Final Exam

Market economy

All productive activities are privately owned, and production is determined by the interaction of supply and demand. The role of government is to encourage free and fair competition between private producers

Group:

An association of two or more people who have a shared sense of identity and who interact with each other in structured ways based on a common set of expectations about each other's behavior. This may discourage job switching between firms, encourage lifetime employment systems, and lead to cooperation in solving business problems & might also suppress individual creativity and initiative.

There are three types of legal systems:

Common law- based on tradition, precedent, and custom Civic law- based on detailed set of laws organized into codes Theocratic law- law is based on religious teachings

Building Multicultural Teams:

Communicate, communicate, communicate!! -Communicate with a positive attitude -Be clear about who you are addressing -Be descriptive -Avoid making value judgments -Rephrase what you heard -Give examples -Speak only for yourself -Suggest changes that can be linked to behaviors

There are four major forms of totalitarianism:

Communist- found in states where the communist party monopolizes power Theocratic- found in states where political power is monopolized by a party, group, or individual that governs according to religious principles Tribal- found in states where a political party that represents the interests of a particular tribe monopolizes power Right-wing- permits some individual economic freedom, but restricts individual political freedom

Social responsibility:

Refers to the idea that businesspeople should take the social consequences of economic actions into account when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and good social consequences.

Legal system:

Refers to the rules that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained.

Language:

Refers to the spoken and unspoken means of communication. Language is one of the defining characteristics of culture.

If work conditions in a host nation are clearly inferior to those in multinational's home nation, companies could apply:

Home country standards, host country standards, or something in between

Human rights:

In developed countries, basic human rights such as freedom of association, freedom of speech, freedom of assembly, and freedom of movement, are taken for granted. In other countries, these rights may not exist.

The connection between culture and competitive advantage is important because:

It suggests which countries are likely to produce the most viable competitors. It has implications for the choice of countries in which to locate production facilities and do business

Quiz: Which of the following is not characteristic of individualism?

Low managerial mobility

he Foreign Corrupt Practices Act:

Makes it illegal for U.S. companies to bribe foreign government officials to obtain or maintain business over which that foreign official has authority. The OECD has also adopted a convention that obliges member states to make the bribery of foreign public officials a criminal offense.

There are three types of economic systems:

Market economies Command economies Mixed economies

Quiz: In which type of economic system are all productive activities privately owned?

Market economy

Quiz: A _________ approach could increase a company's chances of finding new markets

Multilingual

Quiz: All the following except ____ contribute to unethical behavior by international managers.

National culture

Private action & Public action to violate property rights:

Occurs when public officials extort income, resources, or the property itself from property holders. This can be done legally through mechanisms like excessive taxation or illegally through corrupt mechanisms like demanding bribes or blackmailing. High levels of corruption reduce foreign direct investment, the level of international trade, and the economic growth rate in a country

3rd step to adopting a new culture:

Once you've figured out what adaptations you can (and are willing to) make, develop muscle memory. Make them automatic by practicing

Intellectual property can be protected using:

Patents- exclusive rights for a defined period to the manufacture, use, or sale of that invention Copyrights- the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit Trademarks- design and names by which merchants or manufacturers designate and differentiate their products

1st step to adopting a new culture:

The first step in a high-pressure situation that's outside your cultural comfort zone is- to understand the code, the rules of the game

Personal ethics:

The generally accepted principles of right and wrong governing the conduct of individuals influence business ethics. Expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture, and they are psychologically and geographically distant from the parent company

Command economy

The government plans the goods and services that a country produces, the quantity that is produced, and the prices at which they are sold. All businesses are state-owned, and governments allocate resources for "the good of society"

Individualism:

Refers to philosophy that an individual should have freedom in his own economic and political pursuits. Aristotle argued that individual diversity and private ownership are desirable. Individualism means democratic political systems and free market economies

Intellectual property:

Refers to property that is the product of intellectual activity.

