International Management: Managing Country Risk

1. Economic

a. Economic Country Risk Models

Mann’s SPT model is relatively superior economic model as far as management of country risks is concerned (Porter, 2008). By focusing on societal benchmarks rather than Porter’s competitive advantage, Mann enables an organization to look at the things that really matter in a country. These societal benchmarks include such factors as market accessibility, quality of inputs, productivity, fundamental beliefs, social relationships, work force mindset, regulatory climate, stability, and predictability. Each of these benchmarks determine the response of that specific market to the company thus allowing it to either adjust to the societal expectations or venture into another market that is seemingly closer to its ideals (Gotz &Mann, 2006).

Competitive advantage is important for an organization especially taking into consideration how critical the ability to compete sustainably is within a new market. This means that Porter`s model is not entirely inferior for new markets. It must however be appreciated that a company needs to be relevant and sustainable before it can actually compete in a new environment (Northouse, 2012). This means that rather than focusing on the competitive advantage, it is more critical to examine the environment within which the company intends to operate and establish the socioeconomic systems that dictate the dynamics of that given society (Porter, 2008). All of Porter’s concerns are covered in the economic and political aspects of Mann’s Social Process Triangle thus leading to the question of how significant the cultural component is to a company’s operations.

 

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Warwick, Trompenaars and Hofstede seem to agree with Mann in the context that culture is very significant especially for international organizations in the process of management of country risks (Trompenaars&Hampden-Turner, 2012). Warwick & Wood emphasize in their Stakeholder Theory that companies must consider the interests of all their primary stakeholders as these will significantly affect their performance (Iyer, 2014). Understanding of the stakeholders and their interests in each country will allow a company to align itself in a way that consolidates the support that it will be getting from these stakeholders. Stakeholders as individuals, organizations, and governments are part of a culture thus, in this case, political, spiritual and cultural considerations must be made.

Trompenaars & Hampden-Turner also mention the significance of human relationships as defined through cultural definitions and practices (Hofstede, 2003). This means that in order to understand country risks, it is important to understand the social relationships within that society in terms of how people interact with one another, how they perceive certain subjects and how they expect to be treated by others. The importance of culture in this case is not lost but rather highlighted as this author emphasizes that the success of a company in a country depends on how much it understands people of that society and their concept of social relationships.

The final support for Mann’s SPT comes from Hoftede & Bond who focus on the significance of measuring social attitudes in various contexts or cultural dimensions such as power distance and individualism among others. The dimensions provided by these authors are used to judge society of a given country in order to establish how people think or feel in regard to certain matters. For example, people in India are likely to appreciate tyranny or dictatorship whereas those in the US cannot be expected to be as compliant. This may be attributed to the cultural dispositions that made the Americans expect democracy while the Indians can be comfortable not participating in the decision-making process at work. This implies that culture greatly affects the expectations of people and in order to understand them, one must understand their culture. Mann manages to consider all the relevant factors that could affect a company’s performance within a country thus making his model the best one for managing country risks.

b. Porter’s Diamond

The points of Porter’s diamond include factor conditions, firm strategy, structure and rivalry, demand conditions, and related and supporting industries. Hewlett Packard is an IT company that deals with software, hardware, and business solutions for small, medium, and large companies as well as governments and institutions. This company is thus one of those international entities that are continuously seeking expansion opportunities in new foreign markets.

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Factor conditions imply the aspects of the new market that will enable a company to operate. At HP, the most important factor would be the availability of skilled labor, along with the presence and accessibility of computers. This means that in order for the company to even consider venturing into a new country, the country will have to have some IT training schools. They would also need a good number of computer literate individuals who will be interested in the IT services, and the kind of environment that enables the use of technology in business and education as well as personal use.

Firm strategy, structure and rivalry entail the kind of rules and norms that a country’s social construct permits with respect to a company’s operations. For Hewlett Packard, this involves the attitudes that the government has towards foreign investors, the existence of healthy competition that will challenge the company to scale greater heights in innovation, and the government’s efforts and ability as well as attitudes towards intellectual property among other things (Powell, 2011). As an IT company offering software and business solutions, the ability to protect intellectual property is by far the most basic component of a conducive business environment.

