell

A revolving credit facility is a line of credit which is automatically reinstated as loans are paid off.

Right of establishment provides those parties having direct foreign investments with the same protections offered to domestic investors. This means a foreign investor has the right to

royalty establish control over a firm in a host country under the same protections (legal and otherwise) as are afforded to a citizen of that country. See also national treatment

risk John O’Connell

The product of the level of threat with the level of vulnerability. It establishes the likelihood of a successful attack.

309

countries (see b a r r i e r s ). The round of trade negotiations are a series of meetings between country representatives to develop new means to encourage free and open trade throughout the world. The negotiations are normally sponsored by the United Nations Conference on Trade and Development and the countries which are signa tories of the General Agreement on Tariffs and Trade (GATT). A series of round of trade negotiations has been held since 1947 and con tinues to the present day. Consensus agreements of the member nations are referred to as multi lateral trade agreements.

royalty risk assessment

John O’Connell John O’Connell

The process by which risks are identified and the impact of those risks determined.

round of trade negotiations (RTN) John O’Connell

Over the years, international trade has increased substantially. This increase has been accompan ied by problems arising in virtually all areas of the trade transaction. Problems are usually asso ciated with protectionist actions of one or more

Royalties are commonly paid by international enterprises for the use of a company’s trade mark, patented processes, or other proprietary information. In order to use another company’s proprietary information or processes, a l i c e n s i n g arrangement is usually entered into between organizations. The agreement specifies either a percentage of sales or a fee to be paid by the organization using another’s property. This pay ment is a royalty. See also licensing; market entry strategies

S SACUA

see s o u t h e r n a f r i c a n c u s t o m s u n i o n agreement

sanctions. Sanctions are temporary measures and are used until the offending nation changes its ways or until more formal sanctions can be imposed by the United Nations. See also sanction

SADCC

see s o u t h e r n a f r i c a n d e v e l o p m e n t c o ordination council

samurai bonds John O’Connell

safe arrival notification John O’Connell

Showing concern for e x p a t r i a t e employees is very important for a business. One of the areas of concern for most employees is that family and friends be notified when they safely reach their destination. An employer can go a long way in showing real concern for employees by notifying selected persons of the expatriate’s safe arrival at the a s s i g n m e n t destination. This is a simple task, but one that can create goodwill and loyalty between employer and employee.

safeguards John O’Connell

Periodically, a nation will have difficulty with a trading partner with respect to the trading partner d u m p i n g goods onto the nation’s market or engaging in what the first nation feels are u n f a i r t r a d e practices. The first nation may elect to impose unilateral duties or other restrictions on the goods of the trading partner. These restrictions are referred to as

Although the name may be deceiving, a samurai bond is actually issued by a foreign corporation seeking to borrow money in Japan. The bond is denominated in yen and is generally unsecured.

sanction John O’Connell

When a country takes actions which endanger the peace and security of other nations, those nations may impose economic or other sanctions on the offending country. The United Nations, acting as a body, may vote for sanctions against a nation when it is felt that outrageous actions of the nation went strongly against the norms the UN sets for its members. Sanctions could also be imposed by a single nation or group of nations against another country for aggression (or sup port of aggression) aimed at a third nation or one of those imposing the sanction.

secondary boycott

see b o y c o t t

selection of expatriates sectoral reciprocity

311

security policy John O’Connell

John O’Connell

One country may agree to lower trade restric tions (duties, q u o t a s , etc.) in return for a second nation making similar reductions. When agreements are made to reduce b a r r i e r s in specific trade areas (sectors such as heavy equip ment or automobiles) the exchange of conces sions is known as sectoral reciprocity. Often, sectoral reciprocity is the stage from which broader and more widespread trade agreements may flow.

Sets of rules and practices that specify or regu late how a system or organization provides se curity services to protect sensitive and critical system resources.

See also reciprocity

secure electronic transactions (SET) John O’Connell

Is a protocol developed for credit card transac tions in which all parties (customers, merchant, and bank) are authenticated using digital signa tures. Encryption protects the message and pro vides integrity and end to end security for credit card transactions online.

Securities and Exchange Commission (SEC) John O’Connell

selection of expatriates John O’Connell

One of the most important tasks associated with managing an international firm is the selection of employees to represent the firm overseas. e x p a t r i a t e selection is the process used to select employees who will have the best chances of success. Although many companies stress the importance of technical competence, many other factors should also enter into the selection equation. Improperly selected or improperly trained employees can do irreparable harm to an organization’s overseas operations and image in a surprisingly short period of time. The following discussion reviews a number of factors which must be addressed during the ex patriate selection process. Failure to address even one of the factors may result in sending an unprepared or unsuitable employee overseas. 1

A US government agency charged with respon sibility for overseeing the offering and exchange of securities within the United States. The agency investigates claims of wrongdoing or other securities related problems. The SEC monitors the issuance of securities, especially in the area of full disclosure to prospective buyers. The SEC was established in 1934 and is governed by five presidentially appointed com missioners. 2 security officer (SO) John O’Connell

A person appointed to manage some aspect of computer or network security (e.g. crypto graphic keys).

The task to be completed. Probably the most common concern of employers is whether the employee has the capability of carrying out the work in a foreign country. That is, is the employee well trained and qualified in the job? Is the employee technically prepared to accomplish what the employer expects? This must be judged not only from the actual tasks but also the ability to manage others to carry out the tasks. Someone who has never managed people should not be sent overseas for their first management position. The country setting. Sending expatriates to a country which is similar to the home country (Canadians to the United States, for example) is a much simpler task than sending them to a country which is very different (US citizen to China). When the a s s i g n m e n t country is very different from the home country, extensive training should be

312

3

4

5

selection of expatriates

undertaken to prepare the expatriate (and family members if accompanied) for business and daily life. Questions which require answers are: ‘‘Is the employee a good stu dent?’’ ‘‘Does he or she enjoy learning and facing challenges?’’ ‘‘Are the skills too differ ent from existing skills for training to be effective?’’ ‘‘Does the company have the abil ity to train the employee in the appropriate skills needed for personal and business life while on assignment?’’ Often, employees are prepared for the business side of the assign ment, but poorly prepared for dealing with personal or family problems which may arise. Adaptability of expatriate. People being con sidered for expatriate positions must be flex ible in their thinking, willing to learn new things, be able to get along with others well, and be adaptable to whatever situation arises. The inconveniences and surprises associated with overseas life also demand a good sense of humor and an understanding that the assign ment is also an experience to be enjoyed. The employee must learn that differences exist and not be judgmental. Categorizing differ ent customs as wrong or right or good or bad places the expatriate in a precarious position, especially when living and working in a cul ture that expresses the opposite values. Language facility. The ability to converse in the native language of the host country is a positive factor in terms of expatriate success. Although it is true that business is often carried out in English or some language other than the host country’s, it is also true that it is easier to get along if the host country language is spoken by the expatriate. People are generally more accepting of someone from a foreign country if that person knows or at least attempts to learn and use the language. Although fluency is preferred, a good try is also respected in most countries. Not knowing the language also places a man ager in a position of having to rely too heavily on others to accomplish even the simplest of tasks. This does not speak well of the man ager’s ability to take command of a situation when that becomes necessary. Family considerations. If the expatriate has a family all of the items just reviewed also apply to each family member (except infants),

except that the context is changed from busi ness life to family life. Does the spouse expect to work? Will the spouse be allowed to work under the laws of the host country? Education for the children is also a major consideration. Many foreign assignment locations do not have educational facilities comparable to the home country. Provision of healthcare may be through a completely different system than in the home country. This is also a major con sideration, especially if children are accom panying the expatriate. Bibliography Bird, A. and Dunbar, R. (1991). Getting the job done over there: Improving expatriate productivity. National Productivity Review, spring, 145 56. Black, J. S. (1988). Work role transitions: A study of American expatriate managers in Japan. Journal of International Business Studies, 19 (2), 277 94. Black, J. S. and Stephens, G. K. (1989). The influence of the spouse on American expatriate adjustment and intent to stay in Pacific Rim overseas assignments. Journal of Management, 15 (4), 529 44. Brown, R. (1987). How to choose the best expatriates. Personnel Management, June, 67. Feldman, D. C. and Thomas, D. C. (1992). Career management issues facing expatriates. Journal of Inter national Business Studies, 23 (2), 271 94. Golding, J. (1993). Working Abroad: Essential Financial Planning for Expatriates and Their Employers. Plymouth: International Venture Handbooks. Harris, J. E. (1989). Moving managers internationally: The care and feeding of expatriates. Human Resources Planning, 12, 49 53. Harvey, M. (1985). The executive family: An overlooked variable in international assignments. Journal of Inter national Business Studies, Columbia Journal of World Business, 785 800. Hays, R. D. (1974). Expatriate selection: Insuring success and avoiding failure. Journal of International Business Studies, 5, 25 37. Mendenhall, M. E., Dunbar, E. and Oddou, G. (1987). Expatriate selection, training, and career pathing: A review and critique. Human Resource Management, 26, 331 45. Napier, N. K. and Peterson, R. B. (1990). Expatriate reentry: What do repatriates have to say? Human Re source Planning, 14, 19 28. Naumann, E. (1993). Organizational predictors of expatriate job satisfaction. Journal of International Busi ness Studies, 61 4. Nicholson, W. (1989). On the far side: Stories about expatriate life. Expatriate Observer, January, 26 7.

shipping terms Ronen, S. and Tung, R. L. (1981). Selection and training of personnel for overseas assignments. Columbia Jour nal of World Business, spring, 68 78. Shahzad, N. (1984). The American expatriate manager: Present and future roles. Personnel Administrator, 29, 23 5.

services John O’Connell

A service involves the provision of human thought in order to achieve a more effective or efficient use of resources. Service industries in clude consulting activities of all kinds, legal as sistance, most medical care, as well as other areas where the human intellect can be used to accom plish tasks not related to producing a product. In many countries service industries are a major part of the economy. In fact some countries rely upon providing services as their major source of income. For example, many nations depend heavily on tourism to support citizens working in hotels and associated service indus tries. Other countries see services as a growth business which does not pollute or have physical qualities related to the actual process of produc tion of goods. For example, Bermuda and the Cayman Islands have become centers for inter national captive insurance companies and banking services.

313

tion can be found. This is generally a good idea because an e x p a t r i a t e often does not know the nature of the accommodation and cannot make rational decisions about what property to bring, what amount is appropriate, and what will fit into the new living situation. A settling in allowance is an amount of money given to an expatriate for temporary quarters, storage ex penses in the new country, and other expenses (known and unknown) likely to be associated with the initial move to a new country. See also compensation package (expatriate)

shippers’ agent John O’Connell

Many shippers of goods are not directly involved in locating cargo space on various modes of transportation. Instead, they rely on the efforts of intermediaries who locate space and sell it to the ultimate shipper of goods. Shippers’ agents perform an important role in the international distribution of goods. Their services allow more businesses to participate in international trade. Bibliography Zodl, J. A. (1992). Export Import: Everything You and Your Company Need to Know to Compete in World Markets. Cincinnati, OH: Betterway Books.

See also captive insurance company shipping terms SET

John O’Connell

see s e c u r e e l e c t r o n i c t r a n s a c t i o n s

settling-in allowance John O’Connell

Moving to another country normally takes a considerable amount of time and effort before all of one’s personal property and family are settled in a new home. It is common for expatri ates to take a minimal amount of personal prop erty when first assigned and to live in temporary quarters until suitable permanent accommoda

The shipping terms are the details of the ship ping transaction; who is responsible for securing the method of transit, who secures and pays for insurance, when transfer of title of goods is made, and other details are specified in the ship ping terms. Also known as International Com mercial Terms or i n c o t e r m s , most nations have agreed on their meanings, thereby reducing problems in the shipment process. Bibliography International Chamber of Commerce (ICC) (1990). Inco terms 1990. New York: ICC Publishing.

314

shunto

shunto John O’Connell

Each spring Japanese workers and employers become embroiled in wage negotiations. Al though negotiations rarely result in strikes or other serious work stoppages, springtime in Japan does bring marches and other boisterous demonstrations by employees seeking support for their demands.

obtain information one is not authorized to have (e.g., a password).

Societas Europaea

see e u r o p e a n c o m p a n y

Society for Worldwide Interbank Financial Telecommunication (SWIFT) John O’Connell shutout John O’Connell

A shipping term describing a situation in which a ship’s capacity for goods has been reached. This results in cargo being shutout or held for later shipment.

A non profit organization that maintains a net work for the international exchange of payment instructions between banks and other institu tions. Payments between SWIFT member banks are handled over domestic funds clearing systems such as Fed Wire.

soft currency sight documentary draft

John O’Connell

see d o c u m e n t a r y d r a f t

single status John O’Connell

When an employee is sent on an overseas a s s i g n m e n t and is not accompanied by his or her spouse or children, the employee’s a s s i g n m e n t s t a t u s is single. Assignment status helps determine the number and types of com pensation allowances and other benefits available to the employee. See also compensation package (expatriate)

If a country’s banking and economic systems are considered unstable it may be difficult to ex change that country’s currency for that of a nation which exhibits more stability. The currency of the unstable system is referred to as a soft currency, while the currency of the stable system is referred to as a h a r d c u r r e n c y . Special intermediaries may be employed when trade activities require exchange between hard and soft currencies. See also intermerchant

sogo shosha John O’Connell

social engineering John O’Connell

Within the context of computer security, the deception of a person or persons in order to

This Japanese term refers to the large general trading companies which are so powerful in the Japanese economy. These companies include Sony, Mitsubishi, Matsushita, and Sumitomo. Activities of the sogo shosha provide the world with the largest share of Japanese exports.

split payroll sourcing

315

sovereign immunity John O’Connell

John O’Connell

Sourcing is the securing of parts, supplies, materials, labor, and other items necessary to produce merchandise or other items for sale. Do mestic companies often purchase resources lo cally even though the cost may be greater than the same resources (labor, for example) pur chased in a foreign country. Global companies may purchase resources wherever the cost is lowest with respect to the overall cost of the fin ished product. For example, if labor costs are very low in Mexico, a company may locate an assembly plant there, but still source its raw materials from Southeast Asia where they are found for the lowest cost. It is common for a multinational company to use foreign sourcing whenever it is cost effective to do so.

This practice dates from the days when countries were ruled by kings and is closely linked with the idea that the king can do no wrong. Thus, the king could not be held legally responsible for his own actions. International law exempts a govern ment from legal actions in its own courts or the courts of other countries unless the government voluntarily accepts the right of legal action against it. Sovereign immunity also protects a country’s diplomats (diplomatic immunity) from arrest, as well as a country’s property when located in another country. Many countries have given up sovereign im munity for specific situations, thereby allowing legal action against them. In the United States, for example, immunity has been given up by most governmental entities except for the true govern mental function of making or administering the laws. Thus, in the United States, a congressional representative cannot be sued for voting a par ticular way on a bill, but could be sued if involved in an auto accident on his or her way to vote on the bill. Even in today’s world, diplomats com mitting crimes in a country may be subject to expulsion, but not to criminal laws. This also is changing, however, due to agreements by various countries. In general, the concept of sovereign immunity is far less protective than it was in the past.

Southern African Customs Union Agreement (SACUA) John O’Connell

A local agreement of five African nations to promote free trade and travel between those countries. In 1969, Botswana, Lesotho, Namibia, South Africa, and Swaziland were signatories to the customs union agreement in hopes of foster ing local economic development and cooperation.

Southern African Development Coordination Council (SADCC)

specific duty

John O’Connell

John O’Connell

The development of southern Africa for decades has been tied to the success or failure of South Africa. In 1979 a group of South African nations entered into an agreement designed to decrease their reliance on South Africa for economic de velopment. SADCC is comprised of the nations of Angola, Botswana, Lesotho, Malawi, Mozam bique, Swaziland, Tanzania, Zambia, and Zim babwe. Thus far, cooperative activities include upgrading and coordination of infrastructure re sources such as transportation and communica tions systems.

A tax levied on imports. The amount of d u t y is specified as an amount per unit of weight or unit of other measurement (e.g., $1 per item imported, or $1 per pound or hundredweight).

split payroll John O’Connell

Split payroll is a method of compensating an e x p a t r i a t e employee in which part of the

316

sponsorship

pay is made in home country currency (possibly the b a s e s a l a r y ) and the remainder in host country currency (for all other compensation items). This method is especially common when the income tax rates in the host country are extremely high when compared to the home country. Before entering into a split payroll agreement the employer must be certain that all host and home country tax laws are being followed.

approach, or geocentric approach. The charac teristics of each approach are reviewed below. 1

Bibliography Nexia International Staff (1994). International Handbook of Corporate and Personal Taxes. New York: Chapman and Hall.

sponsorship John O’Connell

The purchase of space on a Web page or other online document to advertise a product or service. The word sponsorship is often used to avoid the negative connotations of the word ‘‘advertising’’ and to connote the original non commercial nature of the Internet.

staffing John O’Connell

One of the most important international man agement functions is the selection and hiring of employees to staff positions domestically and overseas. International businesses have a large number of employee sources: their own oper ations throughout the world; employees from similar operations in other companies; and training new employees from countries in which operations are undertaken. Even though potential employees seem to be almost unlim ited, companies tend to select on the basis of top management’s feelings, which may favor certain geographic regions. Hiring practices usually follow one of four strategies: polycentric approach, ethnocentric approach, regiocentric

2

Polycentric approach to hiring. Polycentrism is the belief that managers and employees in a foreign operation should be from the host country. The feeling is that people native to the host country will not have problems with c u l t u r e s h o c k , knowing the language, realizing and adhering to the local customs, values, and attitudes, and being effective im mediately instead of after a learning process has taken place. Key positions in the foreign operation are filled with host country nation als (HCNs). This saves money associated with recruiting, training, and transferring expatriates from other countries in which the company also has operations. There are, however, possible negative aspects of a poly centric approach to hiring. One of the big gest problems relates to parent company control over the foreign subsidiary. The question arises: ‘‘Will host country managers be loyal to the parent or to the local oper ation?’’ A potential problem arises with co ordination of activities, goals, and objectives between parent and subsidiary. The fact remains, though, that polycentric staffing and operation of foreign subsidiaries is suc cessfully being applied by organizations. The parent company must be aware of po tential problems and introduce control systems to uncover these problems before they are allowed to get out of hand. Ethnocentric approach to hiring. If one is ethnocentric in hiring practices, employees of a multinational company who are from the home country will be given preference. This could be because of lack of knowledge of foreign employees’ qualifications for pos itions or due to bias against workers from outside the home country. Ethnocentric hiring fills all important positions with employees from the home country. This reduces potential for advancement for all other employees. This method of staffing foreign operations is extremely expensive. It also disregards the need to develop manage ment talent in host countries. Ethnocentric hiring may lead to host countries instituting

standby letter of credit regulations to restrict the number of expatri ates coming to the country. 3 Regiocentric approach to hiring. A regiocentric approach to hiring selects management per sonnel from within a region of the world which most closely resembles that of the host country. The company has expanded its search beyond the borders of the host country, but has stopped short of seeking management personnel from its operations throughout the world. The theory behind this selection process is that nationals of the region in which operations actually take place are better able to deal with language and cultural problems than are managers from outside the region. The logic behind this hiring approach is probably sound, but it ignores the potential growth a manager goes through when forced to deal with different situations than those in which he or she is comfortable. 4 Geocentric approach to hiring. Under this ap proach to hiring, people are viewed in the context of how well they can accomplish a particular job or task rather than on the basis of their home country, religion, culture, or other factors. Employees are selected from throughout the organization without regard to nationality, with a resulting workforce that is quite diverse. This approach to hiring is truly global in nature. Bibliography Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Dowling, P. J. and Schuler, R. S. (1990). International Dimensions of Human Resource Management. Boston, MA: PWS-Kent. Edstron, A. and Lorange, P. (1984). Matching strategy and human resources in multinational corporations. Journal of International Business Studies, 15 (2), 125 37. Heller, J. E. (1980). Criteria for selecting an international manager. Personnel, May June, 47 55. Ishidi, H. (1986). Transferability of Japanese human resource management abroad. Human Resource Manage ment, 259 (1), 103 20. Martinez, Z. L. and Ricks, D. A. (1989). Multinational parent companies’ influence over human resource decisions of affiliates: US forms in Mexico. Journal of International Business Studies, 20 (3), 465 87.

