Intl Bus 200 Exam 2 on 4/3/17

2/22/17

Intro to Foreign Exchange

 Why is Foreign Exchange Important

o Currencies are volatile, meaning strategies in both the short and long
term are very important
o Governments engage in currency wars to make their economies
competitive
 Devalued currencies may not boost economic growth like they
used to. Origin and quality and diversity of the products appear
to matter more
o Reduced currency value means higher costs for imports, thus inflation

 Factors Influencing Currency Value

o Economic
 BOP
 Interest Rates
 Inflation
 Monetary and Fiscal Policy
 International Competitiveness
 Monetary Reserves
 Government Controls and Incentives
 Importance of Currency
o Political
 Political Party and Leader Philosophies
 Proximity of Elections or Changes in Leadership
o Expectation
 Expectation
 Forward Exchange Market Prices

 Types of Foreign Exchange Exposure

o Translation
 Past
 Reported results and balance sheets of corporation are affected
by fluctuations in foreign exchange values
o Transaction
 Current/open
 The extent to which income from individual transactions is
affected by fluctuations in foreign exchange
o Economic
  The extent to which a firms future international earning power
or costs will be affected by changes in exchange rates
 The FOREX Market
o 24/7 market, except weekends and bank holidays
o $5.7 trillion worth of daily exchange
 Trade
 Investments
 Speculation
 Risk Management
 Tourism
o It’s more of a virtual market
o London is dominant because
 History, being the first major industrialized nation
 Geography, dead center between Tokyo/Singapore and NYC
o Now there are shifts to Asian cultures due to Globalism 3.0

 Spot Exchange Rates

o Spot: the current relationship between two countries
o Settlement for spot deals
 2 business days for most currencies
 1 business day for USD with Canada and Mexico

 Exchange Rates
o Bid and Ask Prices
o When travelers or businesses contact a bank to buy and sell currency,
they find a bid price and asked price
o Ask = seller price
o Bid = Buyer price
o Difference is the spread
o Market makers get the best price, like big banks and forex traders
o The more casual and small your exchange, the worse the price

 Foreign Exchange Quotations

o USD is the dominant unit
 Main central reserve asset
 Is most used vehicle currency and intervention currency
 Great demand world wide as a result of safe haven aspect and
universal acceptance
o Problems with counterfeiting our currency and money laundering
o Other liquid or hard currencies include EUR, GBP and JPY
 What is Currency Worth? Price and Exchange Rates
o Law of One Price
 In competitive markets free of transportation costs and trade
barriers, identical products sold in different countries should
sell for the same price in the respective currencies
o Purchasing Power Parity
 In efficient markets, comparison is of a roughly equivalent
basket of goods between different nations and should
approximate the real or PPP exchange rate

 Big Mac Index

o An example showing that different prices of big macs can “tell” us that
certain currencies are under or overvalued
o Fairly reliable, but not too serious

 Purchasing Power Parity

o Most useful in understanding how economic forces will affect
exchange rates between two nations in the intermediate term, when
imbalances correct, it takes more than 4 years
o In the short term, exchange rates are determined by various other
factors, like the news cycle, bandwagon effects, psychology, etc.

 Forward Exchange Rates and Forward Exchange Contracts

o Forward rate is the current relationship between two countries
o Trading at a premium
 When a currency’s forward rate is stronger than the spot
o Trading at a discount
 When a currency’s forward rate is weaker than the spot
o One currency is always trading at a discount and the other is trading at
a premium in a forward market, unless there is absolutely no
difference in the forward market than then the spot rate
o Forward Exchange Contracts
 The cost of a forward contract is the premium or discount
compared to the spot rate
 Forward rates fluctuate with spot rate movement and market
information until the moment they are purchased, then that
price becomes binding as a contract due to the expiration date
Memorize These, names not symbols

Euro Countries
Germany
France
Italy
Spain
Netherlands
Belgium

The rest of them typically have first 2 letters in the country’s name followed by the
first letter of the currency name
Forex Worksheet

