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Challenge of International Business Essay Sample

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Challenge of International Business Essay Sample


Effective use of cross cultural teams can provide a source of experience and innovative thinking to enhance the competitive position of organizations. However, cultural differences can interfere with the successful completion of projects in today’s multicultural global business community. To achieve project goals and avoid cultural misunderstandings, project managers should be culturally sensitive and promote creativity and motivation through flexible leadership. This paper describes the most well known and accepted cross cultural management theories. These theories consider relations between people, motivational orientation, orientation toward risk, definition of self and others, attitudes to time, and attitudes to the environment. We discuss motivation and training of multicultural project teams and relevant implications for project management. We provide examples of success and failure in international, multicultural projects. The paper concludes that global project management can succeed through culturally-aware leadership, cross cultural communication, and mutual respect. Without them, it is destined to fail.


The diversity of the world’s population is stunningly apparent nowadays, as the growth of globalization, technology, communication, trading, and economy. The globalization of business and commerce has become an increasingly significant reality worldwide. The rise of globalization posits a number of important challenges to a business seeking international presence. Numerous strategic aspects must be taken into account prior to commitment at an international level, and afterwards. Constant flexibility is required to adapt to changing patterns at local, regional and international levels. Commerce and the exchange of ideas is the essence of international business, and as global corporations compete to provide superior goods and services, they initiate change and development in national marketplace. The term international business refers to commercial activities performed to promote the transfer of technologies, goods, services, resources, people, and ideas across national boundaries.

International business occurs under many different formats, from the movement of goods from one country to another (exporting and trade); to contractual agreements giving firms in foreign nations legal permission to use products, services, and processes from other nations (franchising, licensing, subcontracting production); to companies setting up sales, manufacturing, research and development, and distribution facilities in foreign markets. The flows of goods, services, technologies, resources, people, and ideas among markets have major effects on countries and their governments, companies, and individuals.

As business people survey the world marketplace today, they are both impressed and intimidated by the diversity and change they see in the 200+ national markets and 6+ billion people. Yet this is the marketplace they must understand in order to build products and services for worldwide customers in the face of increasing international competition. Successful international corporations are those that recognize the diversity of the world marketplace, and are able to cope with the uncertainties of doing business in continually changing market environments.

Based on the description above problems can be formulated as follows: 1. What is the significance of culture for International Management? 2. What are factors that influence Management Decision-Making? 3. What is the strategic decision making – the PESTEL Framework? 4. How is the significance of culture in strategic decision making? 5. What is the comparison between Cross- Cultural and International Management? 6. How are the implications for International management practice?

1. To understand the significance of culture for International Management. 2. To know about the factors that influences Management Decision-Making. 3. To understand what is the strategic decision making – the PESTEL Framework. 4. To understand how is the significance of culture in strategic decision making. 5. To know about the comparison between Cross- Cultural and International Management. 6. To understand how are the implications for International management practice.


2.1. The Significance of Culture for International Management The world is chaotic. We need structure in order to make sense of it. Culture is what helps us to organize our world and to know how to respond to it. We learn how to relate to other people and how to respond to our environment from our friends and relatives, our teachers and through observation. People who come from different cultures have lived in different parts of the world and have experienced different societies or participated in different institutions (for example, schools or corporations). They are likely to have learned different values, beliefs, behaviors, expectations and norms than you have. As a hospitality manager you will be working with people who are different from you. The people you are managing or working with are very likely to be culturally different from yourself. Given the growth of international travel and business, many of your customers will have learned different ways of responding to their environment or relating to other people. Some of you may have the opportunity to work in another country. You will even find differences in corporate cultures when you change jobs.

Even within your own geographical area you will find cultural differences. Native Americans, African Americans, Hispanics, Anglo-Saxons, Easterners, Southerners, members of different religions and people who have grown up in different parts of the country are likely to have values, beliefs and norms different from each other. These cultural differences may hinder your ability to use management techniques that are effective for a specific culture. Effective management requires excellent communication and an understanding of your employees and customers. The larger the common ground you have with your employees or customers, the more likely it is for you to be effective – the greater the difference, the greater the chance for misunderstanding. The objective of this part of the course is to increase your ability to understand and work with people who may be culturally different from you. Culture can be defined as “the sum total of the beliefs, rules, techniques, institutions, and artifacts that characterize human populations” or “the collective programming of the mind.”