317

Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell. Schuler, R. S. (1993). World class HR departments: Six crucial issues. Singapore Accounting and Business Review, inaugural issue, September.

standardization John O’Connell

Standardization of product and process is the goal of global companies. Through standardiza tion come economies of scale related to both production and distribution. Standardization also refers to the goal of economic integration. Standardization, when used to describe integra tion of laws, standards, and procedures between countries, is also referred to as harmonization. Bibliography Albaum, G., Strandskov, J., Duerr, E., and Dowd, L. (1994). International Marketing and Export Manage ment, 2nd edn. Wokingham: Addison-Wesley. Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin. Toyne, B and Walters, G. P. (1993). Global Marketing Management. Boston, MA: Allyn and Bacon.

standby letter of credit John O’Connell

a l e t t e r o f c r e d i t may perform the same function as a surety bond in terms of being used as a financial guarantee of performance. Inter national transactions may not be easily bondable, but a letter of credit may perform the same function. For example, an organization is seek ing to bid on the construction of a dam in an other country. Generally, bids on such projects require a good faith guarantee on the part of the bidder to insure the bid will be accepted if granted and that work will be done on time and in a workman like manner. Ten percent of the bid amount is not uncommon. One of the methods of securing this guarantee is to obtain a standby letter of credit in favor of the govern ment of the foreign country. If the bidder de faults, the foreign government is paid from the

318

standby line of credit

letter of credit. The bank issuing the letter then has recourse against the bidding company.

on one of the cultural dimensions tells us only a probability; it is not prescriptive. See also Map, Bridge, Integrate model Bibliography

standby line of credit John O’Connell

A standby line of credit is established when the credit granting institution extends an amount of credit to be drawn upon by the borrower as the borrower sees fit. The maximum amount of credit is preset and cannot be exceeded. There is usually a fee charged by the lending institution for establishing a standby line of credit.

stereotyping Jeanne McNett

Stereotypes are based on schemas – abstract knowledge structures stored in memory that are useful because they help to make sense of the array of sensory data that bombard us. Schemas are dysfunctional when they are in accurate, and a stereotype is an example of a dysfunctional schema. A stereotype is a simpli fied conception of a specific group of people that forces an inaccurate pattern upon the complex variety of variables within individuals of that group. Usually, stereotypes are negative, but they may also be positive, and then known as countertypes. There are several issues connected to stereo typing that the international manager faces. When a person of a different culture is encoun tered and stereotyped, the perceiver assumes the person has the characteristics associated with the stereotype. The perceiver then attends to information consistent with the stereotype and disregards contradictory information. Such stereotypes are harmful because they inaccur ately capture characteristics of the perceived person and because their influence can limit recognition of this person’s potential contribu tions to the organization. There is some concern that mapping using c u l t u r a l d i m e n s i o n s may lead to stereotyping, so the international manager must remember that a group’s profile

Aronson, E. (1976). The Social Animal. San Francisco: W. H. Freeman. Ashmore, R. D. and Del Boca, F. K. (1981). Conceptual approaches to stereotypes and stereotyping. In D. L. Hamilton (ed.), Cognitive Processes in Stereotyping and Intergroup Behavior. Hillsdale, NJ: Lawrence Erlbaum Associates, 1 35. Katz, D. and Braly, K. W. (1933). Verbal stereotypes and racial prejudice. Journal of Abnormal and Social Psych ology, 28, 280 90. Lane, H., DiStefano, J. and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Sidanius, J. (1993), The psychology of group conflict and the dynamics of oppression: A social dominance perspective. In S. Iyenger and W. McGuire (eds.), Explor ations in Political Psychology. Durham, NC: Duke University Press. Wilder, D. A. (1986). Social categorization: Implications for creation and reduction of intergroup bias. In L. Berkowitz (ed.), Advances in Experimental Social Psy chology, Vol. 19. New York: Academic Press, 291 355.

straight bill of lading John O’Connell

This type of b i l l o f l a d i n g is a non negotiable instrument (meaning that it cannot be used to automatically transfer title to goods by simply transferring the bill to another party) used to establish the details of shipment of goods. The bill specifies the party to whom the goods are to be delivered as well as other information. See also uniform bill of lading

strategic alliances Derek F. Channon

Strategic alliances take the form of coalitions and cooperation agreements formed between a cor poration and others in order to achieve certain

strategic alliances strategic goals. j o i n t v e n t u r e s may be seen as a specific form of alliance, but in recent times the term has become more widely adopted to describe a variety of forms of cooperative agreement which may or may not involve share holdings. In particular, they have been formed in some industries in which the cost of new model development, technology investment, and the like has emerged as being beyond the resources of the individual corporation. Japanese corporations have been particular users of alli ance cooperative agreements with European and North American firms, partially as a way to enter these markets. Such alliances have been identi fied as important mechanisms for developing a global perspective in the so called Triad markets. With an alliance strategy it has been pos sible for corporations to swiftly gain access to markets, exchange technologies, form de fensive shareholding blocs, enter third markets in combination with other partners, and engage in otherwise prohibitively expensive technologies, production facilities, and the like. They have the advantage of being relatively easily formed and disbanded – more so than joint ventures – and by joining in multiple alli ances firms may contain r i s k and hold down costs. Despite these apparent advantages, however, their value has been seriously questioned by many corporations, and especially by those with proprietary technology, strategic cost ad vantage, and high market share. For such con cerns, it has been argued that the potential loss of technical skills, the provision of competitor access to markets, and organizational and cul tural clashes may well outweigh any advantage. As a result, perhaps 50 percent of such alliances are therefore regarded as failures. The selection of the right partner is critical to the success of an alliance. Any analysis of such a selection should be focused on fundamental, strategic, and cultural fits. To achieve a fundamental fit between alliance partners, the activities and expertise of each should complement the other in order to add value overall. Questions which need to be considered therefore include the following:

319

. What are the risks associated with realizing the potential of the alliance within a reason able period of time? . Is the partner really interested in eventually mounting a bid? . How stable is the business environment? . Is the partner really interested in gaining access to our market, technology, and distri bution system prior to entering as a com petitor? Strategic alliances should also always form an integral part of the strategy of the partners. It is therefore important to check the har mony and complementarity of partners’ busi ness plans, including strategic goals, product market strategies, technological strategy, the common time frame for achieving goals, and an adequate and clearly defined resource com mitment. Many alliances have failed as a result of differences between the cultures of the partner corporations. This has been especially true when they come from countries or regions with significantly different cultures, such as Japan and Western Europe. Regrettably, Western corporations in particular pay too little attention to understanding the underlying cul tural and managerial styles of partners from different cultures, despite the fact that this is a major reason for the breakdown of alliances. Analysis of partner cultures is there fore recommended to insure that an accept able fit is possible before irreversible moves are made. Bibliography Bleeke, J. and Ernst, D. (1991). The way to win in crossborder alliances. Harvard Business Review, 113 33. Bronder, C. and Pritzl, R. (1992). Developing strategic alliances. European Management Journal, 10 (4), 412 20. Lorange, P. and Roos, J. (1991). Why some strategic alliances succeed and others fail. Journal of Business Strategy. Ohmae, K. (1985). Triad Power: The Coming Shape of Global Competition. New York: Free Press. Ohmae, K. (1989). The global logic of strategic alliances. Harvard Business Review, 67, 143 54. Sherman, S. (1992). Are strategic alliances working? For tune, 77 8.

320

strategic business units Packard Bell

Bull NEC

Compaq

ICL

Apple

Fujitsu

IBM

Canon

AST Research

Samsung Electronics

Amdahl

Mitsubishi Electric

Equity Investment Business Tie-Ups

Apricot

Figure 1 Global networking: international alliances in the PC industry. Source : companies and Nihon Shimbun.

strategic business units (SBUs) John O’Connell

SBUs represent a movement toward placing management decision making closer to the op erational level of an organization. The formation of a strategic business unit has the following characteristics: product or service oriented; identifiable set of consumers; and an identifiable set of competitors. Thus, in terms of strategic planning, the SBU can literally function by itself in establishing plans related to products or ser vices, customers, and competitive posture. When a corporation establishes SBUs, each SBU becomes the strategic planning unit for its own product/service area.

strategic information systems (SIS)

local information in all countries of operation. Most companies attempt to keep up with trends in the market, competitor activities, consumer demands, potential governmental inputs, and other areas deemed important. A strategic infor mation system gathers information on areas spe cifically identified as being important to an organization’s competitive status and provides that data to management. The difference between today’s information systems and those of yester day is the amount of data that may be accessed and the ability to review that data for relevant infor mation. SIS can be an important source of infor mation as long as proper planning has taken place in order to identify those areas in which infor mation is most needed. Failure to identify areas of need will result in an inundation of information on a variety of unrelated or unnecessary areas, which will have the effect of burdening the plan ning process instead of providing assistance.

John O’Connell Bibliography

Using today’s advanced technology it is possible to receive information on events virtually while those events are taking place. A strategic infor mation system is one that provides timely information related to the company’s competitive position. In international business SIS is particu larly important because of the inability to secure

Deans, P. C. and Kane, M. J. (1992). International Dimen sions of Information Systems and Technology, 2nd edn. Boston, MA: PWS-Kent Publishing. Deans, P. C. and Karwan, K. R. (1994). Global Infor mation Systems and Technology: Focus on the Organiza tion and its Functional Areas. Harrisburg, PA: Idea Group Publishing.

strike price strategic management John O’Connell

The management of the organization with re spect to how it fits into its environment, what its objectives are in that environment, and how the organization expects to achieve its goals and objectives. Strategic management is a process and as such can be broken down into steps ne cessary to complete that process. The steps usu ally associated with strategic planning are:

5

321

necessary to achieve goals, but not the indi vidual steps to implement the plan. Monitoring phase. Once the strategic plan is placed into action, management must then measure attainment of objectives, monitor the performance of organizational units to determine if control mechanisms must be in place to ‘‘guide’’ certain departments toward organizational objectives, and generally fine tune the plan.

Bibliography

1 Mission statement development. A mission statement is an expression of an organiza tion’s ‘‘reason for being’’ or a description of why the organization exists in the first place. A mission statement is extremely important because it is upon the mission statement that all corporate goals and objectives are based and evaluated as to their successful attain ment. Virtually all actions that take place in an organization should in some way contrib ute to supporting the basic mission state ment of that organization. 2 SWOT analysis. A SWOT analysis develops information on the organization’s internal strengths (core competencies, what the or ganization does best) and weaknesses (poten tial problem areas with supply, management, internal expertise), as well as external oppor tunities (new markets, new countries, new products) and threats (competition, govern ment regulation, trade barriers). The key is to concentrate on an organization’s areas of com petence to overcome problems and threats. 3 Develop strategic objectives. What exactly do we want to do, when, and how do we meas ure success? Objectives should be formu lated to support the organization’s mission statement. The goal is to make a concerted effort to plan for successful achievement of objectives which allow the organization to carry out its mission. 4 Develop a strategic plan. In order to achieve objectives a plan has to be developed. The plan includes specific areas that need atten tion in order to meet the objectives. It is not an operating plan (a detailed plan of how to carry out the everyday activities of the or ganization), but a plan at a higher level. The strategic plan delineates the overall actions

David, F. (1991). Strategic Management. New York: Macmillan. Hamel, G. and Prahalad, G. K. (1985). Do you really have a global strategy? Harvard Business Review, 63 (4), 139 48. Herbert, T. T. (1984). Strategy and multinational organization structure: An inter-organizational relationships perspective. Academy of Management Review, 19 (2), 259 71. Higgins, J. M. and Vincze, J. W. (1993). Strategic Man agement and Organizational Policy. New York: CBS College Publishing. Huo, H. P. and McKinley, W. (1992). Nation as a context for strategy: The effects of national characteristics on business-level strategies. Management International Review, 32 (2), 103 13. Huynh, B. S. (1993). Strategy in the open door era. Columbia Journal of Business, fall (6), 813 19. Majaro, S. (1977). Marketing: A Strategic Approach to World Markets. London: George Allen and Unwin. Prahalad, C. K. and Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, May June, 79 91. Roth, K. and Ricks, D. (1990). Objective setting in international business: An empirical analysis. International Journal of Management, March. Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill.

strategic planning

see s t r a t e g i c m a n a g e m e n t

strike price John O’Connell

When a contract to buy or sell currency or se curities at a future date (an o p t i o n ) is actually

322

student visa

exercised, the amount paid or received is the strike price.

student visa John O’Connell

A student v i s a is issued to a foreign student seeking to undertake studies in a full time aca demic (as opposed to vocational) program ap proved by the appropriate authorities of the country as being able to offer education to for eign students. While attending school the stu dent must be able to prove that he or she is financially capable of continuing studies and must also maintain a permanent residence out side of the country where school is attended.

for all associated countries. Thus, the agency is larger and the decisions have more impact than a single country agency. The name given to such agencies is ‘‘supranational.’’ The e u r o p e a n u n i o n is a good example of a c o m m o n m a r k e t , which includes supra national agencies (e u r o p e a n p a r l i a m e n t , e u r o p e a n c o u r t o f j u s t i c e , monetary authority, etc.).

SWIFT

see s o c i e t y f o r w o r l d w i d e i n t e r b a n k financial telecommunication

switch trade John O’Connell subscription service John O’Connell

An online service, website, or other source of information and services which offers ongoing unrestricted access and use for a period of time for a fixed fee without regard to which particular information or services are utilized.

supply chain John O’Connell

Refers to the distribution channel of a product from its sourcing to its delivery to the end con sumer (also known as the value chain). The supply chain is typically comprised of multiple companies who are increasingly coordinating their activities via Extranet.

When an importer cannot fulfill an agreement to purchase goods from an exporter, the importer may be allowed to transfer the contract or ‘‘switch’’ it to another importer. When this occurs there is no guarantee the original pay ment terms of the contract will be met. For example, it is not uncommon for the new im porter to pay for goods with other goods. Ex porters allow switching to occur in order to complete the transaction. When switching results in goods being traded for goods instead of a monetary payment, the contract becomes one of c o u n t e r t r a d e .

SWOT analysis

see s t r a t e g i c m a n a g e m e n t

syndicato supranational agencies

John O’Connell John O’Connell

One of the basic theories which supports the development of economically integrated groups of countries (common markets) is that single government agencies will make many decisions

In countries where inflation runs at very high rates it is common to tie prices and wages to an index which attempts to adjust wages and prices to keep up with inflation. In Brazil, the indexing of wages is referred to as syndicato.

T tacit knowledge Jeanne McNett

As distinguished from explicit knowledge, which can be expressed in words and numbers and is easily communicated, tacit knowledge is difficult to identify because it is knowledge we have that may not be articulated or expressed. Subjective insights, intuition, and hunches fall into this category. Tacit knowledge is highly personal and hard to formalize. It is also deeply rooted in our action and experience, as well as in our ideals, values, and emotions. Tacit know ledge emphasizes the importance of learning from direct experience. In the global context, much of the expert manager’s knowledge about a foreign location, for example, is tacit, a result of experiential learning and meaning giving based on experi ences. The value of such knowledge to an organ ization is great and its role in b o u n d a r y s p a n n i n g is critical. For example, the expert manager in a global venture in a developing country will know almost intuitively on whom to call for advice, how to do so in a culturally appropriate way, why such relationships need to be built, and what the business situation is in this developing economy from many points of view. Tacit knowledge encompasses the informal and hard to pin down skills or crafts and know how and a cognitive dimension that includes schemata, mental models, beliefs, and percep tions so ingrained that they are taken for granted. It reflects our image of reality (what is) and our vision for the future (what ought to be). While these images cannot be articulated very easily, they are implicit models that shape the way we see the world around us. An example of tacit knowledge would be an e x p a t r i a t e manager’s intuitive sense of the best course of action on a

disagreement with a j o i n t v e n t u r e partner, given the long term goals. The expatriate man ager’s action and understanding is likely to be dif ferent from the headquarters manager’s because the expatriate has built contextually relevant tacit knowledge about the joint venture’s needs. One of the largest challenges in knowledge management is effectively eliciting tacit know ledge from a source, once it has been identified. Some of the approaches used to get at this deep seated and unarticulated knowledge include storytelling and using metaphors and analogies. These richer forms allow for a sharing of inter pretation. Michael Polanyi, a philosopher of sci ence, tells us that this sharing is much as an apprentice learned the tacit nuances of the master’s genius over many years of collaboration in Renaissance Florence. Bibliography Athanassiou, N. and Nigh, D. (1999). The impact of company internationalization on top management team advice networks: A tacit knowledge perspective. Strategic Management Journal, 19 (1), 83 92. Athanassiou, N. and Nigh, D. (2000). Internationalization, tacit knowledge and the top management team of MNCs. Journal of International Business Studies, 31 (3), 471 88. Athanassiou, N. and Nigh, D. (2002). The impact of the top management team’s international business experience on the firm’s internationalization: Social networks at work. Management International Review, 42 (2), 157 81. Beechler, S., Sondergaard, M., Miller, E. L. and Bird, A. (2004). Boundary spanning. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Nonaka, I. and Takeuchi, H. (1995). The Knowledge Creating Company: How Japanese Companies Create the Dynamics of Innovation. New York: Oxford University Press.

