The Compleat Executive

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THE COMPLEAT EXECUTIVE1:

The State of International Business Education and Some Future Directions

Farok J. Contractor**

School of Management

Rutgers University

Abstract

This essay examines the current state of International Business education worldwide, and comments on evolving trends. The degree of internationalization of curricula at the undergraduate, postgraduate and doctoral levels, is examined. In a world facing the contrary pulls of global consumerism versus the search for a local identity, what exactly should the manager learn about International Business in order to complete his or her education ? The essay also examines alternative methods for organizing International Business studies at universities, as well as in the growing number of off-site and certificate programs. It also ventures opinions on the value of an International Business major in the job market for graduating students; on whether the International Business label confers an advantage on faculty, or whether it confers a stigma; and on academic orthodoxies which have slowed the internationalization of business curricula.

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** Farok J. Contractor is Professor of International Business at Rutgers University in New Jersey, USA.

THE COMPLEAT EXECUTIVE1:

The State of International Business Education and Some Future Directions

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To complete their academic education, do business executives need to study International Business ? Does student interest in the subject reflect merely a dilettantish and romanticized appeal, in much the same way that young English gentlemen in the eighteenth century would take a “grand tour” of continental Europe and the Mediterranean to see exotic foreign lands such as Italy or Egypt, returning laden with bric a brac, antiquities, and pictures of the natives ? Moreover, if much of the world that the executive deals with has homogenized or “globalized”, then is there any more reason to study International Business than for an American to take a course in Interstate Commerce ? Today, with only narrow economic and cultural differences between states of the US, few bother to study Interstate Commerce, and there are virtually no academic departments devoted to that purpose.

Vive Les Differences

A broadening of the mind as part of education, in itself, provides sufficient justification for international studies at the undergraduate level, as it did in the eighteenth century. But today’s practice of global management goes far beyond romanticism into the hard realities of competition and profit. A number of studies show that firms that are represented in several country markets are more competitive and do better than companies operating in one or a few markets. Moreover, if differences across countries persist, the manager must study how to overcome them, arbitrage across them, and take advantage of the uneven economic landscape.

The leveling of the cultural and economic landscape, on a trans-continental scale, is still very much a phenomenon that is peculiarly American (and possibly Australian).The notion of cultural convergence (Levitt, 1983) or the idea of democratic equality are far from becoming the “...universal and irresistible ... governing power(s) in the world’s affairs...” even though a century and a half have passed since Tocqueville (1840) wrote those words about the American scene and prophesied its extension to the rest of the world.

True, a flood of potent images spews over the planet from the US media and from advertising agencies in other nations that closely imitate the American model. The young, in most cultures, are sympathetic. Their elders have put up a brisk resistance, from the officially sanctioned lexicon of the French Ministry of Culture, to the banning of satellite dishes in some countries, to the fulminations of the Ayatollah Khomeini who described the US as “The Great Satan” -- not so much because of its military might, but because of the perceived threat of American ideals. One the one hand we have the vision of McWorld; on the other we have the vision of Jihad as depicted by Barber (1995). Barber describes the opposite pulls of globalized consumerism and the search for identity thus: “Belonging by default to McWorld, everyone is a consumer; seeking a repository for identity, everyone belongs to some tribe.” By “Jihad” Barber does not mean actual guerrilla warfare (although multinational companies from Bougainville to Bogota have encountered guerrilla action in the not so distant past). Rather, he is referring to a general resistance and resentment against the “spiritual poverty of markets” as an organizing paradigm for societies. This resistance continues to be expressed by groups as diverse as French union members loath to relinquish their bourgeois privileges to the dictates of European monetary convergence, the millions in Poland and Russia who vote Communist, and the employees of Indian and Chinese state enterprises. The countervailing forces of protectionism and cultural identity are strong, and will persist for the indefinite future.

Borders persist. Barriers remain even in the nascent European Union. In 1995 an English motor driving school was offering its services in Germany and Denmark. An example of post-1992 reduction of intra-EU barriers ? Possibly. The curious fact was that several Germans, Danes and other continental Europeans bore the costs of travel to the UK, lodging and food for ten days to a fortnight, paid the English driving school (for instruction on the “wrong” side of the road) -- and still came out ahead financially, compared to the cost of obtaining a driver’s license in their own countries2. The extraordinary fact was not that Germany and Denmark were now willing to accept UK certification. Rather the most extraordinary fact, for International Business educators, is that such arbitrage opportunities continue to exist in thousands upon thousands of examples, in a wide range of industries, within the EU. The EU represents a far more uneven economic and cultural landscape than the United States. No surprise then, that Arpan, Folks, and Kwok (1993) report that European business schools had far more internationalized curricula and faculty compared with US schools. European schools were “more than three times as likely” to want functional field international courses at the undergraduate and Ph.D. levels, and “more than four times as likely” as their US counterparts, at the masters level. As the American economy becomes more internationalized from its currently low level3, it is likely that, in this respect, US school curricula will tend towards the European pattern, rather than vice versa.