Sociologists generally talk about the socialization process, referring to the influence of parents, friends, education, and the interaction with other members of a particular society as the basis for one’s culture. These influences result in learned patterns of behavior common to members of a given society. By “culture”, anthropology means the total life way of a people, the social legacy the individual acquires from his group. Or culture can be regarded as that part of the environment that is the creation of man., another formal definition is that “A culture is a collection of beliefs, habits, living patterns, and behaviors which are held more or less in common by people who occupy particular geographic areas” Culture and communication are inseparable because culture not only dictates who talks with whom, about what, and how the communication proceeds. In fact, our entire repertory of communicative behaviors is dependent largely on the culture in which we have been raised. Culture, consequently, is the foundation of communication.

And, when cultures vary, communication practices also vary. Now consider a situation where there is little shared knowledge, few common values and a different language is spoken and we can readily see just how complicated negotiating international transactions can become. While intercultural communication is communication between members of different cultures. This definition is simple, but the process is complex. Intercultural communication involves differing perceptions, attitudes and interpretations .We know that even two people from the same culture can have communication problems. The art of negotiation is hard enough in our own country, dealing with colleagues who think like us, process information as we do, share a common set of values and speak the same language. Difficulties in intercultural communication arise when there is little or no awareness of divergent cultural values and beliefs. In intercultural interaction, speakers sometimes assume that what they believe is right, because they have grown up thinking their way is the best.

This ethnocentric assumption can result in negative judgments about other cultures. Whether it will succeed depends largely on the understanding of culture diversity. As new markets open up for world trade and global competition intensifies, businesses of all sizes and in all sectors are expanding their operations overseas at unprecedented rates, which necessitate an increase in strategic alliances and hence intercultural negotiations. Intercultural negotiation involves discussions of common and conflicting interests between persons of different cultural backgrounds trying to reach an agreement of mutual benefit. This passage explores how culture differences manifest themselves in business negotiation, identifies and compares cultural characteristics and patterns among countries and suggests ways in which cultural conflicts are effectively handled. Different negotiation styles

According to the different culture, the types of the negotiation are greatly different. If we want to be successful businessmen, knowing the different types of negotiation will help us a lot. And of course, the research and observations by most scholars indicate fairly clearly that negotiation practices differ from culture to culture and that culture can influence “negotiation style” — the way persons from different cultures conduct themselves in negotiating sessions. International business negotiation is a negotiation among different countries and regions. Because of the difference system in politics and economy of the world, they have different history and cultural tradition. If we want to win the negotiation, we should know well businessmen in cultural background. As for different opponents, we should adopt different negotiation style. The characteristics of negotiation style in the west: because of difference of language and culture between the East and the West, they also have different negotiation styles.

For example, U.S. negotiators tend to rely on individualist values, imagining self and other as autonomous, independent and self-reliant. They are competitive in their approach to negotiations, including coming to the table with a fall-back position but beginning with an unrealistic offer, and they are also energetic, confident, and persistent; they enjoy arguing their positions, and see things universally — i.e., they like to talk about broad applications of ideas. Of course, they are direct and honest in delivering their negative evaluations. So if we meet Americans in international negotiation, we should avoid adopting indirect express with them, we should be direct to express our doubt when we don’t understand what they mention. Or it is easy to make negotiation impasse. Even when different negotiations across national cultures are identified, change is constant. International business culture tends to privilege Western approaches to negotiation, centered in problem-solving and linear communication, as do many settings.

As Western norms are balanced with Eastern values, and local traditions are balanced with regional and national approaches, negotiation practices continue their global evolution. Cultural differences and different languages can be challenging when leading a team remotely. Whether your team is based over different continents or all over the world, your communication skills will help you to keep your people motivated at all times. As a manager of a multi-cultural and international team of people your understanding of their culture, their clients and the way of doing business in their part of the world is your key to success. You may have come across ‘lost in translation’ situations where you have lost business, and you want to kick yourself because you didn’t do your homework prior to closing the deal.