324

targeted production sectors

Polanyi, M. (1966). The Tacit Dimension. London: Routledge and Kegan Paul. Tsoukas, H. (2003). Do we really understand tacit knowledge? In M. Easterby-Smith and M. A. Lyles (eds.), Handbook of Organizational Learning and Knowledge. Oxford: Blackwell.

targeted production sectors John O’Connell

In an attempt to increase international trade ac tivity a government may identify certain domestic products or services as being the most likely to be demanded by foreign buyers. The government then focuses its resources toward the further de velopment of the selected product or service. For example, if technological development is a strong point of local industry, the government may pro vide grants or other support to increase techno logical sophistication. Technology itself may then become an exportable item because of its sophis tication in that particular country. By identifying specific sectors for support, the government has provided for the best chance of success in its efforts to increase trade activity.

tariff escalation John O’Connell

This term describes a situation in which the tariffs of a country reflect the stages of production and the amount each stage can contribute to the local economy. For example, a country with a tariff structure that imposes the highest tariffs on fin ished goods and the lowest on raw materials imported for local production, recognizes the need for local production and the increased bene fits it provides (employment, taxes, exportable goods). On the other hand, the high tariff on im ported finished goods forces consumers to buy locally, thereby increasing sales of local goods.

competitive.Tariffsonspecificgoodsmaybesetat a given rate until the number imported reaches a pre established level. At that time the tariff in creases for additional goods imported. For ex ample, if the tariff on tires was 5 percent for the first 100,000 imported, it might move to 10 per cent for any additional importation of tires. Such a quota discourages importers from bringing large quantities of a particular item into the country. See also barriers; quota

tax equalization John O’Connell

A process used by international firms to attempt to place the employee in a ‘‘no loss/no gain’’ position with respect to taxes paid on income earned in a foreign country. When an employee is sent on an overseas a s s i g n m e n t , income earned is technically subject to taxes in both the home and the host country. However, due to tax agreements between some countries, only a single tax is usually collected. Tax equalization usually takes place if the tax on foreign income is greater than it would be in the home country. Either the employee receives an extra allowance to pay the additional taxes or the employer pays them on behalf of the employee. See also compensation package (expatriate) Bibliography Golding, J. (1993). Working Abroad: Essential Financial Planning for Expatriates and their Employers. Plymouth: International Venture Handbooks. Pinney, D. L. (1982). Structuring an expatriate tax reimbursement program. Personnel Administrator, 27, 19 25.

tax haven John O’Connell

tariff quota John O’Connell

A government generally imposes tariffs to raise the price of imported goods to make local goods

Tax havens are countries having tax rates so low as to attract people and businesses to establish residency or local operations to take advantage of those rates. Tax havens may also establish special rates for certain business ventures (e.g.,

threshold traits of global competency banks, insurance companies) in order to per suade certain classes of business to locate there. Generally, the tax rates that attract the most people and certain types of businesses are those applying to income from foreign sources. Thus a business with mainly foreign source income may benefit greatly by being established in a tax haven country. There are many countries con sidered to be tax havens, including many of the Caribbean island nations (e.g., Cayman Islands, Bahamas, Antigua, the British Virgin Islands), the Channel Islands (Jersey, Guernsey, and Sark), Costa Rica, Hong Kong, the Isle of Man, Liberia, Liechtenstein, the Marshall Islands, the Netherlands, Panama, Singapore, Switzerland, and many more. Bibliography Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley. Eiteman, D. K., Stonehill, A. J. and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley. Rugman, A. M. and Hodgetts, R. M. (1995). International Management: A Strategic Management Approach. New York: McGraw-Hill.

325

that employee is referred to as a third country national (TCN). This is because the employee is not from the home country and not from the host country, but from a third country. Third country nationals are very common in multinational com panies using a r e g i o c e n t r i c a p p r o a c h t o h i r i n g or a g e o c e n t r i c a p p r o a c h to hiring. See also staffing

third-party netting John O’Connell

Netting is a cash management technique in which cash flows to and from operating units within a company are forwarded to a netting center. Here, inflows and outflows of each unit are netted out with just the balance either being deposited to the unit’s account or being taken out of the account to pay other units. Third party netting takes place when not only the owned units of a company use the netting center but also non owned entities. If a company has both cash flows to and from another organiza tion, those transactions could be handled more efficiently through a netting center. See also multilateral netting

tea money John O’Connell

An Australian tradition of providing employees with money to purchase tea or other refreshments during their work breaks. Tea money is formally addressed in Australian labor agreements.

Third World

see l e s s d e v e l o p e d c o u n t r y

Third World countries term documentary draft

see l e s s d e v e l o p e d c o u n t r y

see d o c u m e n t a r y d r a f t threshold traits of global competency third-country national (TCN)

Jeanne McNett John O’Connell

A multinational company commonly has oper ations in several countries. If the company chooses to send an employee from one of its foreign offices to another in a foreign country,

In the g l o b a l c o m p e t e n c y model, the threshold traits include integrity, humility, inquisitiveness, and hardiness. This is Level 1 of the model and consists of traits that cannot be acquired or significantly changed. These

326

through bill of lading

traits facilitate the long term development of global managerial abilities, skills, and know ledge. Integrity is required so that managers can develop the respect they need from both super iors and followers over the long term. Humility allows managers to be open to learning from other cultures and organizations, and to be able to learn from others. Inquisitiveness is the desire to have new experiences and learn from them. Hardiness is a persistence and resilience that unites the other three traits. Hardiness supports managers as they rise to the challenges of global work.

through bill of lading

Bibliography

time draft

Bird, A. and Osland, J. S. (2004). Global competencies: An introduction. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Black, J. S., Morrison, A. J. and Gregersen, H. B. (1999). Global Explorers: The Next Generation of Leaders. London: Routledge. Caligiuri, P. M. (2000). The Big Five personality characteristics as predictors of expatriates’ desire to terminate the assignment and supervisor-rated performance. Per sonnel Psychology, 53, 67 88. Cullen, J. B. (2000). Multinational Management: A Stra tegic Approach. Cincinnati, OH: South-Western Thomson Learning. McCall, M. and Hollenbeck, G. P. (2002). Developing Global Executives. Cambridge, MA: Harvard Business School Press. Maddi, S. R. and Kobasa, S. C. (1984). The Hardy Execu tive: Health and Stress. Homewood, IL: Dow-JonesIrwin. Mendenhall, M., Kuhlmann, T. and Stahl, G. (eds.) (2004). Developing Global Leadership Skills: The Challenge of HRM in the Next Millennium. New York: Quorum. Mendenhall, M. and Osland. J. S. (2002). An overview of the extant global leadership research. Symposium presentation, Academy of International Business, Puerto Rico. Spitzberg, B. (1989). Issues in the development of a theory of interpersonal competence in the intercultural context. International Journal of Intercultural Relations, 13, 241 68. Stahl, G. (1999). Deutsche Fu¨hrungskra¨fte im Auslandseinsatz: Probleme und Problem lo¨se erfolg in Japan und den USA. Die Betriebswirtschaft, 59, 687 703.

John O’Connell

When shipment of cargo must stop at a port enroute special documents are necessary to avoid duties and other costs. A through b i l l o f l a d i n g is used to designate cargo that is passing through a port to its final destination. Bibliography Johnson, T. E. (1994). Export Import Procedures and Documentation. New York: Amacom.

John O’Connell

A time draft is one that carries a specific matur ity date. The maturity date could be a specified number of days after the time the d r a f t was issued or a specific number of days after the draft was accepted.

time orientation John O’Connell

Time orientation can be interpreted in two different ways when applied to international business. First, a culture’s orientation to yesterday, today, and tomorrow. Some cultures place a great deal of emphasis on the past and traditional ways of doing things. Things that are old are revered and respected. Other cultures seem to live for now and place little stock in tradition. Things that are old are discarded and looked upon as less useful. This form of time orienta tion impacts the workplace as well. Japan, well known for respect of tradition, also has wide spread lifetime employment practices. The United States, on the other hand, views work as short term. Employees expect to move several times between employers and few expect a guar antee of lifetime employment. Second, time orientation with respect to a culture’s priorities toward punctuality. Al though this may seem like a minor potential

total quality control problem, there are very real and dramatic cul tural differences with respect to punctuality and inferences related to not being on time. In the United States people are very aware of time, especially when concerning business meetings. To be late is considered poor business practice and rude. To be early in the United States may be taken in almost the same manner. Latin Americans view time in relative terms. Families are a priority in Latin America, thus if extra time is spent with family and business appointments are late, it is not considered rude nor out of character. Business can wait. Problems with time orientation between cul tures become evident when persons from two or more cultures must work together. Both cultures may read the other’s lateness in different ways (one inferring rudeness and the other merely different priorities). Business meeting times may have to allow for leeway at the beginning and the end even though in an employee’s home country it seems like wasted time. Persons deal ing with or living within cultures other than their own must be made aware of cultural differ ences. Time orientation is certainly an important difference.

327

carnet allows goods to pass without customs duties or customs inspection (of course, when the goods reach the final country destination all customs inspections and duties for the final country apply).

Tokyo Round John O’Connell

The Tokyo Round was the first series of negoti ations with respect to the General Agreement on Tariffs and Trade (GATT). Not unlike other international negotiations the Tokyo Round was quite lengthy, taking six years to complete. It successfully found agreement on the gradual reduction of tariffs, valuation of imports, and overall simplification and h a r m o n i z a t i o n of many details of trade transactions.

total loss only

see f r e e o f a l l a v e r a g e ; f r e e o f p a r ticular average

Bibliography Deresky, H. (1994). International Management, 1st edn. New York: HarperCollins. Doktor, R. H. (1990). Asian and American CEOs: A comparative study. Organizational Dynamics, winter, 49. Landis, D. and Brislin, R. (1983). Handbook on Intercul tural Training. New York: Pergamon. Mead, R. (1994). International Management: Cross Cul tural Dimensions. Cambridge, MA: Blackwell. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell.

TIR carnet John O’Connell

TIR stands for Transport International Routier, which translates into International Road Trans port. This type of c a r n e t is used for goods that are passing through a country on the way to another country. As long as the goods are not unloaded and reloaded in the country the

total quality control Derek F. Channon

The founder of TQC as it has developed in Japan was the influential US quality expert, W. Edwards Deming. An annual award named after him, for the most significant quality per formance in Japan, is still highly prized. Dem ing’s work strongly emphasized statistical techniques of quality control, and although these are widely used and Japanese workers are highly trained in their use, TQC is today much more than this. It has become a fundamental philosophy which guides all aspects of Japanese manufacturing strategy. TQC may stand alone but, more commonly, it may be used in conjunction with other concepts, such as kaizen and j u s t i n t i m e . To imple ment TQC, all plant personnel are inculcated into the philosophy, and implementation is achieved by the use of a cross functional

328

total quality control

management structure and processes. In par ticular, under the Japanese system all individuals are responsible for their own actions rather than being overseen by quality inspectors and ac countants. The concept has been widely used in Japanese industry since the early 1960s, and has been constantly elaborated on and improved such that many companies are still seeking real gains in productivity of 10 percent or more per annum. An attempt is made in table 1 to group a number of TQC factors into specific categories. The first of these, organization, consists of the key concept of assigning the primary responsi bility for quality to production workers rather than a staff quality control department. After organizing for TQC, the rate of quality improvement can be accelerated by introducing the items in categories 2–5. These include new goals, principles, facilitating concepts, and tech niques for successful implementation of TQC. Some of these concepts are alien to Western Table 1 Total quality control: concepts and categories TQC Category

TQC Concept

1 Organization Production responsibility 2 Goals Habit of Improvement 3 Basic principles Process Control

Perfection

Easy to see Quality Insistence on compliance Line Stop Correcting one’s own errors 100 percent check Project by project improvement 4 Facilitating Small lot size concepts QC as a Housekeeping facilitator Less than full capacity scheduling Daily machine checking 5 Techniques and Foolproof devices aids Exposure of N ¼ 2 problems Analytical Tools QC circles Source: Schonberger (1982: 51).

production practice, while others have been copied from the West and adapted to Japanese business culture.

Goals The habit of improvement While most Western companies accept one off improvement pro grams, Japanese companies have developed the habit of kaizen – continuous improvement, day after day, year after year, at all levels within the organization. For example, in some Japanese corporations the workforce meets each morning to confirm and consolidate productivity gains made the previous day. Perfection The goal of perfection is treated differently between Japanese and Western con cerns. There is agreement that quality needs to be regularly monitored to insure adherence to specification. However, while Western concerns accept a given standard of defects, Japanese con cerns continue to work toward absolute perfec tion. Similarly, both Japanese and Western concerns accept that quality depends on the efforts of all functions within the corporation. However, while Western concerns place a limit on the costs to be incurred in the pursuit of quality, Japanese companies believe that ever better quality will continue to improve market share and expand the overall market. It must also be seen that for Japanese concerns the TQC concept may well include continuous cost reduc tion as well as product perfection.

Basic Principles A number of basic principles are listed as com ponents of TQC. The first two of these are closely related and equally important. Process control The concept of process control is a standard Western quality control technique. However, it is undertaken by the inspection of only a number of processes in the production system, together with final inspection. More over, this activity tends to be undertaken by the quality control department. In the Japanese system all processes are continuously checked, but by the workforce, who have been trained to undertake this task themselves, thus allowing every work station to become an inspection department.

total quality control This principle, which is an extension of the Deming and Juran concepts that there should be measurable standards of quality, has been finessed by the Japanese such that display boards are located everywhere in Japan ese plants. These convey to workers, manage ment, customers, suppliers, and visitors what quality factors are measured, recent perform ance and what current quality improvement pro jects are in progress, which groups have won awards, and the like. Many of the displays are graphic rather than numerical and are completed regularly by the workforce. These have much more impact than pages of computer printout, which may well be unread by Western manage ment and perhaps not even shown to the work force. Easy to see quality

Insistence on compliance In many Western con cerns, while lip service is paid to achieving con sistent quality standards, these may be sacrificed on occasions for short term expediency. In most Japanese concerns, the pursuit of quality stand ards is paramount and takes precedence over output standards and pressures. Line stop Closely related to the compliance principle, in Japanese production systems every individual worker has the facility to stop the production line if quality standards are com promised. By contrast, in many Western plants the production line is not expected to stop, and any production identified as deficient is des patched to rework areas. While the Japanese system is initially slow when a new production process is started, as quality problems are grad ually resolved, the line speeds up, quality im proves, and rework costs are eliminated.

When errors do occur in the Japanese system, unlike in the West, it is the responsibility of the worker or workgroup to correct its own errors by undertaking its own rework. While the output rate is unimportant in the Japanese system with, for example, the line stop system being open to all workers, daily output is important and in the event of line stops and needed reworks, the workforce is expected to work late to make any necessary corrections. In this way, workers assume full responsibility for quality problems. In general, Correcting one’s own errors

329

however, these are limited while just in time keeps lot sizes small, so that any defects detected apply to only a small number of units. 100 percent check In Japanese systems this re quires every item of output to be inspected – not merely a random sample. This principle applies rigidly to all finished goods and, where possible, to components. When it is impossible to inspect all components, the N ¼ 2 concept is used (see below), with a long term goal of achieving a 100 percent check. By contrast, in Western com panies statistical sample inspections are the norm. This technique, which was developed by the US military in World War II, was used initially by the Japanese but later rejected be cause the concept of a lot implied long produc tion and hence the build up of inventory – the antithesis of just in time. The Japanese adopted much tighter standards of defects and ultimately were aiming for true zero defects, which made sampling tables irrelevant. Sampling itself was considered inadequate. Project by project improvement Schemes for project by project improvement are visible throughout Japanese production units. The dis plays may also show partly completed projects, on a type of ‘‘scoreboard.’’ Western visitors find such displays impressive, but are skeptical when they understand the number of such projects being undertaken. While it is true that individual projects make little contribution, the overall number, coupled with the cultural environment induced toward quality, results in a massive con tinuous level of improvement which most West ern firms find impossible to replicate.

Facilitating Concepts The effect of quality improvement can be enhanced by making use of the facilitating con cepts once the organizational and quality prin ciples are in place. These facilitators are as follows. Quality control as facilitator In Japan, as respon sibility for quality is assigned to the line func tion, specialist quality control departments are reduced in size and used as facilitators for the total process. As a result, they promote the re moval of the causes of defects, keep track of

330

total quality control

quality achievements, monitor as standard pro cedures are followed, and observe procurement to insure that supplier factories have similar quality standards and conduct QC training. The inspection of goods inwards parts is also passed back to suppliers and, as such, goods inward are sent straight to the production line. One exception to this practice is that parts re ceived from Western suppliers may be inspected by the quality department. Small lot sizes This is a key element in just in time production. It is also important in insuring that any defects are detected early. As such, it also forms a basic concept in quality control.

Japanese factories are carefully laid out to insure scrupulous tidiness and cleanliness. While individual workers are expected to keep their workplace tidy, any pro duction workers not required for their line production jobs may be temporarily assigned to cleanliness and hygiene tasks elsewhere in the factory.

Housekeeping

Less than full capacity scheduling Having avail able spare capacity insures that the daily produc tion schedules will be met. It is also a quality control concept, as it permits the line to be stopped for quality or other reasons. Moreover, capacity slack avoids over pressuring the work force, tools, and equipment – so reducing the probability of errors.

Exposure of problems In the TQC system, dis covery of a defect triggers a detailed investiga tion to discover the cause of the defect and how to correct it. This process is so valued that man agement may deliberately remove workers or buffer inventories to expose problems affecting quality. Exposure of problems and correction of causes are also sought out before there is actual evidence of problems. This might involve very careful analysis of product designs and checks at the product start up phase, before volume pro duction commences. Similarly, workers – both individually and in small groups or quality circles – are constantly seeking ways in which to improve quality.

The work process can be redesigned to eliminate many mistakes. Many machines are fitted with bakayoke, which auto matically check for abnormal production. When such defects are found, the machines stop auto matically – the process of ‘‘autonomation.’’ The monitoring mechanisms may therefore check for malfunction, excess tool wear, and the like, in addition to dimensions and tolerances. Such devices are also sometimes used in final assembly or when manual systems are used via the line stop system or via worker triggered warning lights.

Foolproof devices

Techniques and Aids

N ¼ 2 While foolproof devices are useful for high volume operations, for lower volumes manual inspection may be required. High percentages of production are inspected – even as high as 100 percent in the case of unstable processes. For more stable processes, sample inspection may be used. Unlike in the West, where random sampling is normal, in Japanese TQC inspection is not random. In practice, the first and last pieces in a pro duction run are inspected – hence the term N ¼ 2. The argument is that in a stable pro cess if the first and last units are good, then those produced in between should also all be good.

In Japanese TQC there are fewer techniques and aids than those found in the West, where specialists using various techniques and aids are common. In Japan, the commonly used tools are fewer and different. They include the following.

Tools of analysis Statistical tools are used in both Western and Japanese quality control systems. In Japan, however, these tend to be used by superiors and workers who have under gone extensive training in their preparation and use.

Unlike in the West, where production machinery is used as hard as possible and maintenance is the responsibility of specialists, in Japan production workers are expected to perform routine maintenance on their machines at the beginning of each day. Each morning, therefore, the Japanese normally go through a checklist, insuring that the machine functions correctly, oiling, adjusting, sharpening, and the like before operations com mence.