Demand conditions refer to tastes and preferences of customers, governmental regulations and the environmental conditions that affect the viability of an organization’s specific line of business. Hewlett Packard offers IT solutions to individuals, businesses and institutions alike. This means that the fundamental demand factor for them would be the existence of individuals, businesses, and institutions that are tech-savvy and thus embracing IT as a part of their daily lives. HP would be out of business if it were to set up a shop in a location with no computers at all. This means that its most relevant demand factor would be the existence of computers.

Related industries in this case would be the suppliers of the company’s hardware plants since they need raw materials to make the computers and other devices. Supporting industries, on the other hand, may be very limited in this case, considering that HP deals in the sphere of hardware, software and business solutions. This means that it is able to provide its clients with computers and all the services that they may need. The company may however have to consider the existence of internet service providers if it is planning to work with clients who need cloud computing among other internet-based business solutions. 

2. Political

a. HP Stakeholders

Five stakeholders of the Hewlett Packard company in the UK are the employees, customers, governments, local community, and special interest groups. Employees are internal stakeholders who determine a number of things within the company including how well the operations can run. Within HP, these employees are responsible for interacting with the customers and offering them the solutions that they need. This means that as stakeholders, they affect not only the company’s performance but also its image in terms of how they interact with the clients. When these employees are treated well, they are likely to focus on their responsibilities within the organization thus offering high quality services that will build the organization’s reputation and thus increase its market share (Allen& Montgomery, 2001). Employees who are unhappy however can destroy the company’s reputation by mistreating the clients and providing substandard services that will then hurt the firm’s reputation.

Customers are usually the most important stakeholders for any company and they often consist of local population of a country in question. It is the customers that decide whether a company’s structure and business model are feasible by deciding whether to buy its products and services or not (Allen& Montgomery, 2001). Usually, these customers need some encouragement from the company and HP is known for its good reputation and amazing products and services. It is thus a common practice for the firm to go an extra mile to understandits customers in a bid to find ways in which it can impress them and increase the sales volumes. When consumers are not pleased with a organization, they not only refuse to purchase the products and services but also tell their networks not to get involved with the company thus significantly limiting the company’s potential for sustainability within that given market.

Governments make the regulations that are meant to enable a company to operate within a given market and compete in a fair environment. A government can make or break an international organization depending on the regulations that it sets. For example, if the UK government discontinues to recognize and protect intellectual property rights it is unlikely that the IT firm will have much business. The IT industry depends on intellectual property to prosper especially when it comes to software creators like the ones at Hewlett Packard. It is thus important for this company to consider the rules and requirements of the government in order to be on the right side of business at all times.

Local community is where a company’s customers come from. More than this, however, the interactions between the company and the local community is a basis for attracting new customers or losing the existing ones. Most people like associating with companies that are beneficial to their local communities as opposed to those who only focus on making profits and moving on. The interactions between HP and local communities thus serve as marketing opportunities especially seeing as these local communities build the company`s reputation if the company acts according to their expectations. By providing employment, offering educational sponsorships, implementing some initiatives aimed at environmental conservation, or engaging in a community building initiative, the company is able to please the members of the society and, in return, they will have good things to say about the company.

Special interest groups are often the trickiest stakeholders to deal with, especially considering that in most cases they are created to criticize corporate organizations. Fortunately, HP is an IT organization that does not contribute much to the environmental pollution and is thus rather safe from the radical environmentalist interest groups. The company however constantly suffers from the human rights watch groups that are worried about the manufacturing plants that the company uses overseas. These interest groups can easily destroy the company’s reputation is they start saying that the manufacturers use child laborers or operate sweatshops. 

b. Sources of Societal Instability

Economic resources that are relevant to the IT industry include telecommunications infrastructure that will enable internet access, as well as a source of power that will keep computers running. Countries that lack a reliable internet connection or suffer frequent power outages are not ideal destinations for Hewlett Packard’s business because most of its software and business solution components require an active internet connection, and the computers require a source of power. As such, these resources are business enablers; thus the company may be unable to realize its full potential without them in a given market.

Economic distribution is a source of societal stability meaning that countries with average or fair income distribution have a higher market potential for the business in question. If HP were to set up a shop in a country with high-income disparities, it will only be able to sell to a few customers who can afford its services. In a country with low-income disparities, the company’s market would be wider since more people have money to buy these goods and services.