Managing an international team and business can be a different ball game and at times may require a different skill set; however the satisfaction you’ll get out of it will be even greater and it feels like the world is your oyster when you succeed. The best leader in the world will fail miserably if she is unable communicate to her team. The importance of the skill of communication lies in the fact that it is not a discrete skill. Communication is inextricably linked to all the other leadership competencies. With good communication skills you will raise your profile in all aspects of your leadership role. So, we look at how to hone the art and craft of language. We learn to speak clearly and to present logical and compelling arguments. We develop our style and focus on the content of what we have to communicate. Principles for Studying Other Cultures

As you work to understand different cultures it is important to remember these four principles: 1. While it is useful to explore generalities and their implications, individuals do not always conform to general cultural stereotypes. Individuals may make conscious decisions not to conform to the values, beliefs and norms that they were taught. They may have varied experiences that change the way they interpret and react to their world and the people in it. 2. Differences are not always culturally based. Some differences arise from individual personality differences and some come from personal, institutional or business factors. 3. Understanding yourself and your own culture first gives you the mental set against which to study others. Stereotyping/ Sociotyping

We have learned that stereotyping is bad, ignorant, and immoral. And indeed, stereotyping can be harmful when based on misinformation or when used to discredit another. However, it can also be used in a positive way to help us sort out confusion. Schneider and Barsoux in their book Managing Across Cultures, provide a very good explanation of why stereotypes are useful: “Stereotypes represent ‘mental files‘ that are used to help process new information by comparing it with past experience and knowledge.” So if you meet someone from Japan, you are likely to think, “This is a Japanese” and you call up your mental image based on your experience and knowledge about Japanese people. Then you evaluate the present experience with one from the past and you reformulate your stereotype of Japanese people. The process helps you to simplify cross-cultural experiences.

The problem is not with the existence of stereotypes but the way in which you use them. If you assume that the person you are meeting is like your stereotype and do not allow new information to enter, you will distort the information you are receiving so that the stereotype does not change. Managers are ineffective in cross-cultural situations when they deny that they have stereotypes or when they get stuck in them. More effective managers use their stereotypes as a starting point and then continually revise them as they gain more experience. The problem with stereotypes is that they conjure up an image and one is tempted to put the same image on every individual from the culture. It is better to think of your mental image of a specific culture as a prototype that will be adjusted and changed as more information is gathered.

2.2. Factors that influences Management Decision-Making
Here is a list of SOME of the internal factors that influence decision-making within the organization:
1. The CEO’s psychological make-up
2. The organizational strategy
3. Resources (financial plant, staff, technology) already secured
4. Organizational history
5. Policies and systems
6. Organizational culture

The EXTERNAL factors include:
1. Decisions made by competitors
2. Decisions made by suppliers
3. Decisions made by customers
4. Labor markets
5. Technology
6. The national, regional and world economies
7. Financial markets
8. Local, national, regional, and international politics
9. Laws and regulations
10. Infrastructure factors (transport, power, etc.)
11. Trade unions
12. Consumer groups
13. Ethical and religious systems
14. Factors in the green environment
15. Industry norms
16. National culture

The organizational culture is influenced by the national culture. When the company is dealing with a subsidiary or joint venture partner operating in another country, decision-making is influenced by its own environment and the environment of this second player. This second environment may be very different. Decision-makers at the headquarters/first parent not only need to understand the internal structures and organizational culture of the subsidiary/second company but also need to understand factors of the environment within which it operates, and how these influence its interpretation of the headquarters/first parent’s interests and strategy. These environmental factors include the other country’s laws and regulations, its economic profile, its market conditions and competition from local companies, and the other national culture. The company is continually interpreting its external environment, and reinterpreting its own history, present capacities and possible futures, in terms of how best it can respond to this external environment.

The company collects and analyses information about its external and internal environments, and in this sense it functions as a system for making interpretations. Then plans are made and implemented on the basis of the interpretations made. This means that the importance given to culture, and the descriptive categories used, depend largely on the needs and interests of the person making the interpretation. Here is an example. A communications professor saw the study of culture as vitally important in understanding what happens within the firm and how the firm communicates with its business environment. She was married to a macro-economist, who was employed to analyze and predict trade cycles, and notions of culture were irrelevant to this work. In fact, he dismissed the study of culture as a waste of time. Given their different professional interests and needs, this disagreement on the importance of culture was not surprising. And hence, it is to be expected that scholarly descriptions vary – depending on the interests and objectives of the person making the description.