Daily machine checking

trade diversion

331

Many Japanese variants of such tools, how ever, show greater detail (e.g., break even analy sis, Pareto analysis, and radar mapping). The cause–effect, or Ishikawa, diagram was less known in the West, but is now a normal tool used in quality analysis.

for. Extensions normally require the traveler to show some form of financial capability of taking care of themselves during the extended stay.

QC circles are used throughout Jap anese corporations and almost all employees are members. Such groups meet to develop ideas for quality improvements on a regular basis. Their output is prodigious, with ideas for quality and kaizen improvement often running into millions of suggestions each year per company. Most of these ideas are implemented. While successful ideas are rewarded, the gains in monetary terms are usually small, with prestige awards being more highly thought of. The TQC concept has been accepted by a number of Western companies, but few have adopted the depth of commitment to the prin ciples and practice found in Japanese concerns. Without such commitment, the constant im provements in quality and costs experienced in Japan are unlikely to materialize in the West, leading to a continuous loss of competitive ad vantage.

trade barriers

QC circles

see b a r r i e r s

trade centers John O’Connell

A trade center is a location in which trade offices, international consulting firms, educational en terprises, promotional firms, and others are housed and in which international trade is the major business. Cities throughout the world have trade centers which, as their name implies, are meant to be the center of international busi ness activity in that particular city.

trade creation John O’Connell

Bibliography Ishikawa, K. (1985). What is Total Quality Control? The Japanese Way. Englewood Cliffs, NJ: Prentice-Hall. Juran, J. M. (1978). Japanese and Western quality: A contrast in methods and results. Management Review, 26 45. Kusaba, I. (1981). Quality control in Japan. Reports of QC circle activities (no. 14, pp. 1 5). Union of Japanese Scientists and Engineers. Monden, Y. (1983). Toyota Production System. Atlanta, GA: Institute of Industrial Engineers. Schonberger, R. J. (1982). Japanese Manufacturing Tech niques. New York: Free Press

When trade b a r r i e r s are reduced between countries, trading opportunities increase. This is not because the opportunity wasn’t there before; rather, opportunities were not eco nomically feasible with tariff and other barriers increasing the final selling price of goods. Thus, countries which agree to remove barriers tend to create trade opportunities between those same countries.

trade diversion John O’Connell tourist visa John O’Connell

A tourist v i s a is issued only for sightseeing and other tourist activities. Generally, tourist visas are issued for specific periods of time (six months is common). If longer stays are an ticipated an extension may have to be applied

When countries agree to reduce or do away with trade b a r r i e r s , trade increases between those countries. Products that were formerly pur chased outside of the agreeing countries are now purchased ‘‘between’’ those countries. Thus, trade has been diverted from countries not part of the trade agreement to those which are signatories to the agreement.

332

trade fairs

trade fairs John O’Connell

One of the ways to advertise newly developed products or products that are new to a trading area is to open an exhibit at a trade fair. Trade fairs are popular methods of seeing what’s new and what the competition is up to. Trade fairs are so popular that they are usually very specific as to the types of products they exhibit (computer fairs, video, automobiles, and others are very popular). Trade fairs may be open to the public or strictly for industry producers and buyers.

trade financing

trade mission is usually a local, state, or federal government agency.

trade visitor John O’Connell

This is usually an influential person in a particu lar industry who is invited by a government to meet with local producers and exporters with regard to increasing trade between the host and the visitor’s country.

trademark John O’Connell

John O’Connell

The majority of goods traded across borders are financed in one way or another. Most importers of goods will not release funds until they are certain the goods are delivered in good condi tion. This requires a system of financing to be in place to handle the enormous demand for what are normally short term funds. Financing is conducted by the exporters themselves, export development banks and agencies in various countries, and by governments, individual in vestors, and commercial banks throughout the world.

A trademark is a design, symbol, word, or series of words that is used to identify a specific com pany, service, or product(s). A trademark may be registered in order to protect the right of the company to have exclusive use of the trademark in the geographic area of registration. Infringe ment is a common occurrence in some countries. Even though laws exist in many countries to protect this ‘‘property right,’’ lax enforcement of the laws leads to illegal activities by those who would copy products or goods which are trademarked. See also intellectual property; piracy

trade mission

Bibliography

John O’Connell

A trade mission is a group of business people who travel to another country to seek out oppor tunities for business ventures involving exports/ imports, investment in the host country, or con tacts for possible foreign investment in the home country. Missions (trips to the foreign country) are a popular method of networking with foreign trade officials and business people in the host country, and are also a method of gaining con tacts with persons with similar interests in the home country. People going on trade missions usually pay their own expenses. However, gov ernment agencies may offer support in some situations. The initial sponsorship of an official

Seminsky, M. and Bryer, L. G. (eds.) (1994). The New Role of Intellectual Property in Commercial Transactions. New York: John Wiley and Sons. Stewart, G. R. (1994). International Trade and Intellectual Property: The Search for a Balanced System. Boulder, CO: Westview Press.

Trademark Registration Treaty (TRT) John O’Connell

An international agreement which is adminis tered by the World Intellectual Property Organ ization (WIPO), the TRT provides a method of registering trademarks internationally using a

transaction exposure single application. Once an application has been approved, the trademark protection is valid in all countries which are signatories to the agreement. See also Madrid Agreement

333

Bibliography Bartlett, C. A. and Ghoshal, S. (1992). Transnational Management, 2nd edn. Chicago: Irwin. Daniels, J. D. and Radebaugh, L. E. (1994). International Business: Environments and Operations, 7th edn. Reading, MA: Addison-Wesley. Grosse, R. and Kujawa, D. (1995). International Business: Theory and Managerial Applications, 3rd edn. Boston, MA: Richard D. Irwin.

trading area John O’Connell

A company’s trading area is merely the geo graphic area in which the company has decided to pursue trade activities. Usually, a company begins with a local trading area. As the company grows and products are accepted the trade area expands until it begins to cross international boundaries. Trading areas may be limited by a company’s financial condition, laws associated with trade, management’s knowledge of the market, or the creativity of the firm’s owners/ managers. See also evolution of global organization

tramp steamer John O’Connell

A vessel that does not transport goods on preset schedules or routes. Although the reference to ‘‘tramp’’ may seem to be derogatory, ships of this type are often as seaworthy and dependable as vessels operating on schedules between ports of call. Tramps are available for specific voyage needs of charterers. They will take cargo (crude oil tramps are common) when the charterer re quires and to wherever the charterer desires. A tramp vessel is akin to a freelance operator in the business of hauling cargo.

trading bloc John O’Connell

Trading blocs are a very important development in international trade. Although agreements be tween groups of countries have existed for decades, it has been only since the 1990s that trading blocs have gained recognition as poten tially being able to control large amounts of trade not only within a specific trading bloc but throughout the entire world. Instead of a single country buying and selling goods, virtually all of Western Europe (the e u r o p e a n u n i o n ) or North America (the n o r t h a m e r i c a n f r e e t r a d e a g r e e m e n t – NAFTA) has become a single market for imports and exports. Trading blocs exert a great deal of economic power. They can control the trade within member countries to make freedom of trade a reality. They can also make demands on other trading nations because of their tremendous purchasing power. See also common market

transaction exposure John O’Connell

This exposure arises when a business enters into transactions in which foreign currency payments are expected to be made to the business in the future or in which foreign currency payments are to be made by the business in the future. As time passes currency values may change. If for eign currency values fall, the business will be paid in the lower value currency. If foreign cur rency values increase, the company will have to use more of its domestic currency to purchase foreign currency with which to pay future debt. See also exchange exposures Bibliography Eiteman, D. K., Stonehill, A. J. and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

334

transfer price

Miletello, F. C. and Davis, H. A. (1994). Foreign Exchange Management. Morristown, NJ: Financial Executives Research Foundation.

the entry and exit formalities of the host country. Transit zones are more limited facilities than foreign trade zones or free ports.

transfer price John O’Connell

The transfer price is the price paid for a good or service between members of the same corporate family; that is, the price charged by a subsidiary to a parent company for goods exported to the parent. Alterations of the transfer price may be used to move excessive amounts of money from a parent company to a subsidiary. This is espe cially useful if the parent is located in a high tax country and the subsidiary is in a low tax country.

translation exposure John O’Connell

Translation exposure is an accounting measure. If an organization has assets valued in a foreign currency, it faces the possibility that the foreign currency will fall in value. If this occurs, the decrease in value ‘‘translates’’ into reduced value of business assets. See also exchange exposures Bibliography

See also reinvoicing

Eiteman, D. K., Stonehill, A. J., and Moffett, M. H. (1992). Multinational Business Finance, 6th edn. Reading, MA: Addison-Wesley.

Bibliography Celi, L. J. and Rutizer, B. (1991). Global Cash Manage ment, 1st edn. New York: Harper Business.

translation risk

see t r a n s l a t i o n e x p o s u r e

transit visa John O’Connell

As the name implies, a transit v i s a is issued to a person who is merely passing through a country but must connect with outbound transportation within the borders of a country. If required, a transit visa is in addition to any other visas required by various countries entered by a person during a business or pleasure trip.

transit zone John O’Connell

A form of free trade zone, such zones are ports of entry in coastal countries that are established as storage and distribution centers for the conveni ence of a neighboring country lacking adequate port facilities or access to the sea. A transit zone is administered so that goods in transit to and from the neighboring country are not subject to the customs duties, import controls, or many of

transnational corporation (TNC) John O’Connell

A transnational corporation (TNC) is seen by many as being synonymous with a multinational corporation (MNC). Many observers in Europe apply a slightly different view when defining a transnational corporation. The view taken de scribes a TNC as a merger of existing organiza tions from different countries into a single transnational corporation. Shell is probably one of the better known transnationals, being of Dutch–English descent.

transshipment John O’Connell

This refers to the act of sending an exported product through an intermediate country before

trust across cultures routing it to the country intended to be its final destination.

335

treaty served as the basis for negotiations which have now spanned five decades. Originally, sig natory nations numbered only six (Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany).

travel time John O’Connell

As part of the compensation package, most com panies allow an e x p a t r i a t e a specified number of days to travel to their a s s i g n m e n t country. Full pay and specified expenses are paid during this period of time. See also compensation package (expatriate)

triangular arbitrage John O’Connell

‘‘Three point’’ or ‘‘triangular’’ arbitrage occurs where three currencies are traded against one another to arrive at a profit. a r b i t r a g e also takes place in the trading of other financial in struments or commodities.

travelers letter of credit John O’Connell

trilateral trade agreement John O’Connell

A l e t t e r o f c r e d i t issued to a person who will be traveling in another country. The letter allows drafts to be written against the letter up to the value set forth in the letter. Another name for this type of letter of credit is circular letter of credit.

This is a trade agreement in which three coun tries participate. The North American Free Trade Agreement is an example of a trilateral trade agreement between the United States, Canada, and Mexico.

treaties

Trojan Horse John O’Connell

John O’Connell

Treaties are official agreements between coun tries and are generally ratified at the highest levels of government. They are agreements which bind the agreeing nations to actions in areas such as trade, defense, human rights, en vironmental protection, and many others. Treat ies are extremely important to international commerce, as they form the basis of the rules which must be followed when commerce occurs between various countries.

A computer program that appears to have a useful function, but also has a hidden and poten tially malicious function that evades security mechanisms, sometimes by exploiting legitimate authorizations of a system entity that invokes the program.

trust across cultures Jeanne McNett

Treaty of Rome John O’Connell

The Treaty of Rome (1957) began the move ment toward the e u r o p e a n u n i o n . The

Based on m i n d f u l c o m m u n i c a t i o n , an ability to build trust across cultures is an import ant interpersonal skill. Trust is understood by researchers to be a psychological state in which vulnerability is accepted based upon the positive expectations of the intentions or behavior of

336

turnkey project

another. Research on trust indicates that it is important in improving the quality of work per formance, problem solving, and communication, and can positively affect employee citizenship behavior and commitment. Trust also can im prove work relationships and the organization’s ability to adapt to complexity and change. Trust also plays an important role in all forms of alli ances, in customer–organization relationships, and in mergers and acquisitions. Trust is rooted in personal relationships among individuals and is based on perceived competence, benevolence, and integrity. The World Values Survey and other research indi cate that trust varies across cultures, in that individuals from different cultures may have different propensities to trust. Members of cross cultural teams find that building trust is challenging. Team members with differing orientations toward trust and other values may form cultural subgroups whose interactions re inforce cultural stereotypes. In global and virtual teams, trust is one of the critical e m e r g e n t s t a t e s whose develop ment supports team success. International managers need to recognize the important role trust plays and that cultural dif ferences frame their own and others’ perceptions of trustworthiness. The m a p , b r i d g e , i n t e g r a t e m o d e l is a useful tool to bridge this potentially critical gap. Bibliography Butler, J. K., Jr. (1991). Towards understanding and measuring conditions of trust: Evolution of a conditions of trust inventory. Journal of Management, 17, 643 63. Das, T. K. and Teng, B.-S. (1998). Between trust and control: Developing confidence in partner cooperation in alliances. Academy of Management Review, 23 (3), 491 512. Doney, P. M. and Cannon, J. R. (1997). An examination of the nature of trust in buyer seller relationships. Journal of Marketing, 61, 35 51. Inglehart, R. (1997). Modernization and Postmoderniza tion: Cultural, Economic, and Political Change in 43 Societies. Princeton, NJ: Princeton University Press. Inkpen, A. and Currall, S. C. (1998). The nature, antecedents, and consequences of joint venture trust. Journal of International Management, 4, 1 20. Kramer, R. M. (1999). Trust and distrust in organizations: Emerging perspectives, enduring questions. Annual Review of Psychology, 50, 569 98.

Mayer, R. C., Davis, J. H. and Schoorman, F. D. (1995). An integrative model of organizational trust. Academy of Management Review, 20, 709 34. Nikandrou, I., Papalexandris, N. and Bourantas, D. (2000). Gaining employee trust after acquisition: Implications for managerial action. Employee Relations, 22 (4), 334 55. Rotter, J. B. (1967). A new scale for the measurement of interpersonal trust. Journal of Personality, 35, 615 65. Rotter, J. B. (1971). Generalized expectancies for interpersonal trust. American Psychologist, 26, 443 52. Rousseau, D. M., Sitkin, S. B., Burt, R. S. and Camerer, C. (1998). Not so different after all: A cross-discipline view of trust. Academy of Management Review, 23, 393 404. Singh, J. and Sirdeshmukh, D. (2000). Agency and trust mechanisms in consumer satisfaction and loyalty judgments. Journal of the Academy of Marketing Science, 28 (1), 150 67. Sirdeshmukh, D., Singh, J. and Sabol, B. (2002). Consumer trust, value, and loyalty in relational exchanges. Journal of Marketing, 66, 15 37. Stack, L. C. (1978). Trust. In H. London and J. E. Exner, Jr. (eds.), Dimensions of Personality. New York: John Wiley, 561 99. Stahl, G. K. and Sitkin, S. (2001). Trust in mergers and acquisitions. Paper presented at the Academy of Management Conference, Washington, DC, August. Whitener, E. M., Maznevski, M. L., Hua, W., Saebo, S. and Ekelund, B. (1999). Testing the cultural boundaries of a model of trust: Subordinate manager relationships in China, Norway and the United States. Paper presented at the Annual Meeting of the Academy of Management, Chicago, August. Whitener, E. M. and Stahl, G. K. (2004). Creating and building trust. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Wrightsman, L. W. (1992). Assumptions about Human Nature: Implications for Researchers and Practitioners, 2nd edn. Newbury Park, CA: Sage. Zaheer, A., McEvily, B. and Perrone, V. (1998). Does trust matter? Exploring the effects of interorganizational and interpersonal trust on performance. Organ ization Science, 9, 141 59.

turnkey project John O’Connell

The construction and outfitting of a facility (usu ally a building or other structure) with the intent

tying clause of turning it over to the buyer when complete. The facility is ready to operate, assuming that the buyer has the managerial knowledge and em ployee know how to undertake operations. A turnkey plus project also entails an agreement to operate the facility for some stated period of time before turning it over to the buyer. The operation time period normally allows for training of local workers and management to successfully begin to operate the facility at a later date.

337

tying clause John O’Connell

When a loan is provided by lenders from a par ticular country, the loan agreement may have a clause requiring that proceeds of the loan may only be used to purchase other goods and services within the country in which the loan was granted. This is referred to as a tying clause. It ties the loan to an agreement to spend the money within the borders of a particular country.

U unbundling

Bibliography

John O’Connell

Companies are sometimes purchased in order to break them into parts for resale. It may be pos sible to secure higher profits by selling pieces of a company rather than the company as a whole. In Britain, the process of selling off the pieces is referred to as unbundling.

uncertainty avoidance Jeanne McNett

Uncertainty avoidance is a dimension on h o f s t e d e ’s c u l t u r a l d i m e n s i o n s that meas ures the degree to which members of a culture feel uncomfortable with ambiguous and uncertain situations. In cultures that rank high on uncertainty avoidance, people prefer career stability and more formal roles. In cultures with low uncertainty avoidance, people tend to prefer some flexibility in their roles and jobs. Developing countries tend to rank somewhat higher on uncertainty avoidance, with a clear preference for situations that are well defined and clear, with risk aversion and perhaps with relatively low entrepreneurial capacity. With regard to assessment, cultures that rank high on uncertainty avoidance are likely to have a high degree of formalization, clearly explicit procedures, and detailed regulations. In training, people in high uncertainty avoidance cultures are likely to prefer highly structured learning situations with precise objectives and detailed schedules.

Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Bing, J. W. (2004). Hofstede’s consequences: The impact of his work on consulting and business practices. Acad emy of Management Executive, 18 (1), 80 8. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Gannon, M. J., and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Hofstede, G. (1983). The cultural relativity of organizational practices and theories. Journal of International Business Studies, fall, 75 89. Hofstede, G. (1991). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill. Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations, 2nd edn. Thousand Oaks, CA: Sage. Kirkman, B. L., and Den Hartog, D. N. (2004). Performance management in global teams. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell. Lane, H. W., Maznevski, M., Mendenhall, M., and McNett, J. (2004). The Blackwell Handbook of Inter national Management: A Guide to Managing Complex ity. Oxford: Blackwell. Punnett, B. J. (2004). The developing world: Toward a managerial understanding. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

United Nations Center on Transnational Corporations Vinken, H., Soeters, J., and Ester, P. (eds.) (2003). Com paring Cultures: Dimensions of Culture in a Comparative Perspective. Leiden: Brill.

UNCISG

339

Bibliography Viner, J. (1991). Dumping: A Problem in International Trade. Caldwell, NJ: Augustus M. Kelley.

uniform bill of lading

see u n i t e d n a t i o n s c o n v e n t i o n o n contracts for the international sale of goods

John O’Connell

A b i l l o f l a d i n g that meets the require ments of the United States Federal Bill of Lading Act of 1915.

