International Management: Concept, Environment, Managerial Functions, and Trends

What is International Management?

International Management is the practice of effectively managing multinational corporations across different countries and diverse cultural environments. It encompasses the management of industrial and commercial operations beyond national boundaries.

While the fundamental functions of management remain the same as in domestic settings, international management poses unique complexities due to the intricate global landscape. The production, marketing, financial, and personnel functions are all integral but necessitate a global perspective, taking into account varying cultural and social factors. Coordinating policies and strategies consistently across different societies, each with its customs, religions, laws, and languages, presents a considerable challenge.

One of the core challenges in international management lies in the fact that multinational corporations operate as citizens of multiple countries. As a result, they must navigate potential conflicts among foreign policies and reconcile their loyalty to multiple sovereign powers. For example, restrictions on the sale of goods between nations may directly impact multinational corporations operating within those countries. Moreover, the activities of host governments may sometimes be at odds with the interests of the parent company’s home country.

International management also entails addressing a range of unique risks. Nationalization or war can result in the loss of assets for multinational corporations. Instances such as Uganda’s change in leadership led to companies losing their assets. Additionally, fluctuations in governments, coupled with feelings of exploitation among host country citizens, can create a hostile environment for multinational corporations. Strict foreign exchange laws may limit the repatriation of earnings, and currency rate fluctuations can introduce further complexities.

Employing local nationals is often a requirement for multinational corporations, but it can present challenges. The skills and motivation levels of local employees may not always meet expectations, and local managers with different cultural backgrounds may struggle to align with the policies and attitudes of the parent company. Significant differences in national conditions act as centrifugal forces, making it challenging to pursue a unified strategy. The diversity of environments often necessitates the decentralization of authority within multinational corporations. Additionally, managers from the parent company may be reluctant to work in demanding conditions in host nations.

Environment of International Management

The environment of International Management encompasses several interrelated factors that have a direct impact on the operations of multinational corporations:

1. Political and Legal Conditions: Multinational corporations’ success heavily relies on their ability to adapt to the political and legal forces present in host countries. Before making investments, a thorough analysis of the political environment and associated risks is crucial. Host governments generally acknowledge the importance of foreign investment and technology but expect terms that align with their national security and objectives. It is essential to understand and comply with local laws concerning imports, exports, foreign exchange, labor, and other relevant aspects.
2. Social and Cultural Factors: Social and cultural factors play a significant role in the field of international management. Different countries have diverse perspectives on time, power dynamics, social frameworks, and attitudes toward work. Managers must possess a comprehensive understanding of these cultural differences and show respect to effectively navigate international environments. For instance, in the United States, authority tends to be more impersonal and functional, while in Japan, managers take a more active interest in the personal lives of employees. Cultural attitudes towards time, money, and productivity also vary between nations. It is vital to recognize and adapt to these cultural nuances for successful international management. Additionally, it is essential to be aware of and address social discrimination when present in host countries.
3. Economic Forces: Economic forces encompass a wide range of factors, including income levels, price levels, fiscal policies, economic planning, industrial infrastructure, local currency, and stability. These economic forces significantly influence the policies and practices of multinational corporations. Understanding and responding to economic conditions in host countries is crucial for effective decision-making. In situations where the economic environment in a host country is deemed risky, multinational corporations may opt for joint ventures with local businesses as a strategy to mitigate risk and share responsibilities associated with adverse economic trends.

Managerial Functions of International Management

The managerial functions in the context of International Management can be summarized as follows:

1. Planning: International management necessitates strategic planning that takes into account the unique challenges and uncertainties of operating in diverse global environments. Long-range planning becomes particularly complex in countries with political instability. Forecasting foreign exchange rates, considering diverse environmental factors, and understanding regional market dynamics are crucial elements of effective strategic planning in the international arena.
2. Organising: Organisational structures must be tailored to local conditions and preferences. Flexibility and participative management styles are valued in countries where collaboration is emphasized, while centralized and bureaucratic structures may be preferred in other cultural contexts. Multinational corporations often adopt a variety of structural designs, such as geographic, product-based, or matrix structures, aiming to ensure the acceptability and effectiveness of the organizational framework within the host country.
3. Staffing: The composition of the workforce requires careful consideration in international management. While some organisations may prioritize employees with a home country background, there is an increasing trend of hiring host country nationals for executive positions. This practice not only helps reduce costs but also fosters positive relationships with the local population. Staffing policies should comply with local laws and align with accepted practices to establish a harmonious and productive work environment.
4. Directing: Effective leadership in international management necessitates an understanding and adaptation to local cultures and social values. Leadership styles should be tailored to meet the needs and aspirations of the local workforce. This may involve accommodating preferences for either an authoritative or participative leadership approach. Successful international managers immerse themselves in the local culture and actively seek to fulfill the expectations and wishes of the host country’s people.
5. Controlling: Striking the right balance between central supervision and local autonomy is crucial in international management. While some parent companies prefer a tight control approach, others allow subsidiaries and branches considerable operational independence. A combined approach, where basic policies are set by the parent company, while local units have the flexibility to adapt within that framework, often proves to be effective. The degree of control required varies across countries, considering factors such as quality standards, financial controls, legal constraints, and cultural norms.

Trends in International Management

Trends in the field of International Management can be observed as follows:

1. Transfer of Management Know-how: Researchers and practitioners are actively working to identify management concepts and approaches that can be effectively transferred across countries. While complete transferability is challenging due to cultural variations, efforts are being made to isolate elements of home country management practices that can be adapted and applied in the work environments of host countries. The goal is to develop a nuanced understanding of what managerial techniques can be successfully transferred in diverse international settings.
2. Comparative Analysis: The use of comparative analysis is on the rise as a valuable tool to assess both the similarities and differences in management practices among different nations. This involves a combination of quantitative and qualitative measurements, utilizing statistical tests and objective assessments. The aim is to gain insights into various management approaches and to make informed comparisons across cultural and national boundaries.
3. Duality of Structure: Multinational corporations play a crucial role in the economic development of host countries, while local corporate units remain integral to the national economy. Striking the right balance between these two types of units is essential. Local units may serve as ancillaries to foreign assembling firms, and it is important to maintain a harmonious balance that maximizes the benefits to the host countries. Achieving this requires careful consideration and coordination between multinational corporations and local entities.
4. Time Overlap: Companies in developing countries often embrace a combination of traditional values and modern management techniques. This creates a time overlap where traditional values inform the overall managerial philosophy, while modern techniques drive operational strategies. International managers must recognize and integrate these distinct time dimensions into their management approaches. This includes understanding that different levels of management within an organisation may exhibit varying degrees of traditionalism and modernism.
5. Cross-National Management: The focus of international management studies is shifting towards cultural homogeneity rather than solely relying on geographical boundaries. The aim is to develop a cross-national system of management that acknowledges the significance of cultural factors in managerial practices. This recognizes that even within a single country, different regions may possess distinct cultures and preferences, requiring adaptive and culturally sensitive management approaches.