 Translation Risks
o Occurs when companies list foreign assets on their balance sheets
o Values can change rapidly
o Profits shrink if a currency becomes stronger relative to your own
 Transaction Risks
o Time delay between entering a contract and settling it
o The rate may change during this delay
o Most transactions are less than 2 year forward contracts
 Economic Risks
o Changes in exchange rates
o Government regulation or political stability/instability
o War and other macroeconomic conditions
 What is a Spot Rate?
o The value of an asset at the moment of the quote
 What is a spread?
o The price between where a trader may purchase (bid) or sell (ask)
 What is a forward rate?
o The exchange rate at a future date
o The bank will determine this
 How to Figure out when something is a premium and discount
o If the spot rate is greater than the forward rate, then the currency is at
a premium
o 1 USD = .6 GBP is spot = 1.66 USD = 1 GBP
o 1 USD = .55 GBP is forward rate = 1.82 USD = 1 GBP
o Therefore, in the future it will take more USD to get 1 GBP, meaning
that it is at premium. The opposite of this will be a discount
 What is a Hard Currency?
o Not likely to fluctuate in value, not very volatile
o Safe haven, strong currency
o USD, JPY, EUR, GBP
 Fixed Exchange Rate Benefits
o Avoid currency flux
o Stability
o Removes foreign exchange risk
o Low inflation
 Non-Convertible Currency
 o Service international debt
o The government keeps its wealth within the country, thus limiting
capital flight
o Make international purchases
o Shield from imports

 Charts of Exchange Rate Regimes

 Floating
o Controlled by supply and demand; variable
o The government focus on managing the economy, does not intervene
with exchange rates
o The rate changes every time there is a transaction in the FOREX
market. It’s responding to supply and demand
 Fixed/Pegged
o The value stays the same over time and is issued by the government
o The government plays the primary role. It sets the exchange rate and
manages the economy to support the rate
o The rate is supposed to be steady over a long period of time. The
government chooses when to revise it
 Crawling Peg
o The government issued the rate, and it starts at a high value or low
value, and “crawls” up to the other end of the spectrum over time
 o Government plays the primary role
o Government revises it when they want
 Managed Float/Dirty Exchange
o This is determined by both the government and the supply and
demand of the FOREX market. It floats, but it has to stay within a
range, otherwise the government intervenes
o Government will keep it within the range if a destabilizing event
occurs by buying and selling currency
o The rate changes as currencies are sold in the FOREX market,
responding to supply and demand

 The Fisher Effect

o i=r+l
o i= nominal interest
o r= real interest rate
o l= expected inflation rate
o The fisher effect theorizes that the spot exchange rates could change
in equal amount but in the opposite direction to the difference in their
nominal interest rates
o The fisher effect also assumes that the real interest rate is fixed
globally

 Math Problem 1: Solving how much you must save based on a forward rate
o You cannot know what the exchange rate will be in 3 months time
o Multiply the payment by the forward rate, and that is the amount that
you must save over time
o APR Equation
 FV = PV(1 + APR/(months/12))
 Put above equation into my calculator

 Math Problem 2: Solving values of currency based on the current spot rate
o You cannot predict a future exchange/spot rate
o Set APR equations equal to each other and solve for the value of the
currency you’re looking for
o Example
 8000 IDR(1 + %/(months/12)) = 1 USD(1 + %/(months/12))
 1 USD is X because it’s what we’re comparing
2/27/17

International Monetary System: Introduction

Facets of Monetary Systems

 Reserve Asset, often a blend of these:

o Gold
o US Dollar and/or other currencies
o SDRs
 Exchange controls/convertibility
 Exchange rate regime

Currency Exchange Controls

 Government controls that limit the legal uses of currency in international

transactions
 Generally, only the relatively rich industrial countries have few or no
currency exchange controls
 Methods of Control
o Managing official exchange rates
o Example: Set your currency exchange rate at an artificially low rate,
such that imports are not desirable for your citizens but exports are
encouraged. This limits domestic citizens’ demand for foreign
currency and yet provides foreign inflows