UNCITRAL

see u n i t e d n a t i o n s c o m m i s s i o n o n international trade law

uniform resource locator (URL) John O’Connell

The generic term for all types of names and addresses that refer to objects on the World Wide Web.

underselling John O’Connell

Underselling occurs when an exporter sells its product in another country at lower than the going price (fair market value). Although such sales may be due to the exporter’s lower costs of production, underselling may also be a sign of the d u m p i n g of products. Dumping is generally considered an unfair trade practice.

unfair trade

unilateral duty John O’Connell

A d u t y imposed by executive order to punish a country for u n f a i r t r a d e practices. It may also be used to reduce the flow of specific types of imports. Unilateral duties are tempor ary, lasting until the trade problem has been resolved.

John O’Connell

This term describes transactions which involve goods being dumped on foreign markets, black market goods, copied or otherwise counterfeited goods, or goods that are subsidized beyond nor mally acceptable levels. Countries that partici pate in unfair trade practices are subject to retaliatory measures by those countries which are treated unfairly. See also dumping; intellectual property

United Nations Center on Transnational Corporations John O’Connell

This United Nations center was established in 1974 to assist in the development of stan dardized procedures for accounting and reporting requirements for multinational busi nesses.

340

United Nations Commission on International Trade Law

United Nations Commission on International Trade Law (UNCITRAL)

United States International Trade Administration (USITA)

John O’Connell

John O’Connell

The expansion of world trade brought about many problems associated with transportation contract interpretation, rights and responsibil ities of parties to import/export contracts, and ever changing rules associated with trade be tween various countries. Individual countries began to implement regulations and make inter pretations concerning responsibilities of parties to trade contracts. The proliferation of rulings led to even more confusion. In 1966 the United Nations established a per manent commission dedicated to the eventual h a r m o n i z a t i o n of international trade law. The commission acts as a coordinating body between various country efforts to establish trade law, as well as developing wording for and enforcing conventions (agreements) spon sored by the United Nations. Through the work of the commission, great strides have been made in unifying international trade law and practice.

In 1980, pressures of monitoring and developing international trade prompted the US Congress to establish USITA as a part of the US Depart ment of Commerce. Assistance was needed in the areas of developing trade policy, enforcing current trade regulations, and fostering in creased exports of US goods. USITA is com prised of four operating units:

United Nations Convention on Contracts for the International Sale of Goods (UNCISG) John O’Connell

In an attempt to standardize the interpretation of international contracts dealing with imports and exports, the United Nations developed and adopted UNCISG in 1980. UNCISG is an attempt to delineate responsibilities of all parties to trade contracts. Although relatively few nations have become signatories of the agreement, efforts are still underway to garner additional support for reducing trade problems through the adoption of stand ardized rules governing all or parts of trade transactions. See also United Nations Commission on Inter national Trade Law

1

2

3

4

Import administration. This unit develops, im plements and oversees regulations associated with international trade. The administration also is responsible for investigating charges of d u m p i n g levied against foreign interests. International economic policy. This unit is essentially an information source for those seeking economic information on a country or region of the world. Trade development. This unit is in charge of promoting the export of US goods. It also offers advice on which types of exports are most likely to be in demand and offers sup port for specific sectors of the economy as it deems expedient. US and foreign commercial service. This unit sponsors trade missions, exhibitions, confer ences, and other activities to promote the export of US goods. The activities of this unit are carried out both in the United States and other countries in which trade promo tion is deemed desirable.

Bibliography United States Customs Service (1994). A Basic Guide to Importing. Lincolnwood, IL: NTC Publishing.

universal copyright convention John O’Connell

An international agreement which protects the authors of written works from unauthorized use

USITA of those works. The agreement calls for protec tion during the author’s life plus an additional 50 years. Under this agreement written work is automatically protected if information related to publication (author’s name, publication date, or completion date if unpublished) and the copy right symbol are made a part of the work. The agreement applies only to signatory countries. See also intellectual property; piracy

universalism Jeanne McNett

This is the first element of Trompenaars’ Uni versalism–Particularism culture dimension (see c u l t u r a l d i m e n s i o n s ). It describes cul tures in which an emphasis is placed on the social rules applying to all people in the group, equally. With universalism, codes, laws, and generaliza tions matter. In contrast, with particularism, the emphasis is on exceptions to the rule and special, particular cases; circumstances do matter and relations (people, history, and geography among them) are important. The US is an example of a universalist culture, while France is a particularist one. Bibliography Ashkenasy, N. M., Wilderom, C. P. M., and Peterson, M. F. (eds.) (2000). Handbook of Organizational Culture and Climate. Thousand Oaks, CA: Sage. Brannen, M. Y., Gomez, C., Peterson, M., Romani, L., Sagiv, L., and Wu, P.-C. (2004). People in global organizations: Culture, personality, and social dynamics. In H. W. Lane, M. Maznevski, M. Mendenhall, and J. McNett (eds.), The Blackwell Handbook of Global Management: A Guide to Managing Complexity. Oxford: Blackwell.

341

Gannon, M. J. and Newman, K. L. (2002). The Blackwell Handbook of Cross Cultural Management. Oxford: Blackwell. Hall, E. T. (1976). Beyond Culture. New York: Doubleday. Hall, E. T. and Hall, M. R. (1995). Understanding Cultural Differences. Yarmouth, ME: Intercultural Press. Hampden-Turner, C. and Trompenaars, F. (2000). Building Cross Cultural Competence: How to Create Wealth from Conflicting Values. New Haven, CT: Yale University Press. Kluckhohn, F. and Strodtbeck, S. F. (1961). Variations in Value Orientations. Evanston, IL: Row, Peterson. Lane, H., DiStefano, J., and Maznevski, M. (2000). Inter national Management Behavior, 4th edn. Oxford: Blackwell. Lane, H. W., Maznevski, M., Mendenhall, M. and McNett, J. (2004). The Blackwell Handbook of Inter national Management: a Guide to Managing Complexity. Oxford: Blackwell.

URL

see u n i f o r m r e s o u r c e l o c a t o r

user contingency plan John O’Connell

The alternative methods of continuing business operations if IT systems are unavailable.

USITA

see u n i t e d s t a t e s i n t e r n a t i o n a l t r a d e administration

V vacation allowance

value added

see c o m p e n s a t i o n p a c k a g e (e x p a t r i ate)

validated export license

see e x p o r t l i c e n s e ; i n d i v i d u a l l y validated export license

John O’Connell

Value added is the incremental value associated with materials and labor during each of the pro duction stages. Value added becomes important when a tax system such as that found in Europe is based upon the value added at each production stage. See also value added tax

valuation John O’Connell

In reference to international trade, the term ‘‘valuation’’ means the value established for imported goods by the customs authorities of a country. Prior to guidelines set forth by the general agreement on tariffs and t r a d e (GATT), customs authorities were rou tinely believed to increase values on imported goods in order to increase revenues from d u t y payment. The signatory nations of GATT have adopted a set of guidelines which should re duce such occurrences. Usually, major trading countries will have procedures for appealing valuations that are felt to be too high. The major solution to overvaluing, however, is to keep good records of an import’s costs and ul timate value and be certain to use these figures to state the value when importing the items. If an importer ‘‘underestimates’’ the true value, customs authorities have been known to assess additional costs to make up for such over sights.

value-added tax (VAT) John O’Connell

Value added taxes separate the taxes on goods so that instead of paying a single tax on the com pleted value, each party contributing to the pro duction or distribution of a product pays tax on the value added. For example, if a manufacturer produced a product with a final sales price to the consumer of $1,000, the value added tax might be broken down as follows: the raw materials for the product cost $250 and were processed to a product valued at $500. The processor pays VAT on the added $250 of value. The processed prod uct is purchased for $500 by the manufacturer, who further processes it into a finished product which is sold for $1,000. The manufacturer pays VAT on the $500 of added value. Although the value added tax is mainly a European phenom enon, it has made its way to North America via Canada. The United States does not have a VAT, but tax reformists seem to bring it up each time there is debate over the US tax system.

value dimensions (Hofstede’s) Bibliography Nexia International Staff (1994). International Handbook of Corporate and Personal Taxes. New York: Chapman and Hall.

value dimensions (Hofstede’s)

3 John O’Connell

Hofstede’s research into cultural differences has yielded perhaps one of the most useful theories to managers and international entrepreneurs. Although readers may not agree with the specific terms used by Hofstede to describe cultural dimensions, it is difficult not to see the usefulness of his work. Hofstede’s value dimensions are: 1 Power distance. This expresses the ability of a society to accept differences between the highest level of power in an organization and the lowest level of power. The idea that power differences exist in business is not unique. There have always been managers and workers, supervisors and clerks, and owners and employees. However, Hofstede found that different cultures accepted this difference in power better than others. For example, workers in Austria and Israel have a low power distance (low acceptance of un equal power in the workplace), whereas workers in the Philippines and Malaysia readily accept workplace power inequalities. In Malaysia, the manager has the right to be boss and the chain of command is rarely broken. In Austria, however, workers and managers are seen as being equal and more cooperative planning takes place. Workers in the United States and Great Britain are in the low power distance region. 2 Uncertainty avoidance. This is the degree to which people in a given culture are threatened by uncertain situations. High un certainty avoidance leads to strict rules and regulations, long term employment oppor tunities, and a greater sense of a need for stability. This leads to few decisions being made by any one person and a low state of aggressiveness on the part of workers. Low uncertainty avoidance leads to less structure on the job, fewer work rules and regulations,

4

343

and workers and managers who are likely to make decisions whenever possible. Japan, Greece, and Portugal express high uncer tainty avoidance. Singapore, Denmark, and Sweden express low uncertainty avoidance. The United States and Great Britain are in the low category of uncertainty avoidance. Individualism. This is the degree of inde pendence a person has with respect to his or her organization or society. In the United States and Australia there is a high degree of individualism. A sense of individual achieve ment seems to be a part of the work ethic in these countries. On the other hand, Ecuador and Panama were measured by Hofstede as having a low degree of individualism. In these countries there is a strong tie between the worker and employer, collective action is common, and social pressures are used to make people conform. Leaders are more easily able to guide the efforts of low indi vidualism countries toward the common goals of the organization and society than are leaders in high individualism countries. Masculinity. High masculinity denotes ag gressiveness, materialism, and women as being housewives and homemakers. Low masculinity denotes women in the work force, concern for overall quality of life, and lower levels of stress related to performance. Japan is very high on the masculinity scale, while Sweden and Norway are very low on the scale.

When Hofstede’s value dimensions are viewed as a whole it may be possible to determine in which cultures a business organization could best operate. Although Hofstede’s terminology is probably not as acceptable as it could be in today’s world, his ideas do allow for an initial screening of similarities and differences between cultures. The business management implica tions of his research are many. See also cultural maps Bibliography Evans, W. A., Sculli, D., and Yau, W. S. L. (1987). Crosscultural factors in the identification of managerial potential. Journal of General Management, 13 (1), 52 7.

344

VAT

Ferraro, G. P. (1990). The Cultural Dimension of Inter national Business. Englewood Cliffs, NJ: Prentice-Hall. Hayes, J. and Allison, C. W. (1988). Cultural differences in the learning styles of managers. Management Inter national Review, 28 (3), 75 80. Hofstede, G. (1980). Motivation, leadership, and organization: Do American theories apply abroad? Organiza tional Dynamics, summer, 42 63. Kuroda, Y. and Suzuki, T. (1991). A comparative analysis of the Arab culture: Arabic, English, and Japanese language and values. International Association of Middle Eastern Studies. Lane, H. W., Distefano, J. J., and Hollocks, B. (1990). International management behavior: From policy to practice. Journal of Operational Research Society, 41. Mendenhall, M., Punnett, B., and Ricks, D. (1995). Global Management. Cambridge, MA: Blackwell. Moran, R. (1988). Venturing Abroad in Asia: Complete Business Traveller’s Guide to Cultural Differences in Eleven Asian Countries. New York: McGraw-Hill. Ronen, S. and Shenkar, O. (1985). Clustering countries on attitudinal dimensions: A review and synthesis. Academy of Management Review, 10 (3), 435 54.

VAT

see v a l u e a d d e d t a x

visa John O’Connell

A visa is a document or an entry in a passport giving the passport holder official permission to enter a country. Because of treaties and other agreements, not all international travel necessi tates the securing of a visa. The international traveler should verify well ahead of departure time whether visas or other documents are ne cessary for admittance to countries on his or her itinerary. Visas fall into two basic categories: (1) those issued to business visitors and (2) those issued to pleasure visitors. Each country establishes the exact nature of the visa (title or number of docu ment, eligibility requirements, etc.) and no two

countries are exactly alike. There are general circumstances and uses of visas, however, of which international business persons should be aware. You must contact the consulate or immi gration service of a country to obtain details of its requirements with respect to visas. See also commercial visa; exit visa; general visa; re entry visa; student visa; tourist visa; transit visa Bibliography Torbiorn, J. (1982). Living Abroad. New York: John Wiley.

voluntary quota John O’Connell

In the spirit of goodwill (and probably for future bargaining position) countries may enter into voluntary agreements to limit the number of products exported to another country. For example, if a foreign auto manufacturer felt that the government of an important importing coun try might impose formal quotas for automobile imports, the auto manufacturer may agree to vol untarily limit the number of autos being exported. Voluntary quotas are generally much easier to adjust as time passes than formalized quotas. See also quota Bibliography Winham, G. R. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press.

vulnerability John O’Connell

A flaw or weakness in a system’s design, imple mentation, or operation and management that could be exploited to violate the system’s secur ity policy.

W WAEC

warehouse-to-warehouse

see w e s t a f r i c a n e c o n o m i c c o m m u n i t y

war risk John O’Connell

Actual damage caused by war, rebellion, insur rection, invasion, or use of military force to invade sovereign territory with the intent of exerting governing control. Although the defin ition of war varies considerably depending upon the legal jurisdiction, the fact that war or warlike actions cause severe damage to property is of greatest interest in the present context. Generally, war risk insurance is not available in any standard market. Where war risk is covered by insurance it is most likely to be under a m a r i n e i n s u r a n c e policy with war risk added. Land based property damage by war is rarely covered by any insurance contract, al though it is sometimes available through insur ance companies that write p o l i t i c a l r i s k insurance. See also political risk

John O’Connell

In ocean marine cargo insurance, warehouse to warehouse coverage provides probably the best available continuous coverage for the seller or buyer of goods. In export or import activities the terms of sale are very important in determining the responsibilities of parties with regard to in surance, damage to property, and payment of transit fees. Often, buyers or sellers try to save money on insurance premiums by timing the cargo insurance purchase to coincide with trans fer of property title as spelled out in the terms of sale. This may cause problems if the insurance is not written correctly or misinterpretations occur as to who has responsibility for insurance during the transportation process. There may also be insurance related problems concerning multiple types of transportation, especially when a policy is written for just the motor truck or the marine portion of the transit. A cargo policy offering warehouse to ware house coverage protects the financial interests of the insured from the time the goods leave the seller’s property until they reach the buyer’s warehouse at the final destination. Coverage is provided while in/on truck, ship, warehouse (usually with time limitations for intermediate warehousing) and on to the buyer’s warehouse or property.

warehouse receipt John O’Connell

A warehouse receipt is issued by a warehouser as an inventory of items being stored. Warehouse receipts are often used as proof of existence of goods for the purpose of arranging collateral for a loan. Warehouse receipts may be negotiable or non negotiable documents.

warehousing John O’Connell

In f o r e i g n e x c h a n g e this term refers to the stockpiling of foreign exchange swaps in the hope of profiting by trading them in the future.

346

waybill

This is a speculative maneuver which does not always work for the party doing the ware housing.

waybill John O’Connell

A waybill is a receipt signifying the sale of an exporter’s goods by an agent of the exporter. Exporters often consign goods to agents, who in turn sell the goods to importers or others. This relieves the exporter from having to estab lish its own international networks of buyers. When an agent sells the exporter’s goods, a re ceipt for the sale is provided. That receipt is often referred to as a waybill or consignment note.

wholesaler/distributor John O’Connell

Wholesalers/distributors purchase large quan tities of goods from suppliers and resell them on international markets. Often, individual im porters do not have the ability to secure certain products from overseas suppliers or they find that suppliers will sell only in container lots or other large bulk quantities. The inability to secure small amounts of goods at fair prices has led to the development of wholesale inter national traders and distributors. Wholesale international traders purchase large quantities of goods from suppliers, break them into smaller lots, and resell the goods to others. By working through the international wholesaler/distributor the smaller business may have access to a larger number of goods than would otherwise be (eco nomically) available.

West African Economic Community (WAEC) John O’Connell

This organization has acted on behalf of member countries to establish freedom of movement and freedom of trade in the region since 1973. The members of WAEC are Cote d’Ivoire, Mali, Mauritania, Niger, and Senegal. The activities of WAEC include one of the first common customs systems between all members, along with a standardized tax on commodities. WAEC is also largely responsible for establish ing freedom of movement of citizens of member countries throughout the Western African Eco nomic Community. Although the importance of WAEC has been supplanted by the newer and larger Economic Community of Western Afri can States (ECOWAS), its importance as a pi oneer in freedom of international trade and movement of member citizens still stands.

wholly owned subsidiary John O’Connell

This form of market entry provides a company with full control over its foreign oper ations. This method of market entry requires large capital investment, commitment of time and effort, and normally a willingness of some employees/management to travel to and live in a foreign country. Owned subsidiaries may be existing businesses which are acquired by the company. If this is so, the investment in management and e x p a t r i a t e time and effort may not be as significant as a start up operation. See also market entry strategies Bibliography Cateora, P. R. (1993). International Marketing, 5th edn. Homewood, IL: Irwin.

wharfage John O’Connell

When a ship loads or unloads goods or is tied to a dock or pier, a charge is made for the use of the dock or pier. This charge is known as wharfage.

WIPO

see w o r l d i n t e l l e c t u a l organization

property

World Bank with particular average John O’Connell

A clause on m a r i n e i n s u r a n c e policies that allows the payment of partial losses to covered property. See also free of particular average

withholding tax

347

organization uses an intermediary to negotiate or ratify contracts in a foreign country, it is very important to specify carefully that intermedi ary’s authority. If authority is given without reserve, it means that the intermediary has full authority to alter the contract or the terms of the transaction. This type of authority should not be taken lightly, for if the principal (the party hiring the intermediary) does not spell out the details of authority, contracts may be entered into which are not in the best interests of the principal.

