Management

A Developing Country Perspective

Betty Jane Punnett

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136518560
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The global business world appears to be changing and there is an ever greater focus on developing countries. This change in the international business environment is not reflected in the range of management textbooks currently available, as most are written from a developed country perspective

This book introduces and assesses the typical theories and management approaches that are popular in developed countries, from the perspective of managers in developing countries. A wide variety of countries, with many different environments and cultures are explored and the book covers key concepts, such as

• Economic development
• Planning and strategic management
• Operations management
• HRM
• Leadership

With the added benefit of various pedagogical features and supplementary web materials, students taking classes requiring an understanding of management concepts will find Punnett's book adds serious value. It could be used as core reading for a range of classes, including international business, management, development studies and managing in a developing country.

Please click on the eResources tab for the supplementary web materials.

Chapter 1

Introduction

At the beginning of the twenty-first century, there is much discussion of the global nature of business and the need for management to be aware of the impact of globalization on business. There is little question that factors such as the relative ease of movement around the globe, innovations in communication and transportation technology, regional and international free trade agreements, international investment, continuing migration, and so on, all contribute to a sense of the world being a global village. The reality, however, is that when we talk of globalization and international management, we are usually talking about management in the developed countries of the world. These are the richer countries that account for a large majority of global trade and investment. These rich countries also account for most of the world’s gross domestic product – GDP (the richest 20 percent of the world earn about 85 percent of the world’s GDP, and the poorest 20 percent only 1 percent), however, they represent only about 20 percent of the world’s population. Interestingly, over the past decades, there has also been discussion of the “myth” of globalization (Rugman, 2001) and there is substantial evidence that most large firms are regional and not in effect global (Rugman and Verbeke, 2008); Kolk (2010) calls this (semi) globalization.

For many years, Britain and the British Empire dominated the world, and the saying “the sun never sets on the British flag” was true because there were British colonies around the world. With this economic domination went a dominance of British businesses in many parts of the world; then the world changed. In the early twentieth century, mass production in the USA meant that American business became dominant globally, and “American management” was lauded and respected almost everywhere; then in the 1970s, the Japanese became the world’s largest car producers, and “Japanese management” became the style to emulate. For many years trade and investment was dominated by the aptly named “triad” of Europe, Japan and North America. It seems, however, that the world may once again be changing. Some evidence according to Columbia FDI Perspectives (Kekic, 2009):

■ foreign direct investment (FDI) inflows to the developed world declined by one-third in 2008, while flows to emerging markets increased by 11 percent;

■ in 2009, for the first time, emerging markets were set to attract more FDI than developed countries;

■ the economic performance of emerging markets has been better than that of developed countries during the recession beginning in 2008;

■ companies with investments in emerging markets report better performance than those with very little investment in these countries;

■ emerging markets are improving and liberalizing their business environments.

UNCTAD’s Global Investment Trends Monitor (www.unctad.org/diae, April 28, 2011) found that global FDI had risen by 13 percent in 2010, with flows from developing and transition economies reaching a record high, both in absolute terms and in their share of total global flows (the global flows were, however, 40 percent lower than the levels recorded in 2007). The report noted the strength of developing and transition economies, the dynamism of their international companies, and their growing desire to compete in new markets. Their outward FDI reached $377 billion, almost a 25 percent increase over the previous year. Their share of global outflows reached 28 percent, up from 15 percent in 2007. Most of the investment from developing countries is directed to other developing countries; according to the report, 70 percent of the investment is developing country to developing country. Gokgur (2011) raised the question of the influence of state-owned enterprises (SOEs) in this equation. According to this report, emerging markets, led by China, are encouraging their SOEs to expand globally as multinational enterprises. These SOEs have taken the lead in Chinese expansion, supported by state-owned Chinese banks. The question that remains unanswered is how these SOEs affect consumers, labor, enterprise performance, owners and operators, taxpayers, competitors, communities, and the environment. Nevertheless, the report says that the international development community is promoting public–private partnerships, expecting the private sector to bring private investments and technical know-how, and to deliver competitive tenders and development outcomes. The report concludes that this result is doubtful if state-owned enterprises and banks hinder competition.

The Economist Intelligence Unit carried out a survey in 2009, which included 548 companies from 19 business sectors around the world. They found that close to 60 percent of the companies surveyed expect to derive more than 20 percent of their total revenue from emerging markets in five years’ time. In contrast, only 31 percent reported currently deriving this level of revenues from emerging markets. This suggests that the shift in FDI flows may be a longer-term development and not simply an immediate reaction to the recession. According to The Economist (April 17, 2010):

■ emerging countries are competing in ways that can be expected to change the way businesses everywhere are run;

■ their companies are competing on the basis of creativity as well as cost and they are no longer happy simply to be the source of low-cost production and raw materials;

■ they are becoming a source of innovation, in every field from cars to health care to telecommunications;

■ they are redesigning business processes to perform better and faster than their rivals in the West.

