D270 Midterm
Key reasons Disney chose Paris
*68 million people within 4 hour drive *better government deals than Spain *reviewed 1200 locations in Europe before deciding *lots of Europeans were visiting Disney World in Orlando *many Disney stories and princesses are European *Barcelona 2nd choice but seasonal high winds and government challenges led to it being eliminated. *Paris location land was flat *Paris agreed to build metro and train stations by the park entrance * chunnel coming putting 30 million people 2 hours or less away *Roy Disney later said probably should have built in Spain
Apple's failure in India (video)
- Apple popularity is low in all BRIC countries - Price plays a role in India (high premium in India; marketing inferior products to get lower prices) - Apple if facing aggressive competitors (Chinese smartphone sellers and their local strategy; Vivo and Oppo have high profit margins to sellers; need in rural areas to touch/feel product) - Apple itself as a brand (Indians want specs and features that Apple does not offer; India is diverse ie. need for credit cards, siri, apple music)
Disney Shanghai (Video)
- Disney does not have outright editorial control (it owns about 40%)- must work closely with Chinese gov - 5 years to build but many more spent negotiating (human and dollar expense for Disney; lots at stake but also huge potential with the large Chinese population) - Chinese twist (excitement even if do not know characters)
World's most powerful passport article
- Japan has the world's most powerful passport - least powerful passport is Afghanistan with access to 30 destinations (now only 28)
Cultural Differences between American and Europe (Video)
- Pay to use public toilets - Water is not free and they like sparkling - Every city has history - They drive less - Sports are not a family affair - Smaller food portions - Cigarettes are fashionable - Dress nicer - They can speak multiple languages - They recycle more - Coins actually matter - Toilets have two buttons - Electric cars are more common in Europe - Fewer trash cans - Street signs are tricky (usually on buildings) - Dinner is all night activity - They love outdoors - Longer vacations
Why study political environment?
- Political Environment affects Business Sovereignty - To assess overall attractiveness for investment (costs, benefits, risks) - To decide on operating modes and degree of adaption to host country practice ( what decisions do they allow you to make?) - To gauge the level of stability of instability
What country has the highest percentage of twitter users?
- Saudi Arabia (14 countries have heavier Twitter usage than USA)
Joint venture (FDI-Mode of Entry into Foreign Markets)
- creation of a new entity in a new market with one or more other firms as joint owners in the new entity - cost: high - control: moderate - governance mechanism: shared stake in new entity created by two or more parent firms - pros: strong tie with partner; chance to learn about market or technology from JV partner; leverage partner's relationships - cons: complex to set up long negotiations; significant investment; may be difficult to manage and make decisions over time
Low power distance
- i.e. America - boss has open door policy/ tell someone to do something before you even finish instructions hands are raised - people prefer consultative styles
Individualism
- i.e. America - dream of becoming rich/ accept some may be homeless/ love rags to riches story/ employees of the month
Is globalization in retreat?
- immigration and terrorism (i.e. Sweden changes immigration policy to be more strict) - Brexit vote (voted to leave EU because spending lots of $ daily to EU and we have too many immigrants coming in) - US presidential elections (and other elections) - Trans-Pacific Partnership (TPP) failure - Putin meddling in democratic process - France's elections (right wing says no more than 10% of anybody can enter) - Brazil elections
Polycentrism
- in each area, lets just adjust to that culture to fit in - act how the companies act abroad - involves adapting to the culture of the country you are entering
Major behavior practices affecting business
- issues in social stratification (meritocracy- achievements/ talents and group membership) - affiliations (ascribed or acquired) - race and ethnicity, male and female roles, age, family ties
How many countries are there?