Convertibility

 Types
o Freely convertible, no restrictions
o Externally convertible, non-residents can convert
o Non convertible, no one can convert
 Why?
o To preserve foreign exchange reserves
 o Services international debt
o Allows governments to have funds to make imports
o Government is afraid of capital flight
 This is a political as well as an economic decision
 Many countries have some kind of restrictions
o It’s rare to have full convertibility without restrictions

Exchange Rate Regimes

 Fixed/pegged
 Why supposedly so great?
o Eliminates foreign exchange risk
o Alternatives allow governments to skew country competitiveness by
encouraging currency wars and competitive devaluations to spur jobs
and exports
 Crawling/Adjustable Peg
o The rate is revalued/devalued at regular intervals to align with
fundamentals
 Managed (Dirty) Float
o Governments intervene in the currency markets as they perceive their
national interests
o How can governments intervene in currency markets?
o Nations may explain their interventions in terms of “smoothing
market irregularities” or “assuring orderly markets”
 Free Float
o Closest approach to perfect competition
o Aggregate supply and demand for currency affects exchange rates, not
government intervention
o Equilibrium follows from overall macroeconomic indicators
o Governments focus more on interest rates and fiscal policy

Exchange Regimes in Practice

 Number of IMF countries using certain exchange regimes in 2011

o 30 had free floating
o 36 managed/dirty float
o 16 adjustable peg
o 43 fixed peg
o 12 currency board (similar to fixed exchange)
o 13 do not issue currency of their own (use a Euro, US dollar) (Panama,
Ecuador)
 o 17 nations use other arrangements

The Gold Standard 1870 – 1914

 When countries agree to buy or sell gold for an established number of

currency units
o Also, a government could not create money not backed by gold
 Convertibility guaranteed
 By 1880, most countries on gold standard
 Help ensure Balance of Trade Equilibrium for all countries
o Value of exports should equal value of imports
o Flow of gold used to make up differences
 System broke down in 1914
o Failed resumption after WW1
o Great depression

Bretton Woods

 In 1944, Allied powers met at Bretton Woods, NH to plan for the future
 Consensus
o Stable exchange rates are desirable
o Floating or fluctuating exchange rates had proved unsatisfactory
o The government controls of trade, exchange and production that had
developed through WWll were wasteful and discriminatory
 The IMF was Established
o International Monetary Fund
o From 1945-1971, IMF agreement was the basis of the international
monetary system
o The US dollar was agreed to be the central reserve asset
o An ounce of gold was agreed to be worth 35 USD
o Other nations fixed their exchange rates to the dollar
 Original Role of the IMF
o Discipline
 National governments had to manage inflation through their
money supply
 Excessive drawing from IMF funds came with IMF supervision
of monetary and fiscal policies
o Flexibility
 Provides loans to help members states with temporary BOP
deficit
 Allows time to bring down inflation
 Relieves pressures to devalue
  Members allowed 10% devaluations and more with IMF
approval
 Challenges to the Bretton Woods System
o From 1958 to 1971, United States cumulative deficit was $56 billion
o Due to
 Vietnam War
 Financed partly by use of the U.S. gold reserves
 Financed party by incurring liabilities to foreign central banks
o By 1971, many more dollars were in the hands of foreign central
banks than the gold held by the US treasury

 Collapse of Bretton Woods

o Devaluation pressures on US dollar after 20 years due to Vietnam war
financing and welfare program financing
o President Nixon “closed the gold window”
 Nixon ended gold convertibility of US dollar in 1971
 Currencies began to float
 Stated value of 35 US dollars per ounce was now meaningless
o The gold exchange ended
 US dollar was devalued and dealers started speculating against
it for further devaluation
 Bretton Woods fixed exchanged rates abandoned in January
1972

Jamaica Agreement 1976

 Floating rates declared acceptable

 Gold abandoned as a reserve asset
o IMF returned gold reserves to members at current prices
o Proceeds placed in trust fund to help poor nations
o IMF quotas – member country contributions – increased
o Less developed, non-oil exporting countries given more access to IMF
 IMF continued its role of helping countries cope with macroeconomic and
exchange rate problems

Return to the Gold Standard?