Firm's strategy:

Refers to the actions that managers take to attain the goals of the firm

Political system:

Refers to the system of government in a nation. Can be assessed according to two dimensions: The degree to which they emphasize collectivism as opposed to individualism and The degree to which they are democratic or totalitarian

Organizational Culture:

Refers to the values and norms that are shared among employees of an organization. In firms with an organization culture that does not emphasize business culture, unethical behavior may exist

The foreign exchange market is:

The market that converts the currency of one country into that of another country. A firm's sales, profits, and strategy are affected by events in the foreign exchange market The foreign exchange market: -Is used to convert the currency of one country into the currency of another -Provide some insurance against foreign exchange risk (the adverse consequences of unpredictable changes in exchange rates)

Arbitrage:

The process of buying a currency low and selling it high

The spot exchange rate is:

The rate at which a foreign exchange dealer converts one currency into another currency on a particular day. Spot rates change continually depending on the supply and demand for that currency and other currencies

Norms:

The social rules and guidelines that prescribe appropriate behavior in particular situations. Includes folkways (the routine conventions of everyday life), and mores (norms that are seen as central to the functioning of a society and to its social life)

The modes of communication used by global teams must be carefully considered, because:

The technologies can both reduce and increase social distance. Videoconferencing, for instance, allows rich communication in which both context and emotion can be perceived. E-mail offers greater ease and efficiency but lacks contextual cues

Value Creation:

The value created by a firm is measured by the difference between P (the price that the firm can charge for that product given competitive pressures) and C (the costs of producing that product). The higher the value customers place on a firm's products, the higher the price the firm can charge for those products, and the greater the profitability of the firm

Determinants of Culture:

The values and norms of a culture are the evolutionary product of a few factors at work in a society including religion, political and economic philosophies, education, language, and social structure

Quiz: _____ is found in states where political power is monopolized by a party according to religious principles.

Theocratic totalitarianism

There are three important implications that flow from these differences:

There is a need to develop cross-cultural literacy There is a connection between culture and national competitive advantage There is a connection between culture and ethics in decision making

internally controlled vs externally controlled:

internally controlled, by an individual or a company, believe that good design and planning can help to avoid most failures. externally controlled accept failure as inevitable and believe that survival depends on developing the skills to respond to it quickly.

Three factors impact future exchange rate movements:

-A country's price inflation -A country's interest rate -Market psychology

Ethics officers ensure that:

-All employees are trained in ethics -Ethics is considered in the decision-making process -The company's code of conduct is followed

Quiz: ________ recognize that human beings have fundamental rights and privileges which transcend national boundaries and cultures.

Rights theories

The Importance of empathy:

Empathy helps reduce social distance. To foster this, global team leaders need to make sure they build the following "deliberate moments" into the process for meeting virtually: -Feedback on routine interactions -Unstructured time -Time to disagree

English-ization vs. Multigualism:

English-ization is a term generally used to describe the transformation which takes place in non-English cultures and languages as a result of exposure to the English language. Multilingualism in business, described as an alternative to the use of English and which seems to become more and more important for those businesses who want to enter foreign markets.

Quiz: Feedback on routine interactions, unstructured time and time to disagree are important to:

Ensure Inclusion

Environmental Pollution:

Ethical issues arise when environmental regulations in host nations are far inferior to those in the home nation. Environmental questions take on added importance because some parts of the environment are a public good that no one owns, but anyone can despoil. The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation

Quiz: The ________ is the rate at which one currency is converted into another.

Exchange rate

Rule-centered societies (The U.S/Britain):

Feel that general rules should have global application and that all comers should compete on a level playing field.

2nd step to adopting a new culture:

Figure out what the "zone of appropriateness" is in the new culture for each of those dimensions. In most cultures there's a range of acceptable behaviors. We tend to exaggerate what's required, by the way.

Quiz: Abstract ideas about what a group believes to be good, right, and desirable are called

Values

Culture isn't everything, other things to consider:

What do you know about the region? What do you know about the company or industry? What do you know about the people?

Cross-cultural literacy:

An understanding of how cultural differences across and within nations can affect the way in which business is practiced

Purchasing power parity (PPP) theory:

Argues that given relatively efficient markets (markets in which few impediments to international trade and investment exist) the price of a "basket of goods" should be roughly equivalent in each country. PPP theory predicts that changes in relative prices will result in a change in exchange rates

Unspoken Language:

Refers to nonverbal communication such as facial expressions, personal space, and hand gestures. Failing to understand the nonverbal cues of another culture can lead to communication failure.