- it depends (about 200) - anybody's opinion - if the world cannot decide how many countries there are, how do we agree on bigger issues? - (195) USA recognizes (Vatican bc large catholic pop. in USA and Taiwan bc kicked out of UN since China views them as a state) - (193) UN recognizes (not Vatican nor Taiwan)
The Culture Map (Communication) (Video)
- low context culture: assume we have low level of shared context/ reference points; simple, explicit, clear is good communication, nail things down in writing, Englo saxo countries (US being lowest) - High context culture: assume we have a lot of shared context; sophisticated, implicit is good communication, open for interpretation, Asian countries (Japan being heighest) - Latin countries fall in middle of spectrum
Work motivation
- materialism (keep making money to get luxury items) vs. leisure (make enough to have fun at end of the day) - masculinity- femininity index (masculinity= top, #1, cut costs, live to work/ femininity= everyone be their best versions, nurturing, work to live)
Political spectrum
- most countries fall somewhere in between
Totalitarianism
- one person/party exercises absolute control over all sphere of human life (competing political parties are banned) - governments direct most of economic activity, but few social ones - court system controlled by political party in power (political party decides and can ignore any if written laws)
Why did Apple fail in India?
- only %1 of people in India have a credit card (apple system you need a credit card in system) - why did they not lower the price? (At Apple we are concerned if we lower price, people from Middle East/ Europe, will buy in bulk and start selling) - did not adjust to the culture
How do we measure globalization?
-25% of global production sold outside country of origin (7% in 1950) -restrictions on imports have been decreasing since WWII -foreign ownership of assets has been increasing since WWII -world trade has grown more rapidly than production since WWII
Types of Totalitarianism
-Authoritarianism -Fascism -Secular -Theocratic
Doctrine of Individualism
-Champions the rights and role of the individual over the group. -Laissez-faire > Government should not interfere in business affairs. -Governments play a limited role in society
Doctrine of Collectivism
-Collective goals are more important than individual goals -Individual interests are subordinate to the good of the collective. -A collectivist supports political systems that are interconnected with business (very involved because how else would you make sure it is all equal for everybody) - Examples: Russia puts communism (collectivist) all over eastern Germany
International vs. domestic business
-decision making in IB is much more complex (than in home country) -complexity increases with *level of internal control desired *level of involvement/mode of operation *number of countries of expansion *differences among countries of expansion
Australia Coffee Shops come to USA (Video)
-more Australian style cafes are coming to huge US cities (i.e. Stowaway coffee & kitchen - showing some promise of success
Political ideology
how the society should govern itself and the methods it will use
Saudi Arabia's Dynamic Culture (Case)
- Saudi Arabia can be perplexing to foreign firms as they try to exercise acceptable personal and business behavior - King Ibn Saud merged the then independent areas and created a political and religious entity; legitimized his monarchy and succession by defending Islamic holy areas, beliefs, and values - Modernization has been controversial within Saudi Arabia (liberal group- elite foreign traveled segment; economic growth to provide more choices vs. conservative group- religious leaders; fearful that modernization will upset traditional values and strict Koranic teachings) - religious factors; traditional factors; gender roles; cultural dynamics - changes tend to be uneven: particularly among the country's geographic areas and among people with different income and education levels
What is globalization?
- a process of broadening of interdependent relationships among people who are divided into national borders - reduction of barriers on movement of goods, services, capital (money), technology, and people
Secular Totalitarianism
- a single party government controls elections, suppresses other ideologies (party says this is the way it is going to be and there is no other choice) - limited individual freedoms - Ex. China, Vietnam, Venezuela (not based on religious principle or governmental system)
How Language Effects the Way We Think (Video)
- about 7,000 languages - Language effects: Big (think about time, how people describe time/direction- the Kuuk Toyer people are more orientated), Deep (think about counting- some languages do not have numbers and they cannot keep track of quantities), Early (think about the color blue- Russians' minds are faster), Broad (grammatical gender- everything you can describe with a noun is now impacted like how German vs. Spanish speakers describe a bridge) Weight (think about blame and punishment- the way US vs. Spanish speakers see how the vase broke) - Why do I think the way I do? How does my language impact how I speak?
