IBUS- week 2
representative democracy safeguards
(1) an individual's right to freedom of expression, opinion, and organization; (2) a free media; (3) regular elections in which all eligible citizens are allowed to vote; (4) universal adult suffrage; (5) limited terms for elected representatives; (6) a fair court system that is independent from the political system; (7) a nonpolitical state bureaucracy; (8) a nonpolitical police force and armed service; and (9) relatively free access to state information.
common law
(civil law) a law established by following earlier judicial decisions
grease payments
(facilitation payments) legal payments to speed up or ensure performance of normal government duties
the travels of a t-shirt
-Lubbock, Texas -Shanghai, China -Washington, DC -New York -Tanzania aka globaliztion is huuuuuge.
Pseudo-Democracies
-Many nations lie between pure democracy and complete totalitarianism --Authoritarian elements capture much of the machinery of state and use this in an attempt to deny basic political and civil liberties --Russia under Vladimir Putin
sources of political risk
-embargoes and sanctions (UK) -boycotts (shell/nigeria) -terrorism (belgum, france) -hostage taking (isis) -expropriation (government seizure of assets)
HDI is scaled to
0-1
What are the two basic strategies firms have to exert pressure on politicians?? (& ex)
1. voice - lobbying, collective bargaining 2. exit - relocating value-added activities offshore (or threatening too)
mixed economy
An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.
global interactions and linkages- globalization- is their an app for that (7/11)
7/11's in japan are actually very nice, and they have a app that lets you locate them.
command economy
An economic system in which the government controls a country's economy.
Civil Law
A law that governs relationships between individuals and defines their legal rights.
Tribal Totalitarianism
A political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power.
Right-Wing Totalitarianism
A political system in which political power is monopolized by a party, group, or individual that generally permits individual economic freedom but restricts individual political freedom, including free speech, often on the grounds that it would lead to the rise of communism.
intellectual property
A product of the intellect, such as an expressed idea or concept, that has commercial value.
supply restrictions
A supply restriction occurs when a single firm monopolizes a market.
Broader Conceptions of Development: Amartya Sen
According to Sen, development should be seen as a process of expanding the real freedoms that people experience. Hence, development requires the removal of major impediments to freedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, and neglect of public facilities as well as the intolerance of repressive states. In Sen's view, development is not just an economic process but a political one too, and to succeed requires the "democratization" of political communities to give citizens a voice in the important decisions made for the community.
Purchasing Power Parity (PPP)
An adjustment in gross domestic product per capita to reflect differences in the cost of living
world intellectual property organization
An international organization whose members sign treaties to agree to protect intellectual property
BRIC[KS] countries
Brazil Russia India China [Kenya] [South Africa] developing nations adding to the global world marketplace.
benefits of doing international business
By identifying and investing early in a potential future economic star, international firms may build brand loyalty and gain experience in that country's business practices.first-mover advantages/lack of late mover disadvantages countries with free-market economies in which property rights are protected tend to achieve greater economic growth rates than command economies or economies where property rights are poorly protected.
countries's health based on HDI ratings
Countries scoring less than 0.5 are classified as having low human development (the quality of life is poor); those scoring from 0.5 to 0.8 are classified as having medium human development; and those that score above 0.8 are classified as having high human development.
trademarks
Designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products
administrative distance
Differences in corruption, legal rules, political risk and instability, government policies, colonial ties
market economy
Economic decisions are made by individuals or the open market.
regulative institutions
Explicit rules that attempt to influence behavior through formal rewards, punishment, and monitoring. ex- formal laws
Trends of political transition
First, during the late 1980s and early 1990s, a wave of democratic revolutions swept the world.Second, there has been a move away from centrally planned and mixed economies and toward a more free market economic model.
three main reasons for the spread of democracy
First, many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations.Second, new information and communication technologies—including satellite television, desktop publishing, and, most important, the Internet and associated social media—have reduced a state's ability to control access to uncensored information.Third, in many countries, economic advances have led to the emergence of increasingly prosperous middle and working classes that have pushed for democratic reforms. This was certainly a factor in the democratic transformation of South Korea. Entrepreneurs and other business leaders, eager to protect their property rights and ensure the dispassionate enforcement of contracts, are another force pressing for more accountable and open government.
europe, legal systems, and property rights.