Cross-cultural business negotiations:

-Cope with culture clashes: By understanding triggering factors, such as deadlines, distractions, and emotional stressors. -Reduce the possibility of cultural misunderstanding: Think through the factors of the negotiation in advance, including the location, members of the team, and agenda. -Research your counterpart's background and experience: Overcome cultural barriers and learn who you're negotiating with by findings out details about their background and experience. -Choose your translator wisely: Before hiring interpreters, determine their experience and skill and be sure to brief them before negotiations start. -Know that there's strength in numbers: On average, research has found that teams exchange more information and create more value than solo negotiators. -Pay close attention to unfolding negotiation dynamics: Listen carefully during talks and if you're unsatisfied with the answers, reframe your questions and try again

To determine if a decision is ethical, managers can ask:

-Does my decision fall within the accepted values of standards that typically apply in the organizational environment? -Am I willing to see the decision communicated to all stakeholders affected by it? -Would the people with whom I have significant personal relationships approve of the decision?

The most common ethical issues in business involve:

-Employment practices -Human rights -Environmental regulations -Corruption -The moral obligation of multinational companies

Moral courage:

-Enables managers to walk away from a decision that is profitable, but unethical. -Gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical -Gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company -Does not come easily and employees have lost their jobs when acting on this courage

To ensure ethical issues are considered in business decisions, firms should:

-Favor hiring and promoting people with a well-grounded sense of personal ethics -Build an organizational culture that places a high value on ethical behavior -Makes sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in manner that is consistent with that rhetoric -Put decision making processes in place that require people to consider the ethical dimension of business decisions -Develop moral courage

Advantages of speaking multiple languages:

-Obvious advantages: learning more than one language enables new conversations and new experiences. -It's the constant act of interpreting. The journeying back and forth. The discovery that language, and the stories it carries, is not a straight path. -Access to other ways of thought and perception. The variety of our world cannot be sampled in a single language or country.

The causes of unethical behavior are complex and reflect:

-Personal ethics -Decision-making processes -Leadership -Unrealistic performance expectations -Organizational culture

The nature of a foreign exchange market:

-The foreign exchange market is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications systems—it is not located in any one place. -The most important trading centers are London, New York, Tokyo, and Singapore. -The market is always open somewhere in the world—it never sleeps

International companies use the foreign exchange market when:

-The payments they receive for exports, the income they receive from foreign investments, or the income they receive from licensing agreements with foreign firms are in foreign currencies. -They must pay a foreign company for its products or services in its country's currency ---They have spare cash that they wish to invest for short term in money markets -They are involved in currency speculation (the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates)

To correct perceived power imbalances between different groups, a leader needs to get three key messages across:

-Who we are: The team is a single entity, even though individual members may be very different from one another. The leader should encourage sensitivity to differences but look for ways to bridge them and build unity. -What we do. It's important to remind team members that they share a common purpose and to direct their energy toward business-unit or corporate goals. -I am there for you. Team members located far from the leader require frequent contact with him or her

Ethics:

Refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong governing the conduct of businesspeople. Ethical strategy is a strategy, or course of action, that does not violate these accepted principles

There are three types of foreign exchange risk:

1. Transaction exposure 2.Translation exposure 3.Economic exposure Firms need to understand the influence of exchange rates on the profitability of trade and investment deals.

Quiz: Which of the following does not impact future exchange rate movements

A country's arbitrage opportunities

Political economy of a nation:

Refers to how the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being

Totalitarianism:

A form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties. Communism is usually associated with collectivism and totalitarianism

Quiz: These are characteristics of a competent team leader

A high level of cultural flexibility and low levels of ethnocentrism

Values:

Abstract ideas about what a group believes to be good, right, and desirable. Provide the context within which a society's norms are established and justified and form the bedrock of a culture

Mixed economy

Certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning. Governments tend to own firms that are considered important to national security.

Quiz: What is a company's formal statement of ethical priorities called?

Code of ethics

Quiz: A political system that stresses the primacy of collective goals over individual goals is called

Collectivism

Hofstede later expanded his study to include a fifth dimension:

Confucian dynamism- which captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors.

Geography & Education are also important determinants of economic development:

Countries with favorable geography are more likely to engage in trade, and so, be more open to market-based economic systems, and the economic growth they promote. Countries that invest in education have higher growth rates because the workforce is more productive.