Welfare is concerned with consideration for rights within a society and in case of HP, the most critical rights would be intellectual property rights. Countries that do not consider and protect intellectual property rights are seen as too risky for the IT business as the company has to be able to reap from their intellectual property, which in this case comes in the form of software and business solutions. HP would be much safer in countries where intellectual property rights are respected and protected by law. 

Wisdom involves literacy levels within a country and as an IT company, illiteracy is not an option in seeking out a place to venture into. HP requires an environment in which people have some basic education that can allow them to use a computer. While the company can set out to teach the local population, it is often easier to provide technical support and let the community work on its illiteracy levels. An illiterate society does not have room for IT and thus if a country is considered to have high illiteracy levels then the company would not consider venturing into it until the situation is corrected.

Symbol is about societal identity. Initially, some societies considered computers and the internet as a symbol of westernization and at the time HP would have been perceived as an agent of American imperialism. Today, however, computers are seen as the components of modernization and any society that would like to embrace modernity is a potential market for the IT giant. The social attitudes towards computers thus offer an insight into a country’s societal situation towards the company’s operational stability.

3. Cultural

a. Differences in Social Benchmarks

Market accessibility involves the processes that companies have to go through in order to introduce their products and services to the market. Some countries are more open to foreign goods and services than others (Eagly & Chin, 2010). Comparing the US and the UK in terms of the two countries’ market accessibility, it may be expected that the US would be far more open to foreign businesses than the UK. The reverse is however true because the UK is more open to foreign businesses than the US.

In order to do business in the UK, there are basically no real regulatory loops that a company must be able to jump through. This is because the UK does not have any particular laws that limit or restrict foreign businesses from venturing into the business environment. This country’s business condition is thus generally welcoming to any interested investor. It is rather a different story with the USA due to the existence of numerous federal restrictions on foreign investments in a bid to insulate the nation’s economy from the vulnerabilities of foreign investments. As such, companies would find it easier to venture into the UK today than the US.

With respect to the quality of inputs, it can be noted that the UK is just as competent as the US especially in regard to the IT sector. Both nations have significantly high educational standards that ensure complex skill sets amongst the employees. For Hewlett Packard, the high qualifications used to source for employees in the US would be applicable for their UK staff as well since both countries made great investments in technology and IT training. With respect to the customer care concept, it can be expected that workers from either side are likely to uphold the same level of ethics which is one of he main characteristics of the English speaking nations (Inglehart, Foa, Peterson & Welze, 2008).

Both the US and the UK have 8-hour workdays with an option of casual workers who are paid per hour. This means that with respect to working hours the two countries are more similar than different. However, working hours and employee productivity have very few connections. The Americans are considered as generally hardworking people, ranking third in the global survey of the longest working hours in the world. The UK did not even appear on the top 5 of this list, thus indicating that the UK employees are not as committed to their work lives as their American counterparts. There are however a number of critical considerations that must be made.

First, while the Americans may spend a lot of time at work they are not necessarily always working. It is a known fact that employees today waste a lot of time on their computers surfing the internet, socializing and dealing with personal business unless they have a strict supervisor or a limited internet connection (Gotz, K., &Mann, 2006). Unfortunately, the British are also known to spend approximately two hours a day on the internet while at work thus bringing this comparison to a tie. In both countries, workers have the potential to reach their full productivity with the right motivation in the form of incentives and rewards as well as challenges and deadlines. Employees the UK can thus be just as productive as employees in the US if an organization is able to learn how to motivate each team with approaches that are relevant to their specific cultural dispositions (Gotz, K., &Mann, 2006).

b. Country Culture

Relationships Vs Rules

The UK places a lot of value on being able to follow rules and regulations. This implies that before relationships come the rules and regulations that must be obeyed at all costs. This however does not mean that people in the UK do not value relationships. It is these rules that actually enable them to have and sustain relationships as they use the rules to establish fair treatment in their relationships (Trompenaars&Hampden-Turner, 2012). What this means is that in the UK, people expect explanations when one makes a decision that affects them regardless of their relationship with the person in question. Bosses in this country are expected to justify cancelling a meeting with employees or postponing a vacation among other things. The idea is to have an environment in which accountability prevails over individualistic tendencies that would otherwise cripple the society. The need for rules and regulations here is seen as a self-preservation mechanism for an otherwise self-absorbed society where the self is the greatest factor in any equation (Baumüller, 2006).