National culture is
- acquired (not inherited- you learn it i.e. if you are born in Canada yet fly back to USA you are not Canadian in culture) - gradual (shaped slowly over time and not readily apparent i.e. 1965 photo of Kelley classroom and students) - ethnocentric (insiders are at center of the map- "my group is better than the other groups") - shared (insiders develop a similar way of seeing the world - hard to change (old habits die hard) - relative (not right nor wrong- just different)
Adv./Disadv. of totalitarianism
- adv: can permit fast and efficient national policy formation because there is no need to debate' enlightened leaders can make good decisions in the national interest - disadv: needs of individuals and private enterprise are subordinate to those of the state; leaders can make poor decisions and may be corrupted by power
Adv./ Disadv. of democracy
- adv: ppl prefer to have choice over personal and economic decisions; ppl prefer freedom over control of their behavior -disadv: difficult to achieve national agreement; national policy can be slow and cumbersome to implement
Carnival Cruise Lines (Case)
- almost the whole cruise line industry is international is scope - what it takes to operate a cruise line (ship shopping, where to find crew members, casinos and other amenities, the overseas environment, safety issues, economic issues, weather, future)
Social democracy
- applies the democratic means to introduce socialist policies to capitalism; the government promotes egalitarianism while also regulating opportunism - Ex. Sweden and Norway (ie. free child care, universal medicine)
In high context countries, people
- are unwilling to give their opinion, especially if it is negative - use symbols instead of words—smiles, tears, gestures, looks
Wrong assumptions in IB
- business is business everywhere and language of business is English - they are eager to adopt our way of doing things - travel, trade blocks, and global media are creating a single global culture - people are the same everywhere and getting along mainly involves using common sense
Influences on culture formation and change
- change by choice - change by imposition (imperialism- one country invades and says do it our way) - cultural diffusion (where 2 cultures come together and create a sort of new one together i.e. Tiwana Mexico and USA) - creolization (where one country says there is something in that culture we like; how do we imply that it is in ours too i.e. Tortilla chips from San Diego restaurant) - language - religion
Parliamentary democracy
- citizens elect representatives to a legislative branch (the parliament); the legislature legitimizes the various ministers that run the executive branch - people pick party that decides who will be leader - EX. India, Australia, England
Geocentrism
- combination of polycentrism and ethnocentrism - mostly the same but you still make adjustments - McDonald's sells beer in Germany - integrates both home and host country practices - encourages innovation and improves the likelihood of success - balances informed knowledge of their own organizational cultures with home and host country needs, capabilities, and constraints
Tips for Smooth Cross Cultural Interactions
- consult GlobeSmart for country profile and specific information - proceed slowly and check step by step - become conscious of local patterns - local language is important - use local partners - great news: with work and experience, one can become the lesson of a "stranger"
Guidelines for cultural adjustment
- host country acceptance - degree of cultural differences - ability to adjust / culture shock - company and management orientation (polycentrism, ethnocentrism, geocentrism)
Franchise/ licensing (Mode of Entry into Foreign Markets)
- entering an agreement for local manufacturer to produce and sell goods in a new market (franchise is usually service business- you can use our name i.e. McDonald's); licensing is when I have a product and I say to your company, who also manufactures products, you can make mine here is the formula, bottles, etc. BUT may be a royalty for everyone you sell- you make it you sell it i.e Coca cola does this) - cost: low (sometimes they pay you for the rights you do not even have to pay them) - control: low (you cannot oversee their exact actions overtime) - governance mechanism: formal contract with licensee - pros: flexible; fast; some local adaptions - cons: limited financial return (captured by licensee); lack of control of sales processes and customer experience
Export via local distributor (Mode of Entry into Foreign Markets)
- entering into an agreement for a local distributor to sell goods produced in home market in a new market (distributor goes to store and sells lots of different products) - cost: low (just have to give them a % of profits) - control: low (you do not get to pick placement of your product in a store/ how hard they sell your product) - governance mechanism: agency agreement with agent in new market - pros: flexible; fast; some local adaptations - cons: limited financial return (captured by distributor); lack of control of sales process and customer experience
Collectivism
- everyone gets equal/ raise everyone up, that is better than having just one bill gates
Areas to analyze
- explore all the external factors that can affect a corporation's potential to gain and sustain a competitive advantage - these are the areas that a manager has little influence over
Starbucks Failure in Australia (Video)