For example, when communism collapsed in eastern Europe, many countries lacked the legal structure required to protect property rights, all property having been held by the state. Although many nations have made big strides toward instituting the required system, it may be years before the legal system is functioning as smoothly as it does in the West. For example, in most eastern European nations, the title to urban and agricultural property is often uncertain because of incomplete and inaccurate records, multiple pledges on the same property, and unsettled claims resulting from demands for restitution from owners in the pre-communist era. Also, although most countries have improved their commercial codes, institutional weaknesses still undermine contract enforcement. Court capacity is often inadequate, and procedures for resolving contract disputes out of court are often lacking or poorly developed
Other economies GNI
Foreign affiliates activities in the host economy, parent firms in the foreign nation, domestic affiliates in the foreign nation
tension between globalization and localization: firm strategy
Global integration of value chain adaptation of product/marketing organizational centralization/decentralization market entry decision integrated non-market strategy
GNP/GNI vs GDP- honda cars
Honda manufactures cars in the U.S., but is incorporated in Japan . The cars it produces in the U.S. are part of U.S. GDP, but not U.S. GNI, as these cars use domestic factors of production (labor and resources), but are produced by a foreign nation. Conversely, the values are added to Japan's GNI, but not Japan's GDP. U.S. company Intel who manufactures silicon chips in Ireland. The production from that facility is added to U.S. GNI, but not U.S. GDP
Market Entry Decision
How should we exploit global opportunities - either by gaining global competitive advantages or gaining new market share - given large national differences in culture and institutions? When should we enter, or avoid, a particular country?
transition away from socialism
However, experience demonstrated that state ownership of the means of production ran counter to the public interest. In many countries, state-owned companies performed poorly. Protected from competition by their monopoly position and guaranteed government financial support, many became increasingly inefficient. Individuals paid for the luxury of state ownership through higher prices and higher taxes. As a consequence, a number of Western democracies voted many social democratic parties out of office in the late 1970s and early 1980s.
differences in contract law
In a common law state, contracts are very detailed with all contingencies spelled out In a civil law state, contracts are shorter and much less specific
representative democracy
In a representative democracy, citizens periodically elect individuals to represent them. These elected representatives then form a government whose function is to make decisions on behalf of the electorate.
Future of Democracy
Just as the potential gains are large, so are the risks. There is no guarantee that democracy will thrive in many of the world's newer democratic states, particularly if these states have to grapple with severe economic setbacks. Totalitarian dictatorships could return, although they are unlikely to be of the communist variety. Although the bipolar world of the Cold War era has vanished, it may be replaced by a multipolar world dominated by a number of civilizations. In such a world, much of the economic promise inherent in the global shift toward market-based economic systems may stall in the face of conflicts between civilizations. While the long-term potential for economic gain from investment in the world's new market economies is large, the risks associated with any such investment are also substantial. It would be foolish to ignore these. The financial system in China, for example, is not transparent, and many suspect that Chinese banks hold a high proportion of nonperforming loans on their books. If true, these bad debts could trigger a significant financial crisis during the next decade in China, which would dramatically lower growth rates.
Human Development Index (HDI)
Life expectancy at birth,educational attainment (measured by a combination of the adult literacy rate and enrollment in primary, secondary, and tertiary education)
the ideal political system for economic growth
People in the West tend to associate a representative democracy with a market economic system, strong property rights protection, and economic progress. Building on this, we tend to argue that democracy is good for growth. However, some totalitarian regimes have fostered a market economy and strong property rights protection and have experienced rapid economic growth. Five of the fastest-growing economies of the past 30 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth: undemocratic governments.
PIIGS countries
Portugal, Ireland, Italy, Greece, Spain countries struggling economically in the Eu.
How integrated will the world become? what are the factors here?
Product markets Capital markets Labor Markets Technology Markets
organizational centralization/decentralization
Should we centralize control in global headquarters or decentralize it to local subsidiaries?
adaptation of product/marketing
Should we develop and sell a standardized product or should we develop and sell a product adapted to local conditions?
integrated non-market strategy
Should we follow and adopt global standards of appropriate behavior, or should we allow for local variation in what is considered acceptable organizational behavior?
Global integration of value chain
Should we globally connect our value chain or should we separate it by region/nation?