This sounds surprisingly like the Industrial Revolution in the United Kingdom, mass production in the United States, and Japan’s innovative approaches to manufacturing. It may indeed be the reality of the future that the economic powerhouses will be from the developing countries, and that we will look to these countries for the new management approaches.

The President of the United States, President Obama, in an address to the Millennium Development Goals Summit in New York (September, 2010) emphasized the importance of the developing world to everyone, everywhere. He said:

In our global economy, progress in even the poorest countries can advance the prosperity and security of people far beyond their borders, including my fellow Americans…

When a child dies from a preventable disease, it shocks all of our consciences. When a girl is deprived of an education or her mother is denied equal rights, it undermines the prosperity of their nation. When a young entrepreneur can’t start a new business, it stymies the creation of new jobs and markets in that entrepreneur’s country, but also in our own. When millions of fathers cannot provide for their families, it feeds the despair that can fuel instability and violent extremism. When a disease goes unchecked, it can endanger the health of millions around the world…

So let’s put to rest the old myth that development is mere charity that does not serve our interests. And let’s reject the cynicism that says certain countries are condemned to perpetual poverty, for the past half century has witnessed more gains in human development than at any time in history. A disease that had ravaged the generations, smallpox, was eradicated. Health care has reached the far corners of the world, saving the lives of millions. From Latin America to Africa to Asia, developing nations have transformed into leaders in the global economy.

He went on to say:

We also recognize, though, that the old ways will not suffice. That’s why in Ghana last year I called for a new approach to development that unleashes transformational change and allows more people to take control of their own destiny. After all, no country wants to be dependent on another. No proud leader in this room wants to ask for aid. No family wants to be beholden to the assistance of others…the purpose of development – what’s needed most right now – is creating the conditions where assistance is no longer needed. So we will seek partners who want to build their own capacity to provide for their people. We will seek development that is sustainable [and] we’re making it clear that we will partner with countries that are willing to take the lead. Because the days when your development was dictated by foreign capitals must come to an end.

Perhaps the world is indeed changing in terms of the way it views development as the following illustrates.

The United Nations urged a gathering of global business leaders in June 2010 to invest in developing countries (UN Daily News, 2010). Secretary-General Ban said that investment in developing countries was to promote global growth. He said essentially that the world could not afford not to invest in the developing world – because that’s where the greatest need is, but also because that is where some of the greatest dynamism is. The Global Compact was launched in 2000, and is a project to foster socially responsible business practices. Ban said that the financial crisis, climate change, poverty, and resource constraints test the world’s capabilities, and needs business as a partner more than ever.

Another change is underway, this time to do with climate change and the carbon footprint that countries account for. The United Nations World Investment Report 2010 is subtitled “Investing in a low carbon economy.” The report recommends promotion of low-carbon foreign investment. The report suggests that developing countries consider implementing policies that “reward” low-carbon investors. The report supports the idea that developed countries should actively pursue low-carbon initiatives in developing countries. Further, the report argues that the international financial institutions (IFIs) should encourage public–private partnerships in the area of carbon reduction, they should enhance assistance for cross-border investment and technology flows, particularly from developed to developing countries, and set up a low-carbon technology assistance center to support developing countries formulating and implementing climate change mitigation strategies and plans.

The report’s focus on climate change suggests new opportunities for developing countries. In the coming years there is clearly going to be a great need for new technological developments in this area. Even climate change skeptics recognize that the world’s growing population is putting stress on the planet’s limited resources. Developing countries can be in the forefront of identifying these new technologies and bringing them to markets, at home and in the developed world. The developing countries, in many instances, are not wedded to existing technologies, for the very reason that they have not reached a high level of economic development dependent on these technologies. Because many developing countries have jumped over the heavy infrastructure investment in land-line telecommunications and are committed to the new cellphone and other wireless technologies, their technologies and institutions are not rooted in the past. This puts them in an ideal position to explore alternatives. Many developing countries are in areas of the world where power from alternative energy sources, such as the sun, the tides, volcanoes, and wind may be feasible. This provides many possibilities for these countries to be the leaders of the future.

Just as we have seen management approaches reflect national leadership in technology and in the markets (British, then American, then Japan) we should expect new approaches to management to emerge with the growth of the emerging markets. Each generation of management approach has added to, not substituted for, its predecessor. In this book, we will explore the ways management in the future globalizing world can be enhanced by incorporating the new ideas coming out of many of the diverse and ancient cultures newly becoming important players in the game of global business.