The foreign exchange markets provide another glaring illustration of the persistence of deviations from parity. Despite floating rates in the context of efficient exchange markets, the US Dollar continued for a decade to be grossly undervalued against the Yen and several European currencies, for reasons that were not always strongly connected with inflation or interest rate differentials4. An understanding of exchange rate theories and the persistence of deviations is a key ingredient in the tool kit of the compleat executive. However, the shocking fact remains that many business majors continue to receive their diplomas without encountering the PPP or interest parity theories. Vital nuggets of their education are missing. How can this be ? The introduction of International Business curricula is still spotty, even in major state-supported universities. And unless the instructor in the introductory IB (International Business) course covers this topic, it is entirely possible that a non-finance major may graduate without encountering such ideas, vital to the general practice of global management. The problem may be even deeper and endemic as described in Arpan, Folks and Kwok’s (1993) survey of 557 institutions (including 87 schools in Europe and 27 in Asia). For the overall sample they report that “...students receiving no or minimal international business education (were) 62 percent at the undergraduate level, 57 percent at the master level and 59 percent at the doctoral level”5. The European subsample did considerably better.

Inter-national differences will continue to exist for a very long time. Hence one justification for International Business studies which trains managers how to identify these differences, overcome them, and arbitrage and rationalize across them.

Is International Business A Discipline ?

A large acquaintance with particulars often makes us wiser than the possession of abstract formulas, however deep.

-- William James

The Varieties of Religious Experience

Some prefer to use the word “discipline” to describe business “functions” such as Finance, Marketing or Management Information Systems (MIS). But each of these, in turn, draws on concepts and principles developed elsewhere. For example, Marketing can be deconstructed into areas such as consumer psychology, statistics, and the economics of pricing. MIS can be deconstructed into computer science, accounting, and so on. Finance and managerial economics have a larger proportion of concepts developed from within, compared to other business functions. But all have borrowed freely. The study of management is the study of eclectic concepts.

It may be time to abandon the notion that the general practice of management is a science. The study of management necessitates a balance between models or theories and the examination of particular facts. In the United States, several schools have been accused of having models and theories occupy too large a proportion of the curriculum, to the detriment of real-life complexities and integrative, cross-functional learning such as an IB course provides6.

So, is International Business a “discipline” or a “theme” ? At the heart of the IB literature exist some theories and concepts that are not found anywhere else7. But the teaching of International Business, as well as research reflected in the content of the apex journal Journal of International Business Studies, has a preponderant cross-functional and eclectic content. But so do most other areas of management, albeit to a lesser extent. International Business has as much legitimacy to be classified as a theme or focus area as Marketing or Management Information Systems.

The organization of companies into departments, as well as the thematic classification of curricular concepts into headings such as Marketing or International Business is, to some extent, a matter of administrative convenience and perceived importance of the function at that particular time. For example, production management or R&D are as vital pieces of the value chain as is marketing. Yet vitually every business school has a Marketing department; hardly any have departments devoted to Production. Another example: in the early evolution of American companies into foreign markets, many created separate International Divisions at that time, only to fold foreign operations back into individual “Global Product Divisions” at a later stage, as the firms became internationally experienced (Dymsza, 1987). (At this stage in the evolution of many American management schools a separate IB department may indeed be desirable -- this issue is tackled later in this chapter).

But the need for global management concepts and expertise remains. Whether international business operations are grouped into a separate department or performed separately in a company’s product divisions is less important than having managers with the requisite International Business concepts in the first place. Similarly, it is less important whether schools of management have a separate IB department than to ensure that students, somewhere in the curriculum, secure the requisite set of tools needed for the practice of international management.

What then are the key concepts and tools for the practice of international management ?

The Tool Kit of the Compleat Executive

What should the well-educated manager know about global management? The international dimensions of business amplify, even more, the eclectic nature of business studies. The list is therefore necessarily disparate and its boundaries ill-defined. Exhibit 1 below is only an illustration. There will rarely be unanimity on what should be included or deleted from such a list. But in curricular design it is desirable that we start with the components and onlythen decide how to assemble the pieces into academic departments (as opposed to the normal practice where entrenched “functional” departments offer their own partisan agendas so that many key IB concepts end up being missed by students). At the least, a list such as the one in Exhibit 1 can identify what is missing in a curriculum. Some comments are in order on the pedagogical implications of Exhibit 1. The extent of coverage of topics is, after all, a function of whether the program is undergraduate

Some Examples of Key Concepts That Every Executive Should Know About International Management