 Pros
o Gold is very portable
o The first period of the gold standard trade coincided with great
increase in volume of world trade
  Was there a connection?
 Cons
o Pegging currency to gold not sanctioned by IMF
o Would it create stability?
o Why gold in the first place?

The IMF Today

 Current membership: 188 countries

 Staff: 2,630 from 147 countries
 Total value of quotas: $334 billion
 Areas
o Lending
o Technical assistance
o Surveillance Consult
Current Issues with the IMF

 SDRs (way forward for greater balance in official reserves?)

o What is the near term impact of the inclusion of the Chinese Yuan in
the SDR basket?
 Effectiveness of Structure and Policies
o Recommended practices
o Moral hazards?
o Lack of accountability?
o Power divide/voting power allocation

The Role of the World Bank

 Role
o Refinanced post-WWII reconstruction and development
o Provides low interest long term loans to developing economies
 The International Development Agency (IDA) was created in 1960
o Raises funds from member states
o Loans only to the poorest countries
o 50 year repayment at 1% per year interest
 Issues related to the World Bank
o Voting power
o Accountability
Currencies in Crisis

Currencies in Crisis
We will watch portions of PBS' Commanding Heights series, which was produced and based off a book of
the same name written by Daniel Yergin and Joseph Stanislaw. The book and this production examine the
history of thought about how governments (or whether governments) should control the macroeconomic
environment; questions about globalization and trade are naturally examined within this sphere of inquiry.
The video will start immediately at the beginning of class so we can get through it all. Here are some
questions to ponder as you watch the film and some things to look out for:

We discussed the benefits that flow from FDI investments. Pay attention to the vignettes about the massive
human migration in China. How does the rural schoolteacher's life change when he moves from the
countryside to a factory job in coastal China?

Pay attention to the income difference he reports and his new living and working conditions. Note: The
current exchange rate between the RMB (aka CNY) is 6.75 RMB = 1 USD.

What were the causes of the Asian Financial Crisis? Did the U.S. play any role in the Asian Financial
Crisis? If so, how or why? What about other Western countries?

What roles if any did FX traders play in the crisis? When a currency collapses what does that mean for
citizens of that nation? How are businesses forced to cope? When the Asian Financial Crisis reached the
U.S. back in 1998, what was the response of U.S. policy makers towards bailouts for private banks?

Are there similarities between the Asian Financial Crisis and the Great Recession we have just emerged
from in the U.S.? Did we set new policy precedents? If so, what?

Have there been serious reforms to the frameworks and “rules of the game” since the late 1990’s? Having
seen these crises, what do you feel about the IMF in terms of its role in creating a "moral hazard"?
Do you think government bailouts of their internal economies also serve as a source of "moral hazard"?

Based on this video, what should nations be doing now to lessen the chance for similar crises? Do
governments have incentives to move “markets” in only one way? In other words, do politicians have many
incentives to control bubbles when times are good?
Foreign Currency Issues
Managing foreign exchange rate risk
 Review basics
 Calculating the forward rate
 Other hedging tools
 Lead/lag strategies
 Types of foreign exchange exposure
 Time for questions
Exchange Rate Basics
 Determinants of exchange rates
 Currency classification by mobility/liquidity
o Hard currencies
 Currencies of major industrial countries that can
be easily traded
o Soft (lesser traded) currencies
 Officially tradable currencies, but are often illiquid
and difficult to trade
o Non-tradable currencies
 Restricted by their governments
Forward Exchange Rates
 Trading at a premium
o When a currency’s forward rate is stronger than spot
(versus the other currency)
 Trading at a discount
o When a currency’s forward rate is weaker than spot
(versus the other currency)
 One currency is always trading at a discount and the other at
a premium in the forward market, unless there is absolutely
no difference in the forward market than the spot rate
 The cost of a forward contract is the premium or discount
compared to the spot rate
 Forward rate often quoted as change in forward points or
“pips”
o Example
 Spot Rate 1 EUR = 1.4000
 3 month forward rate: + .0002
 Same as 3 month forward rate 1 EUR = 1.4002
 Forward rates fluctuate with spot rate movements/market
information until the moment they are purchased, then that
price becomes binding as a contract die on the expiration
date
Interest Rates and Exchange Rated
 Fisher effect: i = r + I
 o Nominal (market) interest rate in a nation = the real
rate of interest + expectations about inflation
 International fisher effect
o For any two countries, the spot exchange rate and
future exchange rate should change in an equal
amount, but in the opposite direction, to the difference
in nominal interest rates between the two countries
Forward Foreign Exchange Contract Price Using International
Fisher Effect
 Spot exchange rate USD 1 = 40 INR
 US annual interest rate: 4
 India Annual interest rate: 6
o What will be the price of a 3-month forward foreign
exchange contract?