- failing in Australia (1) tough market to break into (2) opened first in Sydney then expanded too fast (could not just rollout business model) instead of slowly integrating into Australian market (too available, no time to adapt, not organic growth) (3) Australian coffee market is one of biggest in the world (they have options; they like cafe culture and specialty drinks; Starbucks came in with US view of coffee) (4) coffee was not to taste of Australians and princes were high (failed to adapt menu; charged more than local cafes) (5) Gloria Jean - not admitting defeat in Australia (shifting to focus on tourists)
A Few Summary Points on Modes
- firms have a range of alternatives from Exporting to Foreign Direct Investment (FDI) - selection of modes depends on a number of factors and trade-offs which might range from firm strategy to restrictions by host country governments - exporting tends to be the least complex and FDI tends to be the most complex - firms might use different modes abroad depending on the host country situation and other factors
Pragmatism(practical)
- focus more on details than on abstract principles - need all the steps - i.e. we will not stop global warming until we have a plan - we need the plan; details; step by step
Current Political Systems Around the World (types of governments in world)
- full democracy, flawed democracy, hybrid regime, authoritarian
Coca- Cola Global Expansion (Video)
- global player - seen as an icon of USA culture - other countries say Coke practices Monoculturalization (take western ideas and replace traditional ones) - Coke is also said to practice disembedding (take American product and make it feel familiar to everyone everywhere (fit local customs and saying- example Coca- Cola Indian commercial of holidays and dialects))
Cultural Environment
- globalization is about greater interdependence - interdependence creates opportunities for firms and managers - engaging in IB creates various levels of involvement abroad (exporting toward FDI) - IB is much more complex than domestic business, due to environmental perspective - Since business gets done through people, we need to understand how the cultural environments abroad shape people's behaviors
Is offshoring good or bad?
- good: chance to lower costs; chance to sell more home goods in host country; growth in host country creates more jobs at home; moving simple production abroad boosts productivity at home; jobs abroad helps host country buy more from home - bad: lower costs do not lead to lower prices; jobs are lost at home; low wage pressures on remaining home jobs (1000 people would of work what does that mean for other businesses? why should I raise your salary if I can get another person in your slot no problem?); exploits host country labor; loss of control over suppliers; risk of losing technology due to lax IP protection
Globalization- good or bad?
- good: prevent war, get goods for cheap (affects princes and options), promote competition - bad: foreign labor issues, income inequality, domestic jobs
Decline in Internet Freedom
- gov around the world is strangling the free internet - 7th consecutive year: more gov increasingly using gov shutdown around elections/protests; increase in the number of people being attacked for anti government views - Chinas program censephne credit (R/P for social media behavior) - gov use same methods as advertisers to power and send messages
Democracy
- gov is by the people, exercised either directly or through elected representatives (representative democracy) - democracy and individualism are intrinsically related and mutually reinforcing - court system is independent, not supervised by the political system ,government does not make decisions in court
Theocratic Totalitarianism
- government is an expression of the given deity and leaders represent its interest on earth; strict social regulation - gov is led by religious leaders - Ex. Iran Saudi Arabia, Afghan
What determines the political and legal system differences?
- history: colonialism (US structured like England was), dominance/ influence (small countries sometimes follow system of the big countries next to them), internal development (French kings/queens--> revolution--> never a king or queen again in France) - economic circumstances: poverty fosters rational to restrict and control (by gov forces), wealth tends to be associated with fewer restrictions and freedom (by gov forces)
Ethnocentrism
- home culture is superior - whatever we do we are doing around the world - this is who we are (i.e. Apple and India0 - chick fil a and Israel on Saturday's (no we will be closed on Sunday's no matter what country we go into)
Representative democracy
- originates in an constitution, protects individual freedoms and liberties; law treats all citizens equally; elected representatives act in the people's best interest; official represent voters and have the authority to act as they see fit - EX. Japan and US
Polychronic
- people are more comfortable when working simultaneously on a variety of tasks - dealing with multiple customers at same time - Latin America, African, Middle Easter countries
Monochronic
- people prefer working sequentially - finish a transaction with a customer before beginning another task - North America and Central European Countries
How the external environment affects international Business
- physical factors: geographic and demographic influences - institutional factors: political and legal polices; behavioral and economic forces - competitive environment: competitors, available resources, size of market, etc.