(Disclaimer: The following list is for illustrative purposes only and contains concepts in no particluar order, until ordered by a rational curriculum design depending on the pedagogic logic and circumstances of a particular school)

• International Expansion Options (Modal Choice)
• Evolution of the Firm and FDI Theory
• “Globalization”: What exactly does it mean in practice ?
• Rationalization models in the context of International Logistics and Global Production
• Cultural Differences and the Practice of Management
  . How are “their” business practices different from “ours” ?
  . Impact on HR and personnel costs
  . Managing a multi-ethnic workforce and conflict resolution
  . Negotiating agreements across the cultural divide
• International Aspects of Strategic Alliances
• The Continuing Role of Governments
  . Market Segementation
  . Protectionism
  . Regional Clusters and Created Advantage
  . Strategic Trade Theories
  . Political Risk: Defining, Assessing and Managing It
• Alternative Organization Designs for the Multinational Firm
• Purchasing Power Parity
• Covered Interest Parity
• Forwards, Futures and Options in Foreign Exchange
• Basic Foreign Exchange Hedging Techniques
• Economic Exposure (Cash Flow)
• Translation Exposure (Balance Sheet)
• Basics of International Taxation
• International Transfer Pricing (Simple Models)
• Differences In International Markets and Distribution
• Basic Mechanics of Exporting
• Pricing and Price Discrimination In International Markets
• Theory of Optimal Pricing In Imperfect Competition In the Context of Multiple Currencies
• Social Responsiveness and Managing the External Relations Function in a Multinational Context
• International Aspects of Business Ethics
• Intellectual Property Protection Internationally

or postgraduate. The thematic content is also likely to be influenced by the school’s location and mission8. Kedia and Cornwell (1994) describe several institutions that have adopted a country or regional focus as part of their IB curriculum. Some have focused on a secondary language capability as their internationalization theme (Rich-Duval, 1995). In such cases, the study of a country or a language can become the unifying theme for an internationalized business curriculum.

Some topics involve pure theory (e.g. PPP theory or International Transfer Pricing Models). Others mainly deal with practice (e.g. export mechanics or differences in distribution methods across countries). Many draw from the so-called functional areas of Marketing, Management, Accounting or Finance and may involve international extensions of existing material in such departments. But several topics are uniquely International Business (e.g. FDI Theory, Globalization, or Political Risk Analysis).

Finally, one can identify a large sub-set of topics where teaching expertise is unlikely to be found in the traditional functional academic departments (except at a few of the best schools) even though the topics nominally “belong” to those functional areas. For example it is only the rare Accounting department that can boast expertise in International Taxation. It is only a small minority of Management departments that can boast expertise in cross-cultural business negotiations. For management schools as a whole, it is rare to find competence in international intellectual property protection. Yet such topics need to be covered by all students at the post-graduate level, at an introductory level, at least. Often, such topics, as well as topics that are uniquely International Business, fall by the wayside unless the school has a separate IB department, brings in external instructors, or holds specialized seminars.

Plugging the holes in the curriculum may require patchwork responses. Better yet is a policy of concerted organizational and curricular change. The next section examines alternative methods for achieving the objective of internationalizing business school teaching.

Approaches To Internationalizing Business Education:
The Models and the Clay

In a study sponsored by the Academy of International Business and AACSB (American Assembly of Collegiate Schools of Business) on internationalization of business education, Arpan, Folks and Kwok (1993) reported “...low levels of achievement...” and a “...general dissatisfaction with the current level of curriculum internationalization...”. This was nineteen years after 1974 when the AACSB suggested that US schools increase resources to internationalize the curriculum.

Over this nineteen year period, business schools, in the US and worldwide,have tried various organizational approaches and incentives to further this objective. They mainly fall into four archetypes shown in Exhibit 2. In each instance the purported advantages of the model is described, together with some illustrations of how the clay (faculty) has actually behaved in the hands of the master potter (Dean or administration). The overall work is very much in progress.

The “Infusion” Approach

Since International Business is a theme that transcends and infuses all the traditional functional departments, it would be ideal if international business concepts were “infused” into each functional area’s teaching and research materials. Various incentives have been proposed to bring this about, such as reductions in teaching load to develop internationalized curricula, preferential allocation of funds for research with an international aspect, and incremental travel funds to attend overseas conferences. The handful of schools fortunate enough to have received external grants to set up Centers for International Business have

Exhibit 2

Approaches to Organizing the International Business Function Within Schools of Management

Actual Incidence from AIB Survey Total Europe US

Sample Subsample Subsample

(...... Percentages...... )

Traditional Functional Departments 54 47 57
(with varying incentives for internationalizing
teaching and research)

An International Business Center or Institute 3 3 2
(Joint Affiliation of some or all faculty
with the Center)

Identified IB Specialists
Within Functional Departments 29 29 30
(or occasionally a sub-department for IB)