John O’Connell

Part of the cost of sending a person overseas on an a s s i g n m e n t are the taxes that must be paid in the foreign country. Often, taxes are withheld both in the home country and in the foreign country. At other times taxes are withheld in one or the other countries depending upon tax law in the host country. The problem is that if taxes are withheld twice or if withheld by the wrong government, someone is still responsible for paying them. Many countries require an em ployee of a foreign firm to file a special certifica tion showing that all applicable taxes have been paid before the employee is allowed to return to his or her home country. Not only is this incon venient, but also if taxes have not been properly withheld and paid the employee will have to pay them before exiting a country. It is very important for the employer to become familiar with (or consult with those who are) the tax laws in their own country and in the host country. There may be tax agreements between the countries which will simplify the problem or special forms or other papers that will have to be supplied to insure the proper tax treatment of employee wages and benefits. This is a consideration which must be handled before the employee is sent overseas. Bibliography Nexia International Staff (1994). International Handbook of Corporate and Personal Taxes. New York: Chapman and Hall.

work permit John O’Connell

Persons who are not citizens of a country nor mally must receive permission from the govern ment to become employed. Upon granting permission, the government issues a work permit. The person may then be legally employed within the borders of that country.

workforce diversity John O’Connell

When an organization hires employees from dif ferent countries, or even different parts of the same country, workforce diversity occurs. As organizations grow, their workforce normally is comprised of persons of all ‘‘races,’’ religions, political beliefs, economic status, and geographic regions. Understanding and developing plans to deal with workforce diversity are essential steps to promoting goodwill among employees and fostering productivity in the workplace. Many of management’s most difficult challenges arise because of diversity in the workplace. The major challenge is to motivate all employees toward organizational goals while at the same time allowing diversity to exist. See also cultural diversity

without reserve John O’Connell

When authority to act on behalf of a company is unrestricted it is ‘‘without reserve.’’ When an

World Bank

see i n t e r n a t i o n a l b a n k f o r r e c o n struction and development

348

World Intellectual Property Organization

World Intellectual Property Organization (WIPO) John O’Connell

WIPO was created in an attempt to coordinate and enforce i n t e l l e c t u a l p r o p e r t y rights agreements between countries. WIPO has been charged with coordination of the following inter national agreements concerning intellectual property rights: the b e r n e c o n v e n t i o n for the protection of literary and a r t i s t i c w o r k s of 1866; the p a t e n t c o o p e r a t i o n t r e a t y of 1970; and the Paris Convention for the Protection of Industrial Property of 1883. WIPO has also coordination authority for almost 20 other programs or multi lateral agreements associated with intellectual property rights protection. WIPO is a special agency of the United Nations. See also piracy

to existing agreements. The WTO will continue in GATT’s place as the leading international effort to increase free trade throughout the world.

world wide web (WWW) John O’Connell

The global, hypermedia based collection of in formation and services that is available on Inter net servers and is accessed by browsers using Hypertext Transfer Protocol and other informa tion retrieval mechanisms.

worm John O’Connell

A computer program that can run independ ently, can propagate a complete working version of itself onto other hosts on a network, and may consume computer resources destructively.

World Trade Organization (WTO) John O’Connell

The World Trade Organization is the successor to the General Agreement on Tariffs and Trade (GATT). On April 15, 1994 the Uruguay Round ended with a resolution which created the World Trade Organization. The WTO is expected to take on the same role with respect to trade negoti ations and enforcement of agreements as the i n t e r n a t i o n a l m o n e t a r y f u n d and the World Bank have with respect to international financial issues. The WTO improves GATT in several ways: 1 The WTO requires a more firm resolution on the part of members to enter into agree ments and strictly abide by those agreements. 2 The set of obligations and commitments for each member has been standardized. 3 The organization’s dispute resolution pro gram has more power. 4 Trade is treated as an additional topic of international economic negotiations. Under the WTO, trade negotiations should pro ceed at greater speed and with greater adherence

wrongful calling of guarantees John O’Connell

The unfair collection of a l e t t e r o f c r e d i t , on demand bond, or other guarantee of per formance established by a company on behalf of a government. Companies are often required to put up a good faith guarantee of their per formance before being allowed to begin work on a contract for a foreign government. For example, a road contractor may be required to provide 10 percent of the bid amount to a gov ernment before the government will allow con struction to begin. The guarantee is supposed to provide the government with leverage to force the contract to be accomplished on time and in a workman like manner. Wrongful calling occurs when the government causes non performance to occur. Cancellation of the contractor’s permit to work in a country or restrictions on working hours could result in non performance, thereby making the guarantee collectible by the govern ment. Such collection is an example of a wrong ful calling of a guarantee. See also political risk; political risk insurance

Y Yankee bonds

Yen bond John O’Connell

John O’Connell

Bonds which are issued outside of the United States but are denominated in US dollars. This type of bond must be listed with the United States s e c u r i t i e s a n d e x c h a n g e c o m m i s s i o n even though it is issued outside the United States.

A yen bond is one which is denominated in yen.

Index Note: Headwords are in bold type

A/B see airbill ABEDA see Arab Bank for Economic Development in Africa acceptance 1, 25 see also bill of exchange; documents against acceptance; draft acceptance financing 1, 136 see also bill of lading; warehouse receipt access control 1 access management 1 account harvesting 1 accountability 2 accounting FASB 52 standard 142 foreign currency 152 5 and hyperinflation 153 IFAC ethics guidelines 211 12 and inflation 201 accounting differences 2 accounting exposure 2 see also translation exposure acculturation 2 3 ACH see automated clearinghouse across-the-board tariff reductions 3 activity monitors 3 ad valorem duty 3, 105 see also duty adaptability screening 3 ADB see Asian Development Bank address commission see cargo broker admiralty court 4 see also maritime law admiralty law see admiralty court; maritime law aduana 4 advance against documents 4

see also bill of lading; letter of credit advance import deposits 4 advanced determination ruling (ADR) 4 5 see also reinvoicing; transfer pricing advertising banner advert 25, 72 click-through rate 52 closed loop reporting 52 cost-per-click 72 interstitial pages 222 see also advocacy advertising; marketing advised letter of credit 5, 236 see also advising bank; letter of credit advising bank 5 see also advised letter of credit; issuing bank advisory capacity 5 advocacy advertising 5 aesthetics 5 6 AFDB see African Development Bank affiliate companies 150 1 affiliate program 6 affirmative action 6 see also equal opportunity; pay equity affirmative dumping determination 6 see also dumping affreightment contract see contract of affreightment African Development Bank (ADB) 6 7 AFIDA see Agricultural Foreign Investment Disclosure Act of 1978 AG 7 against all risks 7

Agency for International Development (AID) 7 agent 131 4 advisory capacity 5 buying 41, 131 2 commission 56, 132 diplomatic 99 exclusive 128, 133 Lloyd’s 241 resident buying 306 resident selling 306 shippers 313 agreement corporation 7 see also edge corporation Agreement on Customs Valuation 7 8 Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA) 8 agroterrorism 8 agunaldo 8 air waybill (AWB) 8, 32, 187, 251 airbill (A/B) 8 see also air waybill; master air waybill airport tax 8 9 Aktiengesellschaft see AG alien 9 alien corporation 9 all-risk clause see against all risks alliances 9 10, 229, 318 19 allowances 10 benefit 30, 60 completion 60, 63 cost of living 72 education 109 furnishing 168 hardship 184, 187 housing 19 living 240 relocation 304 settling-in 313

352

Index

allowances (cont’d) see also compensation package (expatriate) alongside 10 see also free alongside ship; INCOTERMS alternative dispute resolution (ADR) 10 11 ambiguity 11, 175 American Accounting Association, International Section 12 American depository receipt (ADR) 12 American depository share 12 American Plan 12 American style option 12 see also European style option; options AMF see Arab Monetary Fund AMU see Arab Maghreb Union Analyzer companies 30 Andean Common Market/ Andean Pact (ANCOM) 13 antiboycott regulations 13 anti-diversion clause 13 see also destination control statement anti-dumping duty 6, 13, 103 4, 105, 236, 289 see also dumping anti-dumping law 13 14 see also dumping APO see Asian Productivity Organization application service provider 14 appreciation (foreign currency) 14 appropriate technology 14 Arab Bank for Economic Development in Africa (ABEDA) 14 15 Arab League 14, 15 Arab Maghreb Union (AMU) 15 Arab Monetary Fund (AMF) 15 see also International Monetary Fund; League of Arab States arbitrage 15, 156 interest 207 triangular 335 arbitration 15 16, 75, 209

arbitration agreements 16 arm’s-length pricing 16 see also reinvoicing; transfer pricing ASEAN see Association of Southeast Asian Nations Asia currency market 16 17 Asia dollar 17 Asia Pacific Federation of Personnel Management Associations (APFPMA) 17 Asian Development Bank (ADB) 17 see also International Bank for Reconstruction and Development; regional development banks Asian Productivity Organization (APO) 17 assembly operations 17 18, 248 assets frozen 167 8 liquid 240 assignment (foreign) 18 permanent 281 2 and safe arrival notification 310 see also expatriate assignment assignment completion (foreign) 18 see also reverse culture shock assignment status (foreign) 18 19 bachelor 23 camp 42 family 142 married 251 single 314 see also allowances assimilation 80 Association of Southeast Asian Nations (ASEAN) 19 assumed shelter cost 19 assured 19 assurex 19 ATA carnet 19 20, 44 see also carnet ATLAS see automated trade locator assistance network at-post education 20 attache´ 20 commercial 55 6 see also consul

authentication 20, 29 automated broker interface (ABI) 20 automated clearinghouse (ACH) 20 Automated Commercial System 43, 53 4 automated trade locator assistance network (ATLAS) 21 autonomous duty 21 availability 21 average 21 see also free of all average; free of particular average; general average; marine insurance avoidance strategies 21 see also political risk away-from-post education 21 2 bachelor status 23 see also assignment status; single status back-to-back letter of credit 23, 236 7 see also letter of credit back-to-back loan 23 4 back translation 24 backdoor 24 balance sheet approach 24 band 24 5 bank African Development Bank (ADB) 6 7 agreement corporation 7 Arab Bank for Economic Development in Africa 14 Asian Development Bank 17 Bank for International Settlements (BIS) 25 Bank of Central African States (BCAS) 25 blocked account 34 Caribbean Development Bank (CDB) 44 Central American Development Bank of Economic Integration (BCEI) 47 European Bank for Reconstruction and Development (EBRD) 122 European Central Bank (ECB) 122

Index 353 European Investment Bank 123 Export and Import Bank of Japan (EIBJ) 134 Export-Import Bank (EXIM) 138 9 foreign exchange market participation 158 9 Inter-American Development Bank 204 5 interbank market 205 International Bank for Reconstruction and Development (IBRD) 208 International Banking Act (1978) 208 international banking facility (IBF) 208 9 investment banking 223 Islamic Development Bank (ISDB) 224 offshore banking 269 see also advising bank; central banks; development banks; issuing banks; merchant banks; regional development banks; remitting banks Bank for International Settlements (BIS) 25 Bank of Central African States (BCAS) 25 banker’s acceptance 1, 25 see also acceptance; bill of exchange; draft banner 25, 72 bareboat charter 25 6 bargaining 26 see also game theory; negotiation barriers 26 7, 70 import 193 language 27 8 non-tariff 267 transfer 27 8 see also domestic content requirements; duty; import quotas; import substitution; indigenization laws; infant industries; infrastructure; labor law; political risk; quota; taxation; trade barriers barriers and bonds to communication and knowledge transfer 27 8

barter 28 clearing account 51 see also cooperation agreement; countertrade base currency 28 9 base salary 29, 60 base workweek 29 basic authentication 29 basket of currencies 29 BCP see business continuity plan benchmarking 29 30 beneficiary 30 benefit allowance 30, 60 Berne Convention for the Protection of Literary and Artistic Works (1886) 30 1 Berne Union see World Intellectual Property Organization bid price 31 bilateral tax agreement 31 see also double taxation bilateral trade 31 bilateral treaty 31 bill of entry 31 bill of exchange 1, 25, 31 and beneficiary 30 and documentary draft 101 see also acceptance; banker’s acceptance; draft bill of lading 32 3, 65 acceptance financing 1 advance against documents 4 air waybill 8, 32, 187, 251 anti-diversion clauses 13 clean 51 combined transport 55 dirty 99 foul 165 inland 202 multimodal 258 ocean 269 on-board 270 on-deck 270 1 order 272 straight 318 through 326 uniform 339 bioterrorism 33 birdyback 33 BIS see Bank for International Settlements black market 33 see also gray market

black money 33, 100 see also dirty money; gray money blocked account 34 blocked currency 34 body language 34 bond dual currency 103 samurai 310 surety 114 Yankee 349 Yen 349 bonded storage 34 bonus system 34 5 bonuses agunaldo 8 completion allowance 60, 63 see also compensation package (expatriate) bots 35 boundary spanning 9, 35 6, 203, 323 bounty 36 7 boycott 13, 37 antiboycott regulations 13 branch offices 151 brand extension 37 brand piracy 37 8 and gray market 182 branding, global see global branding break-bulk 38 Bretton Woods Conference 38 see also International Bank for Reconstruction and Development; International Monetary Fund bribery 38 9, 87, 228 see also Foreign Corrupt Practices Act briefing, pre-departure 288 British Export Credits Department 39 British Standard 7799 39 broker 39 automated broker interface 20 cargo 43, 132 customhouse 90 1, 132 export 133, 134 import 133, 193 online 271 buffer stock 39 40 built-in export department 40

354

Index

bulk cargo 40 bulk carrier 40 Bureau of Export Administration (BXA/BEA) 40 burn rate 40 business international 209 legacy 235 pure play 292 business continuity plan (BCP) 40 buy-back agreements 40 1, 73 see also countertrade buy national 26, 41 buying agent 41, 131 2 cable rates 42 CACM see Central American Common Market camp status 42 see also assignment status Canadian International Development Agency (CIDA) 42 CAP see common agricultural policy capital movements code 42 capitalism 43 captive insurance company 43 cargo alongside 10 loss 170, 226 cargo broker 43, 132 cargo insurance 43 and marine insurance 247 and perils of the sea 281 and warehouse-towarehouse 345 cargo selectivity system 43 Caribbean Development Bank (CDB) 44 Caribbean Economic Community (CARICOM) 44 carnet 44 5 ATA 19 20, 44 ECS 44 5, 109 TIR 45, 327 carriage and insurance paid (CIP) 45 carriage paid to (CPT) 45 carrier bulk 40

and combined transport operator 55 and contract of carriage 68 free carrier named place (FCA) 166 integrated 203 see also airbill; carrier’s lien; demurrage; freight carrier’s lien 45 cartel 45 6 cash against documents (CAD) 46 cash in advance (CIA) 46 cash management 46, 258 cash with order (CWO) 46 categories of employees 112 CCC see Commodity Credit Corporation Center for International Briefing 47 Center on Transnational Corporations 339 Central American Common Market (CACM) 47 Central American Development Bank of Economic Integration (BCEI) 47 central banks 158 9 centralized management 47 8 see also decentralized management certificate see certificate of health; certificate of inspection; certificate of manufacturing; certificate of origin; health certificate; import allocation certificate; inspection certificates; insurance, certificate; phytosanitary inspection certificate certificate of health 48 9, 114 certificate of inspection 49, 114 certificate of manufacturing 49 certificate of origin 49, 114 CFR see cost and freight chaebol 49 Chamber of Commerce see International Chamber of Commerce change, in a global context 49 50

CHAPS see clearing house automated payment system chartering 25 6 chemterrorism 50 CHIPS see clearing house interbank payment system 51 circular letter of credit 51, 237 see also letter of credit civil law 51 see also legal system classification of imports 91 clean bill of lading 51 see also bill of lading clean collection 51 clean remittance see clean collection clearing account barter 51 see also compensatory trade clearing house automated payment system (CHAPS) 51 clearing house interbank payment system (CHIPS) 51 click-through rate (CTR) 52 closed economy 52 closed loop reporting 52 co-branding 52 code law 52 3 see also legal system codetermination 53 COFACE 53 COFC (container on flatcar) 53 collaborative strategies see market entry strategies collection papers 53 collection system 53 4 collectivist culture 54, 83, 186, 210, 211 12, 273 co-location 10, 28, 54 5 combination export manager (CEM) 55 combined transport bill of lading 55 see also bill of lading combined transport operator (CTO) 55 commercial attache´ 55 6 commercial invoice 56 commercial risk 56 commercial visa 56 see also visa commission agent 56, 132

Index 355 commission export manager (CEM) 132 commission house 133, 134 5 Commission on International Trade Law (UNCITRAL) 340 commoditization 57 commodity 57, 213 14 buffer stock 39 40 see also international commodity agreement; international commodity group Commodity Credit Corporation (CCC) 57 common agricultural policy (CAP) 57 common external tariff (CAT/ CXT) 57 8 common law system 58 see also legal system common market 57, 58, 108 and common agricultural policy 57 and cooperative exchange agreements 70 and economic union 109 and monetary union 256 see also Andean Common Market/Andean Pact; Arab Maghreb Union; Central American Common Market; European Monetary System; European Union; free trade area; supranational agencies; trading bloc communication 27 8, 58 9 body language 34 and context 184 cross-cultural 77 8, 206 mindful 253 4 non-verbal 34, 267 see also language community 59 company affiliate 150 1 Analyzer 30 captive insurance 43 export management 137 European 122 forwarding 164 global 125 6, 173 4, 176 international 213 management 137 multidomestic 257

parent 278 subsidiary 47, 48, 138, 163, 250, 346 trading 133, 138 comparative cost advantage 59 compensation package (expatriate) 10, 59 62 balance sheet approach 24 base salary 29 benefit allowance 30 completion allowance 63 cost of living allowance 72 danger pay 93 education allowance 109 expatriate differentials 129 fringe benefits 167 furnishing allowance 168 hardship allowance 184, 187 housing allowance 19 living allowance 240 overbase compensation 275 6 pay equity 280 relocation allowance 304 rest and relaxation leave 306 settling-in allowance 313 split payroll 315 16 travel expenses 113 travel time 335 compensation trade 62 3, 73 see also countertrade compensatory duty 63 see also concessional duty; duty compensatory trade 63 see also clearing account barter; countertrade competencies framework 174 5, 325 6 competitive intelligence 63 completion allowance 60, 63 compound duty 63 comprehensive export credit insurance coverage 63 4 see also political risk insurance computer emergency response team (CERT) 64 computer systems access control 1 activity monitors 3 backdoor 24 emergency response teams (CERT) 64 concessional duty 64 concessional financing 64

confidentiality 64 see also privacy confirmed letter of credit 64, 237 see also guaranteed letter of credit; letter of credit confirming house 132 confiscation 65, 283, 285 6 and black money 33 Confucian dynamism 186 consignee 65 consignment 65, 136 consignor 65 consolidation 65 6 consul 66 see also attache´; consul general consul general 66 consular declaration 66 see also consular invoice consular invoice 66 consularization 66 consulate 66 contact lists 135 containerization 66 7 context 67, 184, 185 6, 243 contingency plans 341 contraband 68 contract see contract frustration; contract of affreightment; contract of carriage; contract repudiation; contract repudiation coverage; employment contract; forward contract; futures contract; labor contract contract frustration 68 contract manufacturing 68, 248 9 contract of affreightment 68 contract of carriage 68 contract repudiation 69, 283 4, 286 contract repudiation coverage 69 convention 69 Convention on Contracts for the International Sale of Goods (UNCISG) 340 convertibility 69 currencies 70 non-resident 267 see also currency inconvertibility; inconvertibility of currency coverage convertible currencies 70