Spoken Language:

Countries with more than one language often have more than one culture. The most widely spoken language in the world, Chinese, is the mother tongue of the largest number of people. English is also becoming the language of international business, but knowledge of the local language is beneficial, and in some cases, critical for business success

What is culture?

Culture expresses goals through values and beliefs and guides activity through shared assumptions and group norms

Nation-states:

Political creations that can contain one or more cultures. Similarly, a culture can embrace several nations

Quiz: _______ focuses on how society deals with the fact that people are unequal in physical and intellectual capabilities.

Power distance

Geert Hofstede identified four dimensions of culture:

Power distance- Focuses on how a society deals with the fact that people are unequal in physical and intellectual capabilities. Uncertainty avoidance- Measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity. Individualism versus collectivism- Focuses on the relationship between the individual and his or her fellows Masculinity versus femininity- Looks at the relationship between gender and work roles

Profitability & Profit growth:

Profitability can be defined as the rate of return the firm makes on its invested capital. Profit growth is the percentage increase in net profits over time. Expanding internationally can boost profitability and profit growth

Rights theories:

Recognize that human beings have fundamental rights and privileges which transcend national boundaries and cultures. Establish a minimum level of morally acceptable behavior.

Property Rights:

Refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource. Property rights can be violated through: Private action & Public action

Democracy:

Refers to a political system in which government is by the people, exercised either directly or through elected representatives. Democracy is usually associated with individualism

Collectivism:

Refers to a political system that stresses the primacy of collective goals over individual goals. In modern times, collectivism is equated with socialists.

Social structure:

Refers to a society's basic social organization Two dimensions to consider: The degree to which the basic unit of social organization is the individual, as opposed to the group and The degree to which a society is stratified into classes or castes

In making decisions about which technology to use, a leader must ask the following:

Should communication be instant? Do I need to reinforce the message? Am I leading by example?

Ethical dilemmas:

Situations in which none of the available alternatives seems ethically acceptable. The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut.

Socialism:

Socialists advocate state ownership of the basic means of production, distribution, and exchange. In the early 20th century, socialism split into: Communism- socialism can only be achieved through violent revolution and totalitarian dictatorship and Social democrats- socialism is achieved through democratic means

Implications for managers:

Societies differ because their cultures vary. Cultures vary because of profound differences in social structure, religion, language, education, economic philosophy, and political philosophy.

The Universal Declaration of Human Rights:

Specifies the basic principles that should always be adhered to irrespective of the culture in which one is doing business. The declaration was prompted by the idea that some fundamental rights transcend national borders and cultures.

Managers can also use a five-step process to think through ethical problems:

Step 1: Managers identify which stakeholders (the individuals or groups who have an interest, stake, or claim in the actions and overall performance of a company) a decision would affect and in what ways. Step 2: Managers determine whether a proposed decision would violate the fundamental rights of any stakeholders. Step 3: Managers establish moral intent Step 4: The company engages in ethical behavior Step 5: The business audits its decisions, reviewing them to make sure that they were consistent with ethical principles

There is a link between interest rates and exchange rates:

The International Fisher Effect states that for any two countries the spot exchange rate should change in an equal amount, but in the opposite direction to the difference in nominal interest rates between two countries. In other words: (S1 - S2) / S2 x 100 = i $ - i ¥ S1 is the spot exchange rate at the beginning of the period and S2 is the spot exchange rate at the end of the period.

Quiz: A form of government in which one person or political party exercises complete control over all human life and prohibits opposing political parties is

Totalitarianism

Quiz: Which is not an area where multinational firms are concerned about ethics?

Trade regulations

Quiz: Design and names by which merchants or manufacturers designate and differentiate their products are called

Trademarks

Quiz: Culture refers to the customs of people, or other social groups through shared assumptions and norms

True

Quiz: The first step in a high-pressure situation that's outside your cultural comfort zone is to understand the code and the rules of the game

True

Look at slide 6 on powerpoint 9A

Value Creation Chart

Relationship- centered countries (China, Russia, & India):

Value bonds with family and friends above abstract rules: Particular circumstances and the people involved may dictate the response to a situation.