CISG (United Nations Convention on Contracts for the International Sale of Goods)
The CISG establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations. By adopting the CISG, a nation signals to other adopters that it will treat the convention's rules as part of its law.
attractiveness of doing international business
The overall attractiveness of a country as a potential market or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country (see Figure 3.1). Generally, the costs and risks associated with doing business in a foreign country are typically lower in economically advanced and politically stable democratic nations and greater in less developed and politically unstable nations. The calculus is complicated, however, because the potential long-run benefits are dependent not only on a nation's current stage of economic development or political stability but also on likely future economic growth rates. Economic growth appears to be a function of a free market system and a country's capacity for growth (which may be greater in less developed nations). This leads us to conclude that, other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private-sector debt. It is likely to be least favorable in politically unstable developing nations that operate with a mixed or command economy or in developing nations where speculative financial bubbles have led to excess borrowing.
privatization in Great Britain
The privatization movement started in Great Britain in the early 1980s when then-Prime Minister Margaret Thatcher started to sell state-owned assets such as the British telephone company, British Telecom (BT). In a pattern that has been repeated around the world, this sale was linked with the deregulation of the British telecommunications industry. By allowing other firms to compete head to head with BT, deregulation ensured that privatization did not simply replace a state-owned monopoly with a private monopoly. Since the 1980s, privatization has become a worldwide phenomenon. More than 8,000 acts of privatization were completed around the world between 1995 and 1999
global terrorism and globalization
Thus, the rise of Islamic fundamentalism is portrayed as a response to the alienation produced by modernization.Huntington predicted conflict between the West and Islam and between the West and China.
privatization
To change from government or public ownership or control to private ownership or control.
Foreign Corrupt Practices Act
U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.
Foreign Corrupt Practices Act (FCPA)
U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.
contract
a binding agreement between two or more persons that is enforceable by law
what is required for a business environment of a country to be conductive to innovation and entreprenurial activity?
a market economy strong legal protection of copyright/strong property rights.lack of corruption
theocratic totalitarianism
a political system in which political power is monopolized by a party, group, or individual that governs according to religious principles
communist totalitarianism
a version of collectivism advocating that socialism can be achieved only through a totalitarian dictatorship
market ecconomy
all productive activities are privately owned, as opposed to being owned by the state. The goods and services that a country produces are not planned by anyone. Production is determined by the interaction of supply and demand and signaled to producers through the price system -private ownership
black economy
an unreported sector of the primary economic system in which transactions are handled in cash only (ex- barter agreements)
copyrights
are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.
if trade is so strong, why is there not more trade?
because barriers exist to accessing each other's goods and markets.
glocalization
both forces of globalization and localization are taking place at the same time - the tension is the fundimental source of uncertainty in international business, as the world isn't completly globalize or completly localized.
effects of geography on economic growth
by virtue of favorable geography, certain societies are more likely to engage in trade than others and are thus more likely to be open to and develop market-based economic systems, which in turn promotes faster economic growth. He also argues that, irrespective of the economic and political institutions a country adopts, adverse geographic conditions—such as the high rate of disease, poor soils, and hostile climate that afflict many tropical countries—can have a negative impact on development.
the two dimensions of a political system
collectivism vs individualism democratic or totalitarian
social democrats
committed themselves to achieving socialism by democratic means, turning their backs on violent revolution and dictatorship.
three main types of legal systems
common law civil law theocratic law
costs of doing international business
corruption lack of infastructurre legal costs
The protection of intellectual property rights differs greatly from
country to country
IB's responses to international property rights.
creation of TIPS- Trade-Related Aspects of Intellectual Property Rights These regulations oblige WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years after the death of the author. firms can also lobby governments for stricter rules firms can file lawsuits on their own behalf.
arguments/traits of complete localization
culture/civilizations administration/politics geographical differences economic differences -
economic growth often leads to the establishment of
democracy.
How globalized are we?
depends on what you think and interpret. It's based on participation (globally), integration (globally) and convergance (globally)
the steps in the shift toward a market-based economic system
deregulation, privatization, and creation of a legal system to safeguard property rights
innovation
development of new products, processes, organizations, management practices, and strategies
Economic distance
differences in consumer incomes, costs, and human and natural resources.
cultural distance
different languages, ethnicites, religions, values, norms
institutional weakness can also be see in
difficulty protecting intellectual property rights.
we're currently seeing production in china begin to
diversify out into other countries.
wallmart in germany
failed at cultural differences, which made them fail.
resource-based view
firm-specific resources and capabilities
entrepreneurs
first commercialize innovative new products and processes, and entrepreneurial activity provides much of the dynamism in an economy.