356

Index

cookie 70 cooperation agreement 70, 73 see also barter cooperative exchange agreements 70 coordination center 70 copyright 71, 277, 340 1 and piracy 282 3 see also Berne Convention; Pan American Copyright Convention; universal copyright convention corporate culture 71, 273 5 corporation agreement 7 alien 9 domestic international sales 102 edge 7, 109 foreign 151 multinational 126, 254 6, 258 9 transnational 334 corruption 38 9, 71, 87, 228 cost assumed shelter 19 landing 233 transaction 159 60 cost and freight named port of destination (CFR) 71 cost, insurance, and freight (CIF) 71 cost of living allowance 60, 72 cost-per-click (CPC) 72 counterfeit see piracy counterpurchase agreements 72 3 see also countertrade countertrade 73, 322 and buy-back agreements 40 1 and clearing account barter 51 see also barter; offset countervailing duty (CVD) 74, 105 country of origin 74 and certificate of origin 49, 114 and mark of origin 248 and marking 251 and marking duty 251 country risk 74 country risk assessment 74 5

see also political risk country similarity theory 75 court admiralty 4 arbitration 75 European Court of Justice (ECJ) 123, 125 International Court of Justice (ICJ) 214 see also legal system court of arbitration 75 see also arbitration; International Chamber of Commerce cre´dit mixte 76 credit protocol 76 credit risk insurance 76 creeping expropriation 76 cross-cultural communication 77 8, 206 see also body language cross-cultural training 78 9 see also expatriate training; training and education cross-licensing 79 cross rate of exchange 79 cryptography 79 cultural adaptation 79 80 cultural adoption 80 cultural assimilation 80 cultural borrowing 80 cultural differences 80 2 cultural dimensions 82 3 cultural diversity 84 cultural empathy 84 see also cultural sensitivity cultural insensitivity 84 cultural literacy 84 5 cultural maps 85 see also value dimensions (Hofstede’s) cultural noise 86 cultural norms 86 cultural relativism 86 7, 300 3 cultural sensitivity 87 cultural variables 87 8 culture 11, 28, 88 9, 261 acculturation 2 3 aesthetic values 5 6 and centralization 48 and change 49 50 collectivist 54 context concept 67, 184, 185 6, 243

corporate 71, 273 5 dimensions of 186, 228 9, 342 3 and ethics 210 11 ethnocentrism 121 high contact cultures 185 Map, Bridge, Integrate model (MBI) 246 organizational 71, 273 5 particularism 278 and technology 14 time orientation 326 7 trust across cultures 335 6 variables 7 8 see also cross-cultural communication; multiculturalism; reverse culture shock culture shock 89, 112, 307 see also reverse culture shock currency appreciation 14 Asia currency market 16 17 Asia dollar deposits 17 back-to-back loans 24 bands 24 5 base 28 9 basket of currencies 29 blocked 34 cable rates 42 convertibility 69 70 cross exchange rate 79 depreciation 89, 97 devaluation 97, 307 direct exchange rate 99 dirty float 99 diversification 90 dual currency bond 103 economic exposure 108 Eurocurrency transactions 208 9 exchange controls 126 7 exchange rate systems 38, 123 4, 146, 147, 160, 244 5 forward exchange rate 164 functional 168 gold standard 38 hard 184, 207 8 hedging 154 home 187 inconvertibility 90, 197 8, 284, 286 indirect exchange rate 199 indirect quotes 199 key 228 level 238

Index 357 loans 156 managed 244 markets 156 60 middle rates 253 national 261 non-resident convertibility 267 option 90 pegs 280 quantity controls 294 quoted 295 reporting 305 risk 100 soft 207 8, 314 spreads 127 transaction costs 159 60 translation exposure 2, 127, 153 4, 334 warehousing 345 6 see also foreign exchange currency depreciation 89 currency inconvertibility 90 currency option 90 customer lifetime value 239 customer relations management 90 customhouse broker 90 1, 132 customs agencies 91 customs classification 91 customs clearing time 91 customs declaration 91 customs invoice 91 see also entry documents customs requirements 26 Automated Commercial System 43, 53 4 manifest 114 Valuation Code 7 8 customs valuation 92 cybermediary 92 danger pay 60, 93 data aggregation 93 data collection 289 data encryption standard (DES) 93 data mining 93 data protection 93 date draft 93 dating systems 94 de facto protectionism 94 debt rating 94 international 214 decentralized management 94

see also centralized management decryption 95 defacement 95 defense in-depth 95 delivered at frontier named place (DAF) 95 delivered duty paid named place of destination (DDP) 95 delivered duty unpaid named place of destination (DDU) 95 delivered ex quay duty paid named port of destination (DEQ duty paid) 95 6 delivered ex quay duty unpaid named port of destination (DEQ duty upaid) 95 6 delivered ex ship named port of destination (DES) 96 delivery risk 96 demurrage 96 denationalization 96 see also privatization denial of service 96 depreciation 89, 97 see also devaluation destination control statement 13, 97 devaluation 97 see also depreciation; revalorization developing world 97 Development Assistance Committee (DAC) 98 development banks 98 see also African Development Bank; Export and Import Bank of Japan; InterAmerican Development Bank; International Bank for Reconstruction and Development; Islamic Development Bank; regional development banks Development Center of the Organization for Economic Cooperation and Development (OECD) 98 dictionary attack 98 differential duty 98 see also duty dimensions of culture 82 3, 186, 228 9, 343

diplomatic agent 99 direct exchange rate 99 direct importing 99, 193 direct marketing 99 direct selling see direct marketing dirty bill of lading 99 see also bill of lading dirty float 99 dirty money 100 see also black money; gray money disaster recovery plan 100 discriminatory taxation 26, 100, 284 dispute resolution 10 11 arbitration 15 16, 75, 209 distributed charges 143 distributor 100, 132 3, 134 see also wholesaler/distributor diversification 100 currency 90 diversity cultural 84 workforce 347 dividends, and financial repatriation 143 dock receipt 101 see also bill of lading documentary collection 101 see also documents against acceptance; documents against payment; entry documents documentary draft 101 see also bill of exchange; draft documentary letter of credit 101, 136, 237 see also letter of credit documents against acceptance 101 documents against payment 101 2 domestic content requirements 18, 26, 102 see also barriers domestic international sales corporation (DISC) 102 double taxation 102 draft 102 date 93 documentary 101 time 326 see also acceptance; banker’s acceptance; bill of exchange drawback 102 3

358

Index

drop-lock floating-rate note 103 dual currency bond 103 due diligence 103 dumping 103 4, 105 affirmative dumping determination 6 anti-dumping duty 6, 13, 105, 236, 289 anti-dumping law 13 14 predatory 289 see also less than fair value; retaliation; unfair trade duty 104 6 ad valorem 3, 105 anti-dumping 6, 13, 103 4, 105, 236, 289 autonomous 21 compensatory 63 compound 63 concessional 64 countervailing 74, 105 differential 98 exclusionary 127 8 export 135 6 marking 251 penal 280 preferential 289 prohibitive 291 protective 291 2 retaliation 307 specific 315 unilateral 339 see also aduana; tariffs and duties dynamic response 106 e-commerce 108 economic exposure 108 see also exchange rate economic integration 108 global 177 international 215 regional 298 9 see also supranational agencies economic union 109 economic zones 109 economy closed 52 historically planned 186 mature 252 ECS carnet 44 5, 109 see also carnet edge corporation 7, 109 see also agreement corporation

education see at-post education; away-from-post education; training and education education allowance 109 effectiveness cycle 110 Eli Lilly 9 embargo 110, 284 embassy 111 see also attache´ emergent states 111, 180 empathy, cultural 84 employee categories 112 employment affirmative action 6 equal opportunity 118 foreign nationals 162 guest worker status 183 host country national 112 industrial relations 200 labor agreement 231 labor-intensive activities 231 2 labor law 27, 232 labor market 232 lifetime 239 local nationals 241 lockouts 242 long service leave 243 quality of working life 293 4 severance payments 232 third-country nationals 112 see also expatriate; recruitment; workforce diversity employment contract 113, 231 employment law, extra-territorial application of 139 40 EMS, see European Monetary System encryption 93, 113 enroute expenses see travel expenses Enterprise for the Americas Initiative (EAI) 113 entrepoˆt trade 113 14 entry documents 114 15 see also certificate of health; certificate of origin; commercial invoice; customs invoice; documentary collection; export documents; liquidation of entry; packing list; phytosanitary inspection certificate; pro forma

invoice; right of entry; surety bond environmental ethics 115 17 environmental analysis see environmental scanning environmental orientation 118 environmental scanning 118 equal opportunity 118 and affirmative action 6 see also pay equity equalization 324 equivalent treatment 119 see also reciprocity equivocality 11, 119 escalation of tariffs 324 escape clause 119 escrow passwords 119 ethics 120 and culture 210 11 environmental 115 17 IFAC guidelines 211 12 international code of business ethics 209 12 ethnocentrism 121, 316 17 Eurocurrency transactions 208 9 European Bank for Reconstruction and Development (EBRD) 122 European Central Bank (ECB) 122 European Commission 122, 125 see also European Union; quadrilateral trade minister European company 122 European Council 122 3 see also European Union European Council of Ministers 123, 125 see also European Commission; European Union European Court of Justice (ECJ) 123, 125 European Currency Unit (ECU) 123 see also European Monetary System European Economic Area (EEA) 123 European Free Trade Association (EFTA) 123 European Investment Bank 123

Index 359 European Monetary System (EMS) 123 4 see also European Union European Parliament 124, 125 see also European Union European Patent Convention (EPC) 124 European style option 124 see also American style option; options European Telecommunication Standards Institute (ETSI) 124 European Union (EU) 70, 124 5, 164, 335 and codetermination 53 and economic integration 108 and economic union 109 and European Economic Area 123 and European Free Trade Association 123 and foreign currency accounting 152 5 and fortress Europe 164 and political union 287 and reference price 297 8 and supranational agencies 322 see also common agricultural policy; European Commission; European Council; European Council of Ministers; European Court of Justice; European Currency Unit; European Investment Bank; European Monetary System; European Parliament; Rome Treaty; trading bloc ex quay see delivered ex quay ex ship see delivered ex ship ex works 126 exchange controls 126 exchange exposures 126 7 transaction 2, 127, 154, 333 translation 2, 127, 153 4, 334 exchange permit 127 exchange rate cross rate 79 direct 99 and European Monetary System 123 4 fixed 146, 160

floating 147, 160, 244 5 forward 164 indirect 199 see also currency; economic exposure; hedging exchange rate systems 38, 123 4, 146, 147, 160, 244 5 exchange spread 127 exclusionary duty 127 8 see also duty; unfair trade exclusive agent 128, 133 Exim Bank see Export-Import Bank exit visa 128 see also visa; work permit expatriate 18 19, 128 9 and adaptability screening 3 bachelor status 23 camp status 42 children’s education 19 20, 21 2 culture shock 89 family status 142 fiscal clearance 145 foreign assignment 151 home leave 187 household effects 187 localization 241 2 married status 251 Medivac services 252 meet and greet 252 orientation 275, 304 pre-departure briefing 288 relocation process 304 repatriation 304 rest days 306 safe arrival notification 310 selection procedures 311 12 single status 314 expatriate assignment 129 expatriate differential 61, 129 expatriate support systems 130 expatriate training 18, 20, 130 1 export department 40 general licenses 170 1 indirect exporting 199 open accounts 271 underselling 339 see also tariffs and duties; trade barriers export broker 133, 134

export commission house 133, 134 5 export contact list 135 export credit 135, 285 Export Credit Guarantees Department (ECGD) 135 export documents 135 export duty 135 6 export financing 1, 39, 136, 290 Export-Import Bank (EXIM) 138 9 Export and Import Bank of Japan (EIBJ) 134 export insurance 63 4, 136 7, 152, 285 export license 137 and anti-diversion clause 13 individually validated 199 export management company (EMC) 137 export permit see export license export processing zone (EPZ) 137 export quotas 26, 138, 295 export sales subsidiary 138 export subsidies 138 export trading company (ETC) 133, 138 exporting 125 6, 139, 249 indirect 199 piggyback 250, 282 exposure 139 accounting 2 economic 108 exchange 126 7 translation 2, 127, 153 4, 334 transaction 2, 127, 154, 333 expropriation 139, 284, 285 6 creeping 76 extra-territorial application of employment law 139 40 extranet 139 facilitating intermediary 141 factor 141 factor mobility 141 factoring 136, 141 failure rates 141 2 see also expatriate; expatriate training family status 142 see also assignment status FASB 52 standard 142

360

Index

femininity, as value dimension 83, 186, 210, 212, 273 field experience 142 filter rule 158 financial infrastructure 143 financial repatriation 143 4, 145, 146 see also repatriation of earnings firewall 144 first mover advantage 145 6, 234 first world country 146 fiscal clearance 146 and quitas fiscal 295 fixed exchange rate systems 146, 160 see also floating exchange rate flag 146 flag of convenience 146 7 floating exchange rate 147, 160, 244 5 see also fixed exchange rate systems floating-rate note 103 flooding 147 Food and Agriculture Organization (FAO) 147 force majeure 147 forecasting political risk 147 50 foreign access zone (FAZ) 150 foreign affiliate 150 1 foreign assignment 151 foreign branch 151 foreign corporation 151 see also alien corporation Foreign Corrupt Practices Act (FCPA) 151 Foreign Credit Insurance Association (FCIA) 152 foreign currency accounting 2, 152 5 foreign currency hedges 155 foreign exchange 156 Asia currency market 16 17 Asia dollar deposits 17 cross exchange rate 79 direct exchange rate 99 Eurocurrency transactions 208 9 exchange controls 126 7 exchange rate systems 38, 123 4, 146, 147, 160, 244 5 forward exchange rate 164

indirect exchange rate 199 foreign exchange arbitrageur 15, 156, 335 foreign exchange loans 156 foreign exchange market 156 60 foreign income information returns program 161 2 see also withholding tax foreign investment 152 3, 162 guarantee program 223 4 incentives 224 portfolio 288 foreign national 162 foreign source income 162 3 foreign tax credits 163 foreign trade zone (FTZ) 163 FOREX 163 forfaiting 164 fortress Europe 164 forward contract 157, 164 forward covering 164 forward exchange rate 164 forwarding company 164 see also freight forwarder foul bill of lading 165 see also bill of lading; clean bill of lading franchise agreement 165, 249 free of all average 165 free alongside ship named port of shipment (FAS) 166 see also alongside free on board (FOB) 166 free carrier named place (FCA) 166 free out 166 free of particular average (FPA) 166 free trade area (FTA) 166 see also common market; European Free Trade Association; North American Free Trade Agreement; Southern African Customs Union Agreement freight 167 and contract of affreightment 68 freight forwarder 133, 164, 167 see also forwarding company freight insurance cover 247

Friendship, Commerce, and Navigation Treaty (FCN) 167 fringe benefits 61, 167 frozen account see blocked account frozen assets 167 8 functional currency 168 see also reporting currency functional intermediary 168 see also freight consolidators furnishing allowance 61, 168 futures contract 157, 168 gaijin 169 game theory, and negotiation 264 gap analysis 169 GATT (General Agreement on Tariffs and Trade) 169 70 see also Tokyo Round; World Trade Organization general average 170, 226 see also average; marine insurance general visa 171 see also visa generalized system of preferences (GSP) 171 geocentrism 171, 317 see also globalization geographic structure 172 see also regional structure global account management (GAM) 9, 172 global alliance 9 10 see also strategic alliance global branding 173 global companies 125 6, 173 4, 176 global competencies framework 174 5, 325 6 global complexity 175 global innovation management 176 global integration 177 global interdependence 177 global leadership 177 8 global mindset 175, 179 global sourcing 179 see also sourcing global strategy 180 global teams 111, 180 globalization 11, 180

Index 361 gold standard 38 goods in bond 195 in transit 195 industrial 200 landed value 233 governing law 181 government procurement codes 181 2 gray market 182 see also black market gray money 182 see also black market; gray market green card 182 green clause letter of credit 182, 237 see also letter of credit; red clause letter of credit group norms 182 guaranteed letter of credit 183, 237 see also confirmed letter of credit; letter of credit guarantees 285, 286 7, 348 guest worker status 183 Hall, E. T. 184 Handy, C. 273 hard currency 184, 207 8 hardening 184 hardship allowance 61, 184, 187 harmonization 184 5 see also standardization health certificate 48, 114, 185 healthcare 87 8 hedging 154, 185 Hewlett Packard 9 high contact cultures 185 historically planned economy (HPE) 186 Hofstede, G. 11, 83, 186, 273, 342 3 home country national 187 home currency 187 home leave 61, 187 host country national 112, 187 household effects 187 housing allowance 19, 61 hull insurance cover 247 human relations approach 187 8 human resources 188 9

human resources management see international human resources management human rights 189 hybrid attack 190 hyperinflation 153, 190 hypothetical tax 190 identical reciprocity 191 2, 296 see also reciprocity IFAC ethics guidelines 211 12 illegal aliens 9 image 262 imitation 192 immigrant visa 192 see also visa immigration 192 immigration regulations 192 3 import 193 classification 91 direct importing 99, 193 equivalent treatment 119 finance 1, 5 liquidation of entry 240 revaluation 307 valuation 342 see also tariffs and duties; trade barriers import allocation certificate (IAC) 193 import barriers 193 import broker 133, 193 import declaration form (IDF) 193 import deposit 193 4 import licence 4, 194 import quotas 27, 194, 294, 295 import restrictions 194 import substitution 194 import trade control order notices 195 import wholesalers 195 in bond goods 195 see also warehousing in transit goods 195 incident handling 195 income tax treaties 195 7 inconvertibility of currency coverage 90, 197 8, 284, 286 INCOTERMS 198, 209 indigenization laws 198 indirect exchange rate 199

indirect exporting 199 indirect quote 199 indirect selling 199 see also export agent individualism, as value dimension 83, 186, 210, 211 12, 273, 343 individually validated export license 199 industrial countries 199 industrial espionage 199 200 industrial goods 200 industrial property 200 industrial relations 200 industry, key 228 infant industries 201 inflation 201 and accounting differences 2 and foreign currency accounting 153 hyperinflation 153, 190 syndicato 322 inflation accounting 201 influence peddling 201 information clarity 11 information security 201 information technology 201 2 infrastructure 26 7, 202 financial 143 injury 202 inland bill of lading 202 see also bill of lading innovation 176, 202 3 input validation attack 203 insensitivity 84 inspection certificates 49, 114, 282 insurance 19 against all risks 7 average 21 beneficiaries 30 captive insurance company 43 cargo insurance 43 certificate 203 contract repudiation coverage 69 credit risk 63 4, 76 and exporting 63 4, 136 7, 152 marine insurance 246 7 with particular average 347 perils of the sea 281 political risk 285 7 war risk 284, 345