Other Strategies
 Foreign currency options
o Provide the right, but not the obligation, to buy or sell a
specific amount of a currency at a specified price at any
time prior to a specific date
 Purchaser is charged a premium
 Exercise price (strike price)
o Currency futures contracts
 Fixed amounts and maturities
o Netting
Lead and Lag Strategies
 Lead strategy
o Pay bills due in foreign currency receivables sooner
when the foreign currency is expected to depreciate
(home currency expected to appreciate)
 Lag strategy
o Delay payments due in foreign currency when home
currency is expected to appreciate (foreign currency is
expected to depreciate)
o Try to delay incoming foreign receipts when that
currency is expected to appreciate (home currency
expected to depreciate)
Types of Foreign Exchange Exposure
 Transaction
o The extent to which income from individual transactions
is affected by fluctuations in foreign exchange
 Translation
 o The extent to which the reported consolidated results
and balance sheets of a corporation are affected by
fluctuations in foreign exchange values
 Economic
o The extent to which a firm’s future international earning
power (or costs) affected by changes in exchange rates
 CULTURE

What is meant by culture?

 A system of values and norms shared by a society
 Values
o Abstract ideas about good, the right, the desirable
 How white should someone’s teeth be?
o Social rules and mores (and often laws)
 What constitutes being late for an appointment
 What forms of punishment are appropriate for
criminals
Intercultural communication
 The iceberg/onion
 Explicit
o Things you can see
o Tip of the iceberg
o Observational
o Transportation, clothing, food, architecture, music,
language
 Implicit
 o Under the surface
o Unobservable
o Expectations, assumptions, opinions, values, attitudes,
beliefs
Stereotypes and Generalizations
 Stereotype
o Develop a fixed, unvarying idea
 Generalize
o A principle, statement or idea having general
application
Progression in cultural competence
 The goal of cultural competence is to move from having
knowledge (a skill) to having the ability to leverage (a
strategy) by using your understanding and appreciation
 Cultures change over time so it is important to let new
information in and to keep up to date
Benefits in understanding culture
 Better understanding of yourself and your nation/society
 Cultural smarts can help you find third ways of accomplishing
goals and can help you before more efficient and productive
as your ability to adapt grows
 Avoid misunderstandings and conflict
 Richer, more meaningful interactions and relationships
 Profit (or fewer costly mistakes)

Culture and the Workplace

 Basis
o Work related values not universal
o National values may persist over MNS efforts to create
corporate culture
o Home country values often used to determine HQ
policies
o MNC may create morale problems with uniform moral
norms
 Purpose
o Understanding of business situations across-cultures
o MUST understand own culture and other cultures
Hofstede: Power Distance
 Degree of social inequality considered normal by people
o Distance between individuals at different levels of
hierarchy
o Scale
  From equal (small power distance) to extremely
unequal (large power distance)
 High
 Directive style leadership
 Social strata
 Low
 Informal leadership
 Social mobility
Hofstede: Individualism vs. collectivism
 Degree to which people in a country prefer to act as
individuals rather than in groups
 Describes the relations between the individual and his fellows
Individual vs. group characteristics
 Individual
o Managerial nobility between companies
o Economic dynamism, innovation
o Good general skills
o Team work difficult, non-collaborative
o Exposure to different ways of doing business
 Group
o Loyalty and commitment to company
o In depth knowledge of company
o Specialist skills
o Easy to build teams, collaboration
o Emotional identification with group or company