Equity investment (FDI- Mode of Entry into Foreign Markets)
- purchase minority stake in an existing firm in a new market, enter an agreement to work with the firm in that market - cost: moderate to high - control: low to moderate - governance mechanism: minority ownership stake in existing entity - pros: can develop trust; can learn about market from partner cons: expensive to buy equity; lack of control over partners actions; requires careful negotiation to establish relationship
Acquisition (FDI-Mode of Entry into Foreign Markets)
- purchasing a majority stake in an existing firm operating in a new market - cost: very high - control: high - governance mechanism: majority ownership stake in existing entity - pros: leverage existing business processes, people, and relationships - cons: expensive; integration challenges; management challenges over time
High power distance
- respects people older/ higher up in corporation/ do what boss says/ never ask boss question - people prefer to be told what to do
How does understanding culture differences apply to you?
- understanding diversity and IU and Kelley (the more you can connect on a team project the better) - preparation for deeper study abroad experiences (you are in a different culture, you should understand them) - managing cultural diversity in I core team - analyzing case studies in higher level courses (lots are of international companies or companies entering a new country) - internship may have international components - preparation for final job search and over career
Which country has the highest percentage of internet users?
- when analyzing a country, you need to see what they have access to and their norms - not the USA (as a percentage- internet access remains elusive in much of rural USA and nation's inner cities) - percentage by population (Bahrain with 99.70%; Qatar; Kuwait; UA Emirates; Denmark; Norway; South Korea; Saudi Arabia; Brunei; Sweden; Netherlands; Switzerland with 93.15%) - internet has no value if you cannot read nor write
Greenfield (FDI-Mode of Entry into Foreign Markets)
- setting up a new operation from scratch in a new market (new brand, new product, something no one has seen) - cost: very high - control: high - governance mechanism: full ownership of newly created entity - pros: full control of new operation; replicate best practice from other areas of business - cons: high cost; difficulty operating in new market with limited relationships and knowledge - example: Toyota and Lexus
Sales operation (Mode of Entry into Foreign Markets)
- setting up sales team in a new market to sell goods produced in home market - cost: moderate (compensate for foreign operations and establish location for team) - control: moderate (tea can directly manage in the foreign company - governance mechanism: ownership of sales operation in new market - pros: limited investment; learning about new market - cons: difficult to establish relationships; initial lack of understanding about market
Fascism Totalitarianism
- single party state that controls peoples' minds, souls, and daily existence (brainwashing) - merge state and corporate power - "I will make you think the way I want you to; you will love me and our leadership" - EX. Hitler and Mussolini
Problems communicating across cultures
- some words have no precise translation - the meaning of words is constantly changing. (ex gay and dope) - words can mean different things. (mean vs. mean) - humor is not the same everywhere
International Students and International Business (Case)
- students enroll in degree programs or to study temporarily, such as on study abroad programs through their home country universities. The scale of this mobility affects all stakeholders (financially and culturally)- students themselves, home and host - The subject may be examined at a national (macro), university (meso), and individual (micro) level- further it may be examined from the standpoint of home countries and host countries - Intercultural Competence Model: One suggestion in addition to student's immersion in another culture is to plan an intercultural curriculum over the duration of student's study program; By improving their knowledge and skills about culture, they then progress form the personal level to the interpersonal level (intercultural interaction with others - Conclusions
Political system
- system of government in a nation - who holds the power? institutions , organizations, and interest groups; rules for political activity - political systems can be addressed according to two dimensions: (1) degree to which they emphasize collectivism as opposed to individualism and (2) degree to which they are democratic or totalitarian
Direct export (Mode of Entry into Foreign Markets)
- taking order in home market and shipping them direct to customers in a new market (take order in, send the wanted item) - cost: very low (consumer usually ends up having to pay the shipping) - control: moderate (you get to pick who to sell to) - pros: easy to initiate; no shared control or ownership - governance mechanism: governed through home market office - cons: high shipping times, costs, and complexity for individual items; lack of sales of marketing presence in a new market; no local adaptations * indirect export is same but just goes threw a third party (another country) *service is nonproduct sales like travel, transportation, banking, insurance, use of trademarks, patents, copyrights
Political freedom
- the degree to which fair and competitive elections occur - the extent to which individuals and group freedoms are guaranteed - the legitimacy of the country's rule of law - the existence of freedom of the press
Idealism (unrealistic)
- the practice of forming or pursuing ideals, especially unrealistically - idealism people believes in ideals; they see the big pictures - i.e. we want to stop global warming but we do not know how - we want to be number that is it (no clear plan or steps- just an idea)
Multiparty democracy
- three or more parties govern (separately or as a collation); a single party cannot legislate policy without negotiating with opposition parties - EX. Canada, Israel, Italy, Germany
Why perform a country analysis?