362

Index

insurance (cont’d ) warehouse-to-warehouse 345 see also against all risks; assured; assurex; Multilateral Investment Guarantee Agency; political risk insurance integrated carrier 203 integration 177 integrative social contracts theory (ISCT) 203 intellectual property 204, 277, 279, 282, 348 see also Berne Convention; imitation; patent; Patent Cooperation Treaty; piracy; trademark; World Intellectual Property Organization Inter-American Accounting Association (IAA) 204 Inter-American Convention on Invention 204 Inter-American Development Bank 204 5 Inter-American Investment Corporation (IIC) 205 interbank market 205 interbank offered rate 205 interchangeability 205 intercultural communication 77 8, 206 interdependence 11, 175, 177, 206 7 interest arbitrage 207 interest payments 143 interest rate 205, 207 intermediation 207 intermerchant 133, 207 8 International Accounting Standards Committee (IASC) 208 international agreements 208 International Bank for Reconstruction and Development (IBRD) 208 see also International Center for the Settlement of Investment Disputes; International Development Association; International Finance Corporation; Multilateral

Investment Guarantee Agency International Banking Act (1978) 208 international banking facility (IBF) 208 9 international business 209 International Center for the Settlement of Investment Disputes (ICSID) 209 International Chamber of Commerce 16, 209, 218 international code of business ethics 209 12 international commodity agreement (ICA) 212 13 see also international commodity group; international commodity organization international commodity group (ICG) 213 see also cartel; international commodity agreement; international commodity organization; Organization of Petroleum Exporting Countries international commodity organization (ICO) 213 international companies 213 International Congress of Accountants 213 International Court of Justice (ICJ) 214 international debt rating 214 International Development Association (IDA) 214 international division 214 International Finance Corporation (IFC) 214 15 international human resources management (IHRM) 215, 304 international integration 215 International Labor Organization (ILO) 215 International Law Commission 216 international location 216 17 international management 217 International Maritime Bureau (IMB) 218

International Maritime Organization (IMO) 218 International Maritime Satellite Organization (INMARSAT) 218 International Monetary Fund (IMF) 25, 219 see also International Bank for Reconstruction and Development international organizations 126 International Organizations Network (ION) 219 international patenting 219 20 international planning 220 international product life cycle 220 1 international selection 221 International Standards Organization (ISO) 221 2, 224 5 International Trade Commission (ITC) 222 international union 222 Internet Advertising Bureau (IAB) 222 interstitial page 222 inter-firm debt 144 intranet 222 intrusion detection 223 inventory management 223, 227 see also logistics investment banking 223 invoice 114 commercial 56 consular 66 customs 91 pro forma 290 1 irrevocable letter of credit 224, 237 see also letter of credit; revocable letter of credit irrevocable transferable letter of credit 224, 237 see also letter of credit Islamic Development Bank (ISDB) 224 issuing bank 225 see also documentary draft; letter of credit Jamaica Agreement 226 Japan Sea Basin 226 jettisoning cargo 226

Index 363 joint venture 226 7, 232, 249, 319 see also alliances; market entry strategies; strategic alliance just-in-time inventory system 227, 228 kanban 228 key currency 228 key industry 228 kickbacks 228 kinship 88 Kluckhohn, F. 11, 228 9 knock-offs 38 knowledge 35, 229 and alliances 9, 229 competencies framework 174 5 tacit knowledge 9 10, 229, 323 transfer barriers 27 8 Korea 49 Kyoto Convention 230 labeling 231 marks of origin 248 labor agreements 231 labor contract 113, 231 labor-intensive activities 231 2 labor law 27, 232 labor markets 232 lags 232, 234 see also leads land bridge 233 landed value 233 landing costs 233 language 312 back translation 23 barriers 27 8 lingua franca 239 40 Latin American Free Trade Association (LAFTA) 233 Latin American Integration Association (LAIA) 233 4 law anti-dumping 13 14 civil 51, 235 code 52 3, 235 common 58, 235 employment law, extraterritorial application of 139 40 governing 181

indigenization laws 198 labor 27, 232 maritime 4, 247 8 leadership 177 8 leads 234 League of Arab States 234 see also Arab Bank for Economic Development in Africa; Arab Monetary Fund learning curve 234 least developed country (LLDC) 234 5 legacy business 235 legal system 235 civil law 51, 235 code law 52 3, 235 common law 58, 235 governing law 181 indigenization laws 198 labor law 27, 232 maritime law 4, 247 8 see also courts; dispute resolution leisure time 88 less developed country (LDC) 236, 266 less than fair value (LTFV) 236 letter of credit 4, 236 8 advised 5, 236 back-to-back 23, 236 7 circular 51, 237 confirmed 64, 237 documentary 101, 136, 237 green clause 182, 237 guaranteed 183, 237 irrevocable 224, 237 irrevocable transferable 224, 237 red clause 237, 297 revocable 308 revolving 237, 308 standby 238, 317 18 travelers 238, 335 unfair collection 285, 286 7 letter of indication 238 level of a currency 238 license 4, 13, 27, 137, 194, 199, 238 9, 249 cross-licensing 79 fees 143, 239, 309 life cycle of products 220 1 lifetime employment 239 lifetime value 239 lingua franca 239 40 linkage 240

liquid assets 240 liquidation of entry 240 liquidity 240 literacy 84 5 living allowance 61, 240 Lloyd’s agent 241 loans 156 advance against documents 4 back-to-back 24 concessional finance 64 debt ratings 94, 214 multiple option facilities 259 parallel 277 revolving credit facilities 308 standby line of credit 318 tying clauses 337 local hire 241 local national 241 local ownership requirements 27 local responsiveness 241 localization 241 2 location of production 216 17, 242 lockout 242 log file 242 logic bomb 242 logistics 242 3 see also inventory management long service leave 243 macrorisk 244 Madrid Agreement 244 managed currency 244 managed trade 245 management companies 137 management contracting 245, 249 management fee 245 management systems centralized management 47 8 competencies framework 174 5, 325 6 and culture 82 decentralized management 94 effectiveness cycle 110 ethical development 120 human relations approach 187 8 international management 217 matrix organizational structure 251 2 performance evaluation 280 1

364

Index

management systems (cont’d ) strategic management 321 total quality control 327 31 manifests 114 manufacturer’s export agents 133 manufacturing 245, 249 50 certificates 49 location of production 216 17, 242 Map, Bridge, Integrate model (MBI) 246 map, cultural 85 Maquiladora area 246 marine insurance 246 7 maritime law 4, 247 8 mark sheet 248 market disruption 248 market efficiency 157 8 market entry strategies 248 50 assembly operations 17 18, 248 contract manufacturing 68, 248 9 exporting 125 6, 139, 249 franchise agreements 165, 249 joint ventures 226 7, 232, 249 management contracting 245, 249 manufacturing 245, 249 50 piggyback exporting 250, 282 wholly owned subsidiaries 250, 346 see also license market penetration 250 marketing affiliate programs 6 and culture 81 direct marketing 99 gap analysis 169 intelligence 250 1 international marketing 218 19 labeling 231 permission-based marketing 282 relationship marketing 300 see also advertising marking 251 marking duty 251 mark of origin 248 married status 251

masculinity, as value dimension 83, 186, 210, 212, 273, 343 massify 251 matrix organizational structure 251 2 mature economy 252 M-commerce 252 Medivac services 252 meet and greet 252 merchant bank 252 3 meta-market 253 Mexico 59, 246 middle rate 253 mindful communication 253 4 Ministry of International Trade and Industry (MITI) 254 mission statement 321 MNC strategy 254 6 monetary union 256 money laundering 256 money market 256, 257 moral relativism 300 3 most favored nation status (MFN) 257 multiculturalism 257, 261 multidomestic company 257 multidomestic strategy 257 Multilateral Investment Guarantee Agency (MIGA) 257 8 multilateral netting 258 multilateral trade agreement 258, 278 multimodal bill of lading 258 multinational corporation (MNC) 126, 254 6, 258 9 multinational enterprise (MNE) 259 multiple column tariff 259 multiple option facilities 259 multiplicity 11, 175, 259 NAFTA see North American Free Trade Agreement national culture see culture national currency 261 national treatment 261, 296 7 national treatment with access 261 2 nationalism 262

nationality image 262 nationalization 262, 284, 285 6 see also political risk; political risk insurance; public ownership negotiation 26, 262 5 nepotism 265 netting multilateral 258 third-party 325 network service provider (NSP) 265 6 networked organization 9 networks 266 newly industrialized countries (NICs) 266 non-commodity agreement 266 non-financial incentives 266 7 non-resident convertibility 267 non-tariff barriers 267 non-verbal communication 267 norms 86, 182 North American Free Trade Agreement (NAFTA) 268 ocean bill of lading 269 see also bill of lading OECD see Organization for Economic Cooperation and Development offset 269 trade 73 offshore 269 banking 269 financial centers 269 70 funds 270 investments 152 3 offshoring 270 on-board bill of lading 270 see also bill of lading on-deck bill of lading 270 1 see also bill of lading online broker 271 open account 136, 271 open door treatment 271 operational centers 271 opt-in 271 opt-out 271 2

Index 365 options 12, 90, 124, 272, 292, 321 2 order bill of lading 272 see also bill of lading Organization for Economic Cooperation and Development (OECD) 98, 272 Organization of Petroleum Exporting Countries (OPEC) 272 organizational architecture 28, 251 2 organizational culture 71, 273 5 orientation of expatriates 275, 304 origin certificates 49, 114 overall reciprocity 275, 297 overbase compensation 61, 275 6 Overseas Private Investment Corporation (OPIC) 276 Pacific Economic Cooperation Group (PECG) 277 Pacific Rim countries 277 packaging 81 packing list 114, 277 page view 277 Pan American Copyright Convention 277 parallel loans 277 parent companies 278 parent country nationals (PCN) 278 Paris Union 278 particularism 278 passive attack 279 passwords 119 Patent Cooperation Treaty 279 patent 124, 219 20, 279, 282 pay equity 280 pay-per-click 280 peg 280 penal duty 280 performance evaluation 280 1 perils of the sea 281 permanent assignment 281 2 permission-based marketing 282 permit 347 perquisite 282

phytosanitary inspection certificate 114, 282 piggyback exporting 250, 282 piracy 37 8, 282 3 planning business continuity plan 40 contingency plan 341 disaster recovery plan 100 international planning 220 point-of-hire 283 political risk 21, 27, 69, 283 7 forecasting 147 50 political systems 88 political union 287 polycentric organization 287 polycentrism 287, 316 portal 287 8 portfolio foreign investment 288 power distance 83, 186, 210, 211, 273, 288, 343 pre-departure briefing 288 pre-shipment inspection (PSI) 289 predatory dumping 289 preferential duties 289 price escalation 289 price suppression 289 pricing arm’s-length 16 quotations 295 reference price 297 8 regulatory cost advantages 299 300 transfer 4 5, 16, 334 privacy 289 90 Private Export Funding Corporation (PEFCO) 290 Private Sector Development Program (PSDP) 290 privatization 232, 290 pro-forma invoice 290 1 processing 291 procurement code 181 2 production sharing 291 product 81 life cycle 220 1 profiling 291 prohibitive duty 291 promotions 81 see also advertising; marketing protection and indemnity insurance cover 247 protectionism see tariffs and duties; trade barriers

protective duty 291 2 public ownership 292 publishers 292 pure play businesses 292 put options 292 quadrilateral trade 293 quadrilateral trade minister 293 quality control 327 31 quality control circle (QCC) 293, 331 quality of working life 293 4 quantitative quotas 294 quantity controls 294 quarantine requirements 295 quitas fiscal 295 quota 295, 324 export 26, 138, 295 import 27, 194, 294, 295 quantitative 294 voluntary 344 quotation 295 quoted currency 295 Raiffa, H. 264 Ramadan 296 rapid deployment system 296 rationalization 296 reciprocity 191 2, 275, 296 7, 297, 311 recreation 88 recruitment 316 17 ethnocentric approach 121, 316 17 geocentric approach 171, 317 international selection 221 local hire 241 point-of-hire 283 polycentric approach 287, 316 regiocentric approach 298, 317 selection of expatriates 311 12 staffing restrictions 27 see also employment; expatriates red clause letter of credit 237, 297 redundancy 297 re-entry visa 297 reference price 297 8 regiocentrism 298, 317

366

Index

regional development banks 298 regional economic integration 298 9 regional structure 299 registration 299 registration services 299 regulatory cost advantages 299 300 reinvoicing 16, 300 relationship marketing 300 relativism 86 7, 300 3 religion 88 relocation allowance 62, 304 relocation process 304 remission 106 remitting bank 304 repatriation of earnings 143 4, 145, 146, 305 repatriation of employees 304 repeat visitor 305 replay attack 305 reporting currency 305 repudiation of contracts 69, 283 4, 286 requisite variety 305 resident alien 9 resident buyer 133 resident buying agent 133 4, 306 resident selling agent 134, 306 resource exhaustion 306 rest day 306 rest and relaxation leave 62, 306 restricted markets 307 retaliation 307 retaliation duty 307 revalorization 307 revaluation 307 reverse culture shock 18, 307 8 revocable letter of credit 308 revolving credit facilities 308 revolving letter of credit 237, 308 right of entry 308 right of establishment 308 9 risk assessment 21, 159, 161, 309 country 74 5 currency 100 hedging 185

macrorisk 244 political 21, 27, 69, 147 50, 283 7 see also commercial risk Rome Treaty 335 round of trade negotiations (RTN) 309 royalties 143, 309 safe arrival notification 310 safeguards 310 salaries see compensation package (expatriate) samurai bond 310 sanctions 310 screening 3 sectoral reciprocity 297, 311 secure electronic transactions (SET) 311 Securities and Exchange Commission (SEC) 311 security officers 311 security policies 311 selection procedures 311 12 services 313 settling-in allowance 62, 313 severance payments 232 shelter costs 19 shippers agent 313 shipping terms 313 shunto 314 shutout 314 single status 314 social engineering 314 soft currency 207 8, 314 sogo shosha 314 sourcing 179, 315 South Africa 189 Southern African Customs Union Agreement (SACUA) 315 Southern African Development Coordination Council (SADCC) 315 sovereign immunity 315 specific duty 315 split payroll 315 16 sponsorship 316 spot transactions 157 spreads 127 staffing restrictions 27 standardization 317 standby letter of credit 238, 317 18 standby line of credit 318

stereotyping 318 straight bill of lading 318 strategic alliance 318 19 strategic business unit (SBU) 320 strategic information systems (SIS) 320 strategic management 321 strategy global 180 MNC 254 6 multidomestic 257 strike price 321 2 Strodtbeck, S. F. 11, 228 9 student visa 322 subscription services 322 subsidiary companies 47, 48, 138, 163, 250, 346 subsidies 34 5, 36 7, 136 substitution 194 supplier relationships 9 supply chain 322 support systems, expatriate 130 supranational agencies 322 surety bond 114 swaps 157, 161 SWIFT (Society for Worldwide Interbank Financial Telecommunication) 314 switch trade 73, 322 SWOT analysis 321 syndicato 322 tacit knowledge 9 10, 229, 323 targeted production sector 324 tariffs and duties 26, 104 6, 194 5 across-the-board reductions 3 ad valorem duty 3, 105 aduana 4 agreement on customs valuation 7 8 anti-dumping duty 6, 13, 103 4, 105, 236, 289 autonomous duty 21 common external tariff 57 8 compound duty 63 concessional duty 64 countervailing duty 74, 105 differential duty 98 escalation of tariffs 324

Index 367 exclusionary duty 127 8 export duty 135 6 marking duty 251 most favored nation status (MFN) 257 multiple column tariff 259 penal duty 280 preferential duty 289 prohibitive duty 291 protective duty 291 2 and quotas 324 remission 106 retaliation duty 307 specific duty 315 unilateral duty 339 see also carnet; trade barriers tax haven 324 5 taxation advanced determination ruling (ADR) 4 5 airport tax 8 9 bilateral agreements 31 bonded storage 34 discriminatory 26, 100, 284 double 102 equalization 324 fiscal clearance 145 foreign income information returns program 161 2 foreign tax credits 163 hypothetical tax 190 income tax treaties 195 7 perquisites 282 tax haven 324 5 value-added tax (VAT) 342 3 withholding tax 347 tea money 325 teams 54 5 emergent states 111, 180 global teams 111, 180 virtual teams 54 5 technology 14, 201 2 terrorism agroterrorism 8 bioterrorism 33 chemterrorism 50 third-country nationals 112, 325 third-party netting 325 threshold traits 325 6 through bill of lading 326 time draft 326 time orientation 326 7 TIR carnet 45, 327 Tokyo Round 327 total quality control 327 31

tourist visa 331 trade agreement 258, 335 trade barriers 13, 26 7, 291 de facto protectionism 94 non-tariff barriers 267 see also tariffs and duties trade centers 331 trade control order notices 195 trade creation 331 trade diversion 331 trade fairs 332 trade financing 332 trade mission 332 trade negotiations 309 trade unions 222 trade visitors 332 Trademark Registration Treaty (TRT) 332 3 trademark 332 trading area 333 trading bloc 333 trading companies 133, 138 training and education cross-cultural 78 9, 87 education allowance 60, 109 for expatriates 18, 20, 130 1 field experience 142 tramp steamers 333 transaction costs 159 60 transaction exposure 2, 127, 154, 333 transfer pricing 4 5, 16, 334 transit visa 334 transit zone 334 translation exposure 2, 127, 153 4, 334 transnational corporation (TNC) 334 transshipment 334 5 travel expenses 60, 113 travel time 62, 335 travelers letter of credit 238, 335 treaties 31, 335 triangular arbitrage 335 trilateral trade agreements 335 Trojan Horse 335 trust across cultures 335 6 turnkey projects 336 7 tying clauses 337 unbundling 338 uncertainty avoidance 83, 186, 210, 212, 273, 338, 343

underselling 339 unfair collection 285, 286 7 unfair trade 339 uniform bill of lading 339 uniform resource locator (URL) 339 unilateral duties 339 United Nations 339 40 United States International Trade Administration (USITA) 340 universal copyright convention 340 1 universalism 341 user contingency plans 341 Valuation Code 7 8 value added 342 value-added tax (VAT) 342 3 value dimensions (Hofstede’s) 343 vessels in peril 170, 226 virtual teams 54 5 visa 344 commercial 56 exit 128 general 171 immigrant 192 re-entry 297 student 322 tourist 331 transit 334 voluntary quota 344 vulnerability 344 wages see compensation package (expatriate) war risk 284, 345 warehouse receipt 345 warehouse-to-warehouse 345 warehousing 345 6 waybill 8, 32, 187, 251, 346 West African Economic Community (WAEC) 346 wharfage 346 wholesalers 134, 195, 346 wholly owned subsidiary 250, 346 with particular average 347 withholding tax 347 without reserve 347 work permit 347 workforce diversity 347 workweek 29

368

Index

World Intellectual Property Organization (WIPO) 348 World Trade Organization (WTO) 348

worldwide web (WWW) 348 worms 348 wrongful calling of guarantees 285, 286 7, 348

Xerox

29 30

Yankee bond 349 Yen bond 349