Hofstede: Uncertainty avoidance

 Degree of need to avoid uncertainty about the future
 Degree of preference for structured vs. unstructured
situations
 High
o Formal, rigid relationships and patterns
o People with more nervous energy
o Risk averse
 Low
o Entrepreneurship—if business fails ok to start another
one
o Change and risk okay
Hofstede: Quantity vs Quality of life
 Quantity
o Assertiveness, competition, material rewards
 Quality
 o Warm personal relationships, service, care for the week,
solidarity
Hofstede: Long vs Short Term Orientation
 Short term
o Normative
o Absolute truth
o Respect for traditions
o Quick results
o Small propensity to save for the future
 Long Term
o Pragmatic
o Truth depends on situation, context and time
o Ability to adapt traditions to changed conditions
o Strong propensity to save and invest
o Perseverence

Hofstede: Masculinity vs. femininity

 Division of roles and values in a society
 Masculine values prevail
o Assertiveness success, competition
 Feminine values prevail
o Quality of life, maintenance of warm personal
relationships, service care for the weak solidarity
Hofstede: Confucian Dynamism
 Attitudes towards
o Time, persistence, status, face (when conducting
business, have a positive outlook towards society, can
be lost over time), respect for tradition, gifts and favors
Additional work-related dimensions of culture
 Independent—interdependent
 Egalitarian—hierarchical
 Risk—restraint
 Direct—indirect
 Task—relationship
 Short term relationships—long term relationships
 low comfort with silence—high comfort with silence
 limited time—time is adequate
 self initiated—awaits direction
 low context—high context
 High Context Cultures Low Context Cultures
Crucial to External environment, Explicit information,
communications situation, non-verbal blunt communicative
behavior style
Relationship Long lasting, deep, Short duration,
personal mutual heterogeneous
involvement populations
Communication Economical, fast Explicit messages, low
because of shared reliance on non-verbal
“code”
Authority person Responsible for actions Diffused through
of subordinates, loyalty bureaucratic system,
at a premium personal responsibility
tough to pin down
Agreements Spoken, flexible, and Written, final and
changeable binding, litigious, more
lawyers
Insiders vs. outsiders Very distinguishable Difficult to indentify,
foreigners can adjust
Cultural pattern change Slow faster

Context, technology and Communication

 High context
o Face to face
 Low context
o Email
 US is a low context society

Intercultural Communication
Strategies for Better Intercultural Experiences
  More time listening
 Allow for pauses and silence
 Allow speakers to finish his/her thoughts and avoid
interjection
 Recognize the speaker may have difficulty being fluent
 Keep context and non-verbals in mind
 Avoid yes and no questions
 Restate key messages using different words and phrases
(over-communication)

Email and Meetings

 Email
o Appreciative or expressive greeting
o Avoid complex sentences
o Avoid jargon and slang
o Specificity
o Respect, appreciation and sincerity closing
 Meetings
o What is purpose of meeting, who will attend, and what
will be discussed
o Agenda
o Impact of dominant speakers, lessen the impact
o Summarize action steps
o Follow up informally
Global Human Resource Management

Learner Outcomes

Experience, knowledge and systems are vital, especially in service

industries

Basic questions

What is the best organizational design to meet the firm’s

strategy?

What are benefits, cost, opportunities and risks of using

expatriates, local country managers or a mix?

What are some examples of global human resources

management issues that can arise from different labor markets,
legal systems and cultures?