In an interesting book entitled “Why the West rules – For now”, Morris (2010) takes an historical look at economic and social development over the long term. He says that throughout human history, development has been erratic, sometimes retreating in one place for a millennium or two before moving forward again elsewhere. Civilizations have grown and developed then declined and disappeared, usually for reasons their leaders were powerless to influence. In this context, he considers the West’s current dominance of the world economy and concludes that it is in no way likely to continue far into the future. He believes that power, influence, and commercial dynamism are shifting eastward, and that if Eastern and Western social development continues rising at current rates, Western “rule” will end early in the next century. Most interestingly, however, he argues that if we survive the next 100 years, the quantum increases in computing power and bioscience, are so exponential that humankind itself will be profoundly changed, making distinctions between East and West seem anachronistic.

Morris’s (2010) analysis of the British ascent to power in the 1800s, and the consequent dominance of Western countries in today’s world, is insightful. He asks why it was British boats that shot their way up the Yangzi in 1842 rather than Chinese ones up the Thames, and why many more people from the East speak English than Europeans speak Mandarin? The answer seems to be that the Industrial Revolution began in the West in the late eighteenth century thanks primarily to the efforts of British engineers and entrepreneurs who sought to exploit the energy from the country’s abundant coal stocks and use it to harness the power of steam to drive ships, trains and machines in factories. The rapid march of technology gave Britain a temporary edge over other countries and allowed it to project both economic and maritime military power on a global scale that remained virtually unchallenged for most of the next 100 years. This established the ascendancy of the West that continues today. The changes occurring in the developing world today suggest that these countries may be poised to take over this ascendancy. Now, however, the world may be changing. The shifts in power may not be simply West to East, but also North to South. The development of the so-called BRIC countries (Brazil, Russia, India, and China), as a group to rival the groupings of more developed countries, is an indication of the changing nature of the world. In April 2011, the news was about the BRICS (a group including South Africa) meeting in South Africa to discuss, among other issues, their role in representing the economic interests of the countries of the developing world.

An Economist survey in 2010 (results emailed to the author, a participant) illustrates business interest in the developing countries (or emerging markets as they were called in the survey). Results showed that companies that already invest in emerging markets had deepened their investment over the previous three years; 79 percent reported an increase in investment, 14 percent expected their level of investment to remain the same, and only 7 percent reported a decrease. Respondents to the survey appeared to think that the risk–return ratio is becoming more favorable; 55 percent thought that the risks were increasing but 64 percent said that the rewards had increased. Overall, it seems that the interest in “doing business” in the developing world is increasing. At the same time, companies from the developing world were increasing their international activities.

In recent years there has been a dramatic increase in commerce among developing countries; it has doubled from about 8 percent of world trade in 1990 to over 16 percent in 2007, and the share of developing countries’ exports to developing countries increased from 29 percent in 1990 to 47 percent in 2008 (Broadman, 2011). A substantial portion of this has been Chinese and Indian investments in Africa. According to Broadman, many observers believe that Chinese and Indian firms dominate Africa’s economies, but this is incorrect, because 90 percent of the stock of FDI originated from developed countries; however, Chinese and Indian investments have dominated African inward FDI in recent years.

The previous discussion suggests that it is timely for students in management to pay greater attention to management issues in developing countries. It is timely for people around the world to understand issues of management from a global perspective rather than simply from a Western or developed perspective. The objective of this book is to provide a basis for such understanding.

The focus of this book is on “the rest of the world”; that is, the developing countries of the world. It is also on management in and from these countries. This book is not intended to be an international business text, but rather a book on management, from a developing country perspective. Because most well-accepted approaches to management, and theories of management, have been developed in what we call the West, these often serve as the basis for discussion in the chapters of this book. We take these established approaches and theories and ask how well they are likely to work in developing countries. I identify the characteristics of developing countries, and companies in these countries, to explore the effectiveness of various approaches and theories. Where possible, I identify and discuss research that has been done in developing countries, and use the results of this research to further explore various facets of management.

Before we address management issues, in order to provide the context for that discussion, definitions of development and the characteristics of developing countries are considered, particularly in contrast to the more developed. This discussion sets the stage for the introduction of a traditional model of management. This model is used as a guide for the rest of the book. I take each management process – planning, organizing, staffing, leading, controlling – and discuss it in the context of develo...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Dedication
• Contents
• List of figures
• Acknowledgements
• 1. Introduction
• 2. Terminology of Development
• 3. Characteristics of Developing Countries
• 4. Management Issues and Examples
• 5. Explanations of Economic Development
• 6. Planning and Strategic Management in Developing Countries
• 7. Organizing and Operating An International Company
• 8. Human Resource Management
• 9. Managing an International Workforce
• 10. Motivation in Developing Countries
• 11. Leadership in Developing Countries
• 12. Special Issues for Managers in Developing Countries
• References
• Index