2.3. Strategic Decision-Making – the PESTEL Framework
The PESTEL framework is designed to provide managers with an analytical tool to identify different macro-environmental factors that may affect business strategies, and to assess how different environmental factors may influence business performance now and in the future. The PESTEL Framework includes six types of important environmental influences: political, economic, social, technological, environmental, and legal. These factors should not be seen as independent factors. Factors such as technological advances may probably affect the social and economic conditions in different markets. Political factors:

· Stability of government
· Social policies: (e.g. social welfare etc.) · Trade regulations: (e.g. the EU & NAFTA)
· Tax policies
· Entry mode regulations
Economic factors:
· Disposable income of buyers
· Credit accessibility
· Unemployment rates
· Interest rates
· Inflation
Social Factors:
· Population demographics: (e.g. aging population)
· Distribution of Wealth
· Changes in lifestyles and trends
· Educational levels
Technological factors:
· New innovations and discoveries
· Pace of technological innovations and advances
· Pace of technological obsolescence
· New technological platforms (e.g. VHS and DVD) Environmental factors:
· Environmental protection laws
· Waste disposal laws
· Energy consumption regulation
· Popular attitude towards the environment

Legal factors:
· Employment regulations
· Competitive regulations
· Health and safety regulations
· Product regulations
The key for business managers is therefore to discover the main drivers of change that may affect business strategies, and to discover the factors most likely to influence the performance of the business. In conducting a PESTEL analysis, business managers may create strategies that take several macro-environmental factors into consideration, so that the strategy formulation process will be as sensitive to current and future environmental factors as possible.

2.4. The Significance of Culture in Strategic Decision-Making Cross-cultural management issues arise in a range of business contexts. Within individual firms, for example,managers from a foreign parent company need to understand that local employees from the host country may require different organization structures and HRM procedures. In cross-border mergers and acquisitions (M&As), realizing the expected synergies very often depends on stablishing structures and procedures that encompass both cultures in a balanced way. Cross-border joint ventures, alliances, or buyer–supplier relationships between two or more firms also require a cultural compromise. Finally, for firms to sell successfully to foreign customers requires culturally sensitive adaptations to products, services,marketing, and advertising. At the most general level, links between business contexts and particular characteristics of individuals or groups that are influenced by social and cultural norms of a particular region.

At the face-to-face level in meetings the language and behavior of different peoples vary and their mutual understanding of each other’s culture will influence the effectiveness and efficiency of communication between them. This influences how well multicultural workplaces operate at all levels, from strategy setting at the senior level to plant-floor operations. Firms also tend to have different organizational and decision-making practices depending on where they have evolved and which cultures and subcultures they encompass. For firms to build successful alliances and partnerships, or for M&A activities to succeed at the company-to-company level, there needs to be an understanding of the organizational differences between them. This covers practically every element of corporate organizations from decision-making structures and systems and management–labor relationships to individual employees’ attitudes toward their work and their employer. Finally, culture influences the behavior and preferences of clients and customers.

To sell successfully in a foreign market, a manager needs to adapt his or her product or service to meet the different needs of that particular group of customers.Any alteration in advertising, marketing, product or service features, after-sales support, technical back-up, documentation, etc., will be partly guided by cultural differences. Failure to do this ends in the kinds of marketing mistakes and communication blunders that become marketing folklore. For example, Ford’s low-cost truck was initially marketed as the Feira to Spanish-speaking people, but this means “ugly old woman” in Spanish. The Ford Comet, a high-end car,was sold as the Caliente in Mexico,which is local slang for “prostitute.” Unsurprisingly neither model did well in these markets.

This reinforces the above point about the importance of language, but also demonstrates how some of the largest and most experienced companies do not appear to do the most basic cultural due diligence when launching products and services in foreign markets. The chapter on marketing strategy in this book examines these kinds of issues more closely. Ethnocentrism, the belief that one’s own way of doing things is superior to that of others, can also be a major barrier to good international management. The challenge lies in recognizing differences, combining the advantages that stem from different styles and approaches, adjusting and adapting to succeed with different people, in different partnerships, and in different markets.