Other economies GDP
foreign affilates activities in the host nation, partent firm's activities in the foreign nation, domestic affilates abroad.
socialism/socialists.
form of collectivism His logic was that if the state owned the means of production, the state could ensure that workers were fully compensated for their labor. Thus, the idea is to manage state-owned enterprise to benefit society as a whole, rather than individual capitalists.
institution-based view
formal and informal rules of the game
Paris Convention for the Protection of Industrial Property
international agreement to protect international property
huntington's thesis on global terrorism
global terrorism is a product of the tension between civilizations and the clash of value systems and ideology. The terror attacks undertaken by al-Qaeda and ISIS are consistent with this view. Others point to terrorism's roots in long-standing conflicts that seem to defy political resolution—the Palestinian, Kashmir, and Northern Ireland conflicts being obvious examples. It is also true that much of the terrorism perpetrated by al-Qaeda affiliates in Iraq during the 2000s and more recently by ISIS in Iraq and Syria can be understood in part as a struggle between radicalized Sunni and Shia factions within Islam. Moreover, substantial amount of terrorist activity in some parts of the world, such as Colombia, Page 73has been interwoven with the illegal drug trade. As former U.S. Secretary of State Colin Powell has maintained, terrorism represents one of the major threats to world peace and economic progress in the twenty-first century.
patent
grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention.
both us law and OECD convention include language that has exceptions for
grease payments.
two interests of individualism.
guaranteeing individual freedom and self-expression welfare of society is best served by letting people pursue their own economic self-interest, as opposed to some collective body (such as government) dictating what is in society's best interest.
the difference between GDP and MNE is
income generated by FDI- the MNE activity
What two things are required for long term economic growth
innovation and entrepreneurial activity
lecture 2 what's the general framework for global business
institution based view resource-based view both lead into - Fundamental question- what determines the success and failure of firms around the globe?
product liability
involves holding a firm and its officers responsible when a product causes injury, death, or damage
Deregulation
involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.
totalitarianism
is 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.
Civil Law System
is based on a detailed set of laws organized into codes. When law courts interpret civil law, they do so with regard to these codes. More than 80 countries—including Germany, France, Japan, and Russia—operate with a civil law system
common law
is based on tradition, precedent, and custom. Tradition refers to a country's legal history, precedent to cases that have come before the courts in the past, and custom to the ways in which laws are applied in specific situations.
Theocratic Law System
is one in which the law is based on religious teachings. Islamic law is the most widely practiced theocratic legal system in the modern world, although usage of both Hindu and Jewish law persisted into the twentieth century. Islamic law is primarily a moral rather than a commercial law and is intended to govern all aspects of life
Convergence in Globalization
it's kinda happening, but we can't be certain at the moment.
computer software industry has a problem with
lax enforcement of intellectual property rights.
institutional weakness example- corruption and bribery
leads to facilitating payments- ie bribes to get shit done
Theocratic Law
legal system based on religious teachings
localization with starbucks ex-
make the company act more local for each international/regional location.
Types of economic systems
market economy, command economy, mixed economy
Three types of economies
market, command, mixed
institutional weakness
means that incentive structures are absent, arbitrary, or at least non-transparent-leads to unpredictability and risk (politcal, legal, economic risk).
the us is a
mixed economy
effects of education on economic growth
more education= more economic growth.
weak legal systems lead to
more theft.
Do national differences still matter? or should we look at regions?- EU bond market
national bound rates in the EU show that it's more of a regional difference than a national difference.
how to calculate reporting economy's GDP
parent firms in the host country+ domestic affiliates+ foreign affiliates in the host country of the outsider parent firm.
reporting economy's GNI
parent firms+ domestic affiliates + foreign affiliates activities in the host country
communists
people who favor the equal distribution of wealth and the end of all forms of private property believed that socialism could be achieved only through violent revolution and totalitarian dictatorship,
geographic distance
physical remoteness, lack of a common border, lack of sea or river access, size of country, weak transportation or communication links, climates
economic freedom does not necessarily mean
political freedom.