Staffing and International Strategy

Ethnocentric: key overseas positions staffed by local managers 1. I

nternational 2. Pros

Puts qualified managers in place

Creates global culture

Transfer of core competences

3. Cons

Local manager resentment

Cultural myopia

Immigration barriers

Costly
 Polycentric: key overseas positions staffed by local managers 1.
Multidomestic 2. Pros

Alleviate cultural myopia

Inexpensive to implement

3. Cons

Limits career mobility

Isolates HQ from overseas locations

Geocentric: best for job gets job

Global and transnational Pros

Uses HR efficiently

Builds strong global culture and informal management network

Cons

Costly

Immigration barriersiv. Mobility of workers is changing traditional

approach to international

staffing strategyc. Evolving International Organizational Structure for Global

Operations

d.

Expatriate Assignments

Expatriate: is a person temporarily or permanently residing in a country

other than that of the person's upbringing.

Type and scope of responsibilities varies widely 1. Can be expensive

2. Can be risky both for the company and for the individual
 Some expatriate issues also experiences by international project team
members, auditors, etc. who are abroad less than full time

Expatriate manager’s failure rates (in order of importance)

U.S MNCs (multinational corporations)

Spouse cannot adjust culturally

Managers cannot adjust culturally

Other family adjustment problems

Manager’s lack of personal or emotional maturity

Manager cannot cope with broader responsibility overseas

Japanese MNCs

Manager cannot cope with broader responsibility overseas

Manager cannot adjust culturally

Manager’s lack of personal or emotional maturity

Lack of technical competence

Spouse cannot adjust culturally

Expatriate success predictors

Selforientation

Selfesteem, selfconfidence, mental wellbeing

Adaptability to food, music, sports, outside interests

Superior technical competency, managerial and administrative skills

Othersorientation

Enhance ability to interact effectively with host nations

Relationship development, willingness to communicate

Perceptual ability

Understand why people in other countries behave the way they do

Nonjudgmental, nonevaluative in interpreting others’ behavior

Cultural toughness

How tough is host culture to adjust to? v. Other issues

Language ability
Family situation

h. Career development for expatriates

Predeparture, onsite training will depend on experience, intended length of

assignment, dissimilarity of cultures and level of expected interaction

Cultural training

Language training

Practical training

Repatriation: i s the process of returning a person to their place of origin or

citizenship

4.i. Expatriate Issues

2. 3.

Many repatriating expatriates lost to MNCs because suitable positions not

available at home

Autonomy (independence or freedom/selfgovernment), span of control,

compensation

Repatriation, strategy failure makes recruitment of competent expatriates

difficult

Reverse culture shock

Differing national standards

Expatriate pay issue: base pay, cost of living adjustments, various

allowances, foreign service or hardship premiums, double taxation,
medical/pension benefits, home leave and possibly more. Don’t assume
people know how to value compensation properly

Other things to consider

How are relationships, networks and trust established where you will
 be? May need to seek appropriate fringe benefits

Its harder to maintain a credit rating while one is abroad

Performance appraisal

Two groups evaluate expatriate managers, both biased

1.

2.

Home country managers

b.

Distance biasRisk of no or limited understanding of international business

challenges

c.Host nation managers

Hard data often obscure soft issues

Foreign spy syndromeExpatriate’s career often depends on home country

perception

3.j. Sample intercultural training agenda for international managers

Day 1

Cultural awareness training

Cultural differences mapping exercise

Discuss the differences and impact on the scope of work

Overview of the economy, core cultural values, business environment,

etiquette

Skills: style switching, building trust and relationships, drawing out, “over
communicating” and obtaining info
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Day2

Working on group skills/virtual teams: managing from afar, giving and

receiving feedback, decision making and conflict resolution, role play past
scenarios and “whatif” situations

Presentation by a country specialist a. Practice greetings, introductions,

etiquette b. Unstructured time for questions and answers

Develop some best practices, and individual and group expectations

(norming)

International Management

Make sure you understand what motivates employees in each culture,

subculture. You need an understanding of the cultural differences and then a
strategy

Factors such as work task variety, stability, pay, flexibility in hours, autonomy,
advancement opportunities, etc. vary in importance

Realize these may change over time

Examples:

Employees at many high performing companies in China

Deloitte in India

a. Kohler in India
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