2.5. Comparing Cross- Cultural and International Management
In different circumstances, managers perform a range of different roles. These include leading, acting as figurehead, communicating information, negotiating, allocating resources, handling disturbances, planning, overseeing implementation of plans, and evaluating. Factors that influence which of these roles a PARTICULAR manager exercises, and how much emphasis he/she gives to them, include * his/her personal psychology;

* his/her functional responsibilities;
* the organizational culture and history of the company;
* industry factors. Banks have relatively greater needs for hierarchical structures and controls than do advertising agencies. Advertising agencies need structures that facilitate rapid creativity; * NATIONAL CULTURE. For example, in some cultures the manager is expected to emphasize control and direction elsewhere, to facilitate and participate. The national culture of the workforce influences how they respond to the structures and systems planned and implemented by management. This means that a workforce in one culture may respond differently to a workforce in another. That is, in different cultural and industrial contexts, different management roles are emphasized. The international manager must be prepared for these different responses, and he/she adapts to the different contexts. CROSS-CULTURAL MANAGEMENT is defined here as development and application of knowledge about cultures in the practice of international management, when the people involved have different cultural identities.

These people may or may not belong to the same business unit. These activities occur between business units that are located in different countries, whether joint venture partners, headquarters and subsidiary, principal and agent, supplier and customer. Both emphases – international management as a knowledge-based activity and as a function-based activity – are applied at different points in this book. The two terms do not correspond entirely. Some international managers in senior positions may have no face-to-face interactions with the other-culture workforce; many home-based managers deal with immigrant groups assimilated into a workforce that serves domestic markets. Cross-cultural management skills

A skill is defined as the ability to demonstrate a sequence of behaviors that are related to attaining a performance goal. The manager needs cross-cultural skills to manage a single-culture group when he/she is a member of some other culture. This situation occurs typically when the manager is expatriate, managing his/her company’s subsidiary or other investment abroad. It may occur in headquarters when managing a group consisting entirely of immigrants. The core assumption of cross-cultural skills learning is that the manager cannot expect to force-fit members of another culture into his/her own cultural norms. They cannot easily be made to accept his/her perceptions of reality as superior to values in their own culture. This is not an ethical matter so much as practical. The organization that attempts to impose its behavioral norms upon unwilling employees from another culture faces an uphill battle. The manager also needs cross-cultural skills when managing diverse groups, including members from a range of cultures.

2.6. Implications for International Management Practice
Cultural patterns at work reflect cultural patterns in the wider society. Project managers share the cultures of their society and of their organization with their project teams. For instance, project management techniques and training packages have been developed almost exclusively in individualist countries, first of all in the USA, and are based on cultural assumptions that may not hold in collectivist cultures. For instance, the ability to communicate “bad news” and to manage performance are considered key skills for a successful project manager. However, in managing international projects involving partners from collectivist societies, one has to bear in mind that discussing a person’s performance or abilities openly with him or her is likely to clash head-on with the society’s harmony norm and may be felt by the subordinate as an unacceptable loss of face.

Such societies have more subtle, indirect ways of communicating feedback, such as through the withdrawal of a normal favor or verbally via a mutually trusted intermediary. In collectivist/particularistic/communitarian cultures greater attention is also given to the obligations of relationships and to unique circumstances. Friendship has special obligations and hence may come first. Accordingly, less attention is given to abstract legal codes. In individualist/universalist cultures, the law and social norms may take precedence over friendships. The key concept of guanxi in Asian business is by now known worldwide. It refers to personal connections; it links the family sphere to the business sphere. Having a personal network of acquaintances is extremely important in these societies. This is an evident consequence of collectivism (relationships before task), but it also contributes to a long-term orientation and paternalism. One’s capital of guanxi lasts a lifetime, and one would not want to destroy it for short-term, bottom-line reasons.

Similar to this category is Trompenaars’ distinction between achieved versus ascribed status. Achievement means that a person is judged on what he or she has recently accomplished and on his or her record. Ascription means that status is attributed to a person based on birth, kinship, gender or age, and on his or her connections and educational record. In an achievement culture, the first question is likely to be “What did you study?” while in an ascription culture the question will more likely be “Where did you study?” Only if it was a poor university or one they do not recognize will ascription people ask what the respondent studied; and that will be to enable the respondent to save face.