Risks of doing international business
political risks- social unrest/antibusiness trends economic risks: Economic mismanagement Legal risks: failure to safeguard property rights
Common law is based on
precedents and traditions judgement based on interpretation of law
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. 12 Countries differ in the extent to which their legal systems define and protect property rights.
democracy
refers to a political system in which government is by the people, exercised either directly or through elected representatives.
collectivism
refers to a political system that stresses the primacy of collective goals over individual goals. When collectivism is emphasized, the needs of society as a whole are generally viewed as being more important than individual freedoms.
Private Action
refers to theft, piracy, blackmail, and the like by private individuals or groups.
Pillars/types of institutions
regulative/formal institutions normative (informal) institutions cognitive (informal) institutions
Cognitive institutions
related to deep-seated assumptions and often hard to explain for example- government intervention is bad, everyone deserves a fair chance
Normative institutions
related to peer pressure/social expectations "you should maintain eye contact with your manager, you should take off your shoes when entering your home"
theocratic law is based on
religious teachings
civil law is based on
roman law and napoleonic code judgement based on application of statues
depending on your definition and how you measure it, we are currently at.....
semi-globalization (based on arguments-ghemawat)
product safety laws
set certain safety standards to which a product must adhere
institution
sets of rules that govern behavior and interaction provides incentive structures for behavior (rewards for compliance as well as sanctions for violations)
in general- the political system of a country
shapes its economic and legal systems.
facilitating payments
small amounts of money demanded by minor officials to perform their regular duties
institutional weakness is based on whether
society is rule-based or relationship based (individualism vs collectivism) - rule based settings have more transparent and predictable institutions than in relationship-based settings)
spread of political freedom-
spreading everywhere except russia and china.
CAGE Distance Framework (Ghemawat) what are the parts of it?
states that distance DOES matter cultural distance administrative distance geographic distance economic distance
political system
system of government in a nation
legal system
system of rules that regulate behavior and the processes by which the laws of a country are enforced and through which redress of grievances is obtained The legal system of a country is of immense importance to international business. A country's laws regulate business practice, define the manner in which business transactions are to be executed, and set down the rights and obligations of those involved in business transactions. The legal environments of countries differ in significant ways. As we shall see, differences in legal systems can affect the attractiveness of a country as an investment site or market.
institutional weakness example- china and germany
tainted milk and Volkswagen shit cars scandal.
Arguments for complete globalization
technology openness/liberation market opportunity collective goods and global governance.
Contract Law
the body of law that governs contract enforcement
Public Action
the extortion of income or resources of property holders by public officials, such as politicians and government bureaucrats ex- excessive taxation
command economy
the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold. Consistent with the collectivist ideology, the objective of a command economy is for government to allocate resources for "the good of society." In addition, in a pure command economy, all businesses are state owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals.
SOME corruption in countries is actually
the norm, especially in developing nations
individualism
the opposite of collectivism refers to a philosophy that an individual should have freedom in his or her economic and political pursuits. In contrast to collectivism, individualism stresses that the interests of the individual should take precedence over the interests of the state.
political economy
the political, economic, and legal systems of a country to stress that the political, economic, and legal systems of a country are interdependent; they interact with and influence each other, and in doing so, they affect the level of economic well-being
Privitization
the sale of state owned enterprises to private companies.
Gross National Income (GNI)
the term used by the world bank and other international organizations to supersede the GNP term. Like GNP,. it means GDP+ (net) income from non-resident, domestically owned assets minus income from resident, foreign owned assets.
GNI (Gross National Income)
the total income received by members of a nation
Gross Domestic Product (GDP)
the total market value of all final goods and services produced in a country for a given time period
threat vs. voice
threat of re-location is real, but should not be overstated, governments want their firms to stay, and so does the firm.
institutions reduce
uncertainty and opportunism, keeping transaction costs low
is there really global convergence of prices?- the big mac index.
used to value the price of a big mac in terms in hourly wages and PPP- shows that there is price discrepancies in countries based on PPP, but overall there is price convergence.
Thomas Friedman's view
we're heading towards a totally globalized world.
rules and behavior- the chimp experiment-
when the chimps tried to grab bananna's, they all get hosed. the other chimps yank the ladder to stop the chimp trying to get the bannas. eventually, every chimp doesnt try.
liability of foreignness
when you enter a new environment, either as a manager of as an MNE- you face the disadvantage that comes from not knowing the rules. results in higher transaction costs and greater risk of experiencing opportunistic behavior.
global participation in globalization
world exports in GDP and ratio of trade to GDP is going up with more room to rise, so yes.