- to decide the most suitable countries in which to expand - to choose an order of expansion over time -to identify which products or services would be most suitable - to decide on the most effective entry modes in a particular country - to identify opportunities and risks of operating in a particular country
Authoritarianism Totalitarianism
- tolerates no deviation from state ideology; submission to state authority, resistance incurs punishment - EX. North Korea and Chad
Risk taking
- uncertainty avoidance(some countries still don't have cars, never do because are uncertain) -trust(some countries build trust before they do business with you) - future orientation(some cultures cannot think more than 3 years outi.e. Afghanistan today)
Why is understanding how people communicate important for IB?
- wrong assumptions - how can we build cultural awareness (be careful of using stereotypes) - what are Americans like video
Forces behind current extent of globalization
1) increase in and application of technology improvements in transportation and communications networks 2) liberalization of cross-border trade and resource movements 3) development of services that support international business activities - Transportation, banking, packages, etc. 4) growing consumer pressures consumer demand for foreign products and on MNC behaviors (driven by TV and social media) 5) increased global competition 6) changing political situations and government policies 7) expanded cross-national cooperation WTO, IMF, NAFTA, EU, treaties and agreements
Mode of Entry into Foreign Markets (operating modes)
1. Exports/ Imports (merchandise: visible goods, direct exports, indirect exports; services: tourism/transportation, Turnkey operations, management contracts, licensing agreements and franchising) 2. Investments (FDI: controlling interest: solo, joint venture, consortium; portfolio: noncontrolling like stocks, loans, bonds, bills, notes)
Negative side of globalization
1. threats to National Sovereignty (small countries feel threatened and overly dependent; cultural homogeneity threatens uniqueness) 2. environmental Stress (depletion of planet's limited resources; pollution and contamination; emission of greenhouse gases and climate change) 3. growing Income Inequality & Stress (greater division between rich and poor; threat of job loss leads to personal stress)
Why do firms go international?
1. to expand sales (growth and efficiency- Disney, Volkswagen Germany, Loreal France, Nestle Switzerland, Sont Japan) 2. to acquire resources (not everything can be found at home- labor, products, components, services; foreign capital; technologies; information/ knowledge) 3. minimize risk (business cycle differences amongst countries; diversify suppliers across countries; counter competitors' moves and advantages) 4. others (institutional factors like image)
Outsourcing
A decision by a corporation to turn over much of the responsibility for production to independent suppliers; contracting a specific process out to a third party (i.e. bikes in the world are made and manufactured in Taiwan but the bike company is a USA company)
World's most censored internet?
China- 4th year in a row
International Business
Any commercial transactions between 2 or more countries
What country has the highest percentage of women?
Curacao (54.6%) Latvia Martinique Lithuania Ukraine Russian Fed Belarus Estonia Hong Kong SAR Guadeloupe (52.8%)
World's most free internet?
Iceland (US is increasing in restrictions for third consecutive year)
The Globalized Business of Sports (Case)
NOT ON TEST
Hello in different languages
Spanish- hola French- bonjour German- halo Swedish- alo Italian- chou
How does culture effect people?
The determinants of culture - religion - political philosophy - economic philosophy - education - language - social structure
Full democracy (political system)
mature political culture; transparency; judiciary is independent; rule of law is enforced and followed (USA, Canada, Norway, Austria, Denmark, South Korea)
Types of democracies
representative, multiparty, parliamentary, social
What is culture?
shared values, attitudes, and beliefs of a group of individuals - you can be in a couple cultures - not every single person shared every single thing - national cultures (by country) - cultures within cultures (subcultures i.e. Vietnamese in garden grove LA)
Offshoring
shirting production from the domestic country to a foreign one (i.e. Apple moves their own operations to a new country)
Flawed democracy (political system)
state represents basic civil liberties; free elections; fraud or media restrictions; probably bribery going on; weak political culture; policy changes (Brazil, South Africa, Hungary, Mexico, and India)