Examples of successful and failed projects
* Successful Projects
There are many examples of successful management of cross-cultural, international projects. As an example, consider the Year 2000 (Y2K) projects conducted by public and private organizations around the globe. Diligent multi-cultural teams cooperated to prepare and remediate computer systems, outdated software code, telecommunications networks, imbedded systems, and other infrastructure for the millennium date change. Countries and organizations throughout the world recognized that while maintaining management of their own Y2K projects, they would gain from sharing information on their project plans, progress, problems and successes. Even organizations in cultures not normally accustomed to collaboration realized the value and importance of sharing information and knowledge. Public and private organizations throughout the world formed networking and information sharing partnerships to respond to Y2K challenges. National, regional, and global organizations shared knowledge about Y2K risks, problems, and strategies. Some countries passed laws and regulatory guidance to allow organizations to share information without legal concerns.

The U.S. Department of State, Office of Inspector General published a report entitled: “Year 2000 Lessons Learned: Strategies for Successful Global Project Management”. In that report, the Ambassador, Permanent Mission of the Kingdom of Lesotho to the United Nations is quoted as saying: “Y2K was the first time that the international community all rose to the challenge and worked together to meet a common threat; international cooperative efforts did not compromise anyone’s sovereignty or commercial interests.” A Foreign Service Officer in the U.S. Consulate in Hong Kong is quoted as saying: “It was an impressive mobilization of resources and people and a good demonstration of effective cooperation and communications.” The Chair of the U.S. President’s Council on Year 2000 Conversion is quoted as saying: “Y2K was fascinating in terms of how to get one’s arms around a subtle problem that crossed a wide sweep: 180 countries, 50 states, the entire U.S. economy, and the whole U.S. Government.

We will not have to do it again in the near future, however the lessons learned from the exercise will be invaluable in addressing other management issues.” The enormous success of the huge number of Y2K projects worldwide was very impressive. After the resounding successes, some claimed that the problem may have been initially exaggerated. Others may consider that to be the nature of successful projects: if the problem is solved, no one should notice it! Nonetheless, most agree that very important lessons were learned in successful global project management.

The Special Representative for Y2K International Coordination, U.S. Department of State is quoted as saying: “Even though [Y2K] turned into a nonevent with no major problems and relatively minor glitches, for all intents and purposes, it yielded a side benefit in that we skipped a generation in terms of IT and innovative ways of doing business.” A telecommunications official in Hong Kong is quoted as saying: “[Y2K] was not easy, but it was a good experience that can be applied to managing other IT projects.” A Consular Affairs official in the U.S. Department of State is quoted as saying: “In effect, we should not call what happened a Y2K success, but rather a management success.” * A Failed Project

There are also many examples of failures in the management of cross-cultural, international projects. As just one example, consider the Iridium project. This project launched into space 66 low orbiting satellites, to produce a telecommunication network that would cover the entire globe, and allow anywhere to anywhere communications. It was the largest telecommunications project ever undertaken by the human race, costing $5 billion and involving several widely respected high technology organizations and about 6,000 engineers, technicians and business administrators from many parts of the world. The project used some of the highest levels of technology, included the largest commercial software development effort in history, and involved 26 countries. During its planning, design, and early implementation stages, the project was expected to be a major success. Iridium achieved some of its technical, delivery, and operational objectives. However, the project was a dismal commercial and financial failure, ultimately forcing Iridium LLC to file for bankruptcy in 1999. Iridium LLC planned to let the 66 satellites disintegrate in space.

But, in bankruptcy court, the entire venture was ultimately sold to a new entity, Iridium Satellite LLC for a mere $25 million in 2000. Iridium Satellite LLC foresees a viable future, focused on new applications for a space-based system including data delivery, low-speed Internet services, and remote location users—primarily “business and organizations that operate beyond the world’s telephone lines”. Iridium used proven project management methods and best practices. However, the project strategy relied heavily on the technical aspects and the schedule milestones. It appears to have insufficiently addressed quality, feasibility, global marketing, team communications, and customer acceptance of the product.

“Iridium’s international structure has proved almost impossible to manage: The 28 members of the board speak many languages, turning meetings into mini-U.N. conferences complete with headsets translating the proceedings into five languages. Problems in cross-cultural communications may have played an important role in the demise of Iridium: The Chief Executive Officer of Iridium LLC “set up a chart with red, green and yellow cars to illustrate which consortium partners were on schedule, which were lagging, and which were far behind. According to one person who was there, several partners who had been tagged with red cars refused to talk to him after the meeting”.

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