International Business Chapter 1-4
Self-reference Criterion
managers' unfamiliarity with other cultures. some managers will ascribe to others their own preferences and reactions. Ex: a foreign production manager, facing a backlog of orders, may offer her workers extra pay for over- time. They fail to show up, manager has failed to understand that the workers prefer time off to more money. This is an unconscious reference to the manager's own cultural values.
Theories of international investment
Eclectic theory of international production : - Theory that for a firm to invest overseas, it must have three kinds of advantages: ownership specific, internalization, and location specific
Cultural orientations
Ethnocentric : using our own culture as a standard for judging other cultures Polycentric : a host country mindset .. the manager develops a greater affinity with host country Geocentric : a global country mindset ... the manager is able to understand market or business without regard to country boundaries
Impacts of culture on the functional areas of business
Everything we do is influenced by culture, and most of us realize that about other cultures, but not always about our own. National cultural differences affect the functional areas of international business. ** Ex: assumptions about the need for controls in accounting systems rest of cultural values having to do with trust. Leadership is greatly influenced by culture. ** HR practices are greatly influenced by cultural values as well. Every business action is influenced by national-level cultural values. Organizational and local-level values also play a role.
Cultural trade barriers
Censorship "Great Firewall of China" other Internet controls Quotas S.Korea's 73 day screen quota Australian, Canadian, & EU local content mandates Taxation France's tax on non-EU films Subsidies to domestic cultural industries state tax breaks in U.S. grants to filmmakers in Mexico
Major / Top U.S. Trading Partners
China Canada Mexico Japan Germany South Korea UK France Taiwan India
Arguments for free trade in cultural goods
Consumers should be allowed to make their own choices, regardless of origin. Cultural protectionism serves special interests, not society at large. It is not easy to distinguish between "foreign" & "domestic" culture.
Meaning, dimensions, and characteristics of culture
Culture : - the human made part of the environment Dimensions : - Objective / Tangible : tools, roads, architecture, & other physical artifacts - Subjective / Intangible : norms, values, ideas, customs, & other meaningful symbols Characteristics : - Relative - About groups - not inherited
Cultural imperialism
the economic, technological and cultural hegemony of the industrialized nations, which determines the direction of both economic and social progress, defines cultural values, and standardizes the civilization and cultural environment throughout the world.
International business strategies
Big firms : global, international, multinational, transnational companies. small firms: SME's - small to medium sized enterprises Strategies : Multi-Domestic vs. Global Strategies Multi-Domestic Companies : Allow country affiliates to formulate their won local business strategies Global Companies : Standardize & integrate operations worldwide Most Companies : Are somewhere in-between
Environmental Forces
1. Forces Have Different Values : Even though the kinds of forces in the two environments are identical, their values often differ widely, and at times they are completely opposed to each other. Ex: American export embargo on shipments of most goods to Cuba. 2.Forces can Be Difficult to Assess : This is especially true of legal and political forces. Ex: A highly nationalistic law may be passed to appease a section of the local population. 3. The Forces are Interrelated: the same situation confronts a domestic manager. Ex: the combination of high-cost capital and an abundance of unskilled labor in many developing countries may lead to the use of a lower level of technology than would be employed in the more industrialized nations.
Benefits and costs of FDI
A critical factor contributing to high TDI scores is trade liberalization. The importance of this factor is highest for countries with lower TDI scores, and vice versa. This suggests that the extent of trade liberalization has much greater importance for developing countries, and especially the least developed countries, than for developed nations. In general, over the longer term and in the absence of externalities or market failures, trade liberalization is an effective policy promoting development. However, efforts to liberalize too rapidly can also result in short-term adjustment problems. Foreign direct investment (FDI) was found to have a significant and positive impact on export performance across all of the nations studied and for every time period studied. FDI has a key role in influencing the composition of exports, including the technological content and the development of export supply capacity, and especially in knowledge-based industries. The impact of FDI is strongest for the two poorest performing groups of exporters and at their early stages of export development.
Reasons for trade restrictions
Protection of: - Infant (or dying) industries - jobs from cheap foreign labor - local culture & environment National Security Retaliation - for foreign trade restrictions - for dumping
5 drivers of firm's internationalization
All based on change, leading international firms to globalize their operations: (1) political, (2) technological, (3) market, (4) cost, and (5) competitive. 1. Political There is a trend toward the unification and socialization of the global community. - Preferential trading arrangements group several nations into a single market have presented firms with significant marketing opportunities. A. Two aspects contributing to the globalization of business operations: 1. progressive reduction of barriers to trade and foreign investment by most governments, which is hastening the opening of new markets by international firms that are both exporting to them and building production facilities in them 2. the privatization of much of the industry in formerly communist nations and the opening of their economies to global competition. 2. Technological Advances in computers and communications technology are permitting an increased flow of ideas and information across borders, enabling customers to learn about foreign goods. 3. Market As companies globalize, they also become global customers. Finding the home market saturated also sends companies into foreign markets. 4. Cost Economies of scale to reduce unit costs are a common management goal.One means of achieving them is to globalize product lines to reduce development, production, and inventory costs. Management can also move production or other parts of the company's value chain to countries where costs are lower. 5. Competitive Competition continues to increase in intensity. Ex: New firms, many from newly industrialized and developing countries, have entered world markets in automobiles, computers, and electronics. **Another competitive driving force for globalization is the fact that companies are defending their home markets from competitors by entering the competitors' home markets to distract them.
Transnationalism
Deterritorialization of popular culture - people, products, ideas cross national borders & are no longer identified with a single place of origin.
Three Kinds of Environments
Domestic, Foreign , International Domestic - is all the uncontrollable forces originating in the home country that influence the life and development of the firm. Foreign - All the uncontrollable forces originating outside the home country that surround and influence the firm they operate differently for several reasons International - the interactions (1) between the domestic environmental forces and the foreign environmental forces and (2) between the foreign environ- mental forces of two countries when an affiliate in one country does business with customers in another.
Culture frameworks
Hall's context cultures typology - in (high context) (HC), the communication tends to be implicit and indirect. Context plays an exceedingly strong role, actually carrying much of the meaning. In these cultures, such as Japan, China, Latin America, and the Middle East, communication is more subtle and inferred. - people in (low-context) cultures have explicit communication patterns. They do not rely so greatly on the context of the communication. The explicit communicator is direct and unambiguous: what you say is what you mean. Hofstede's cultural dimensions - four dimensions with which to classify the survey data that underlie and differentiate cultures: 1.individualism-collectivism measures the degree to which people in the culture are integrated into groups. 2.power distance extent to which members of a society expect and accept power to be distributed unequally. 3.uncertainty avoidance describes a society's comfort with uncertainty. 4.mascu-linity-femininity. describes the distri- bution of roles between the genders. This fifth dimension is sometimes referred to as (Confucian dynamism). - dealing with Virtue regardless of Truth, that is, the level to which people in the culture will persevere to overcome obstaclesthey cannot overcome with will or strength. These five dimensions provide managers with a way to understand how national-level cultural differences affect organizations and management methods.
Explanations for changing directions of international trade - new trade theories
Heckscher-Ohlin theory : - Theory states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively Overlapping demand : - Theory that trade in manufactured goods will be greater between nations with similar levels of per capita income, and that the goods traded will be those for which consumers in both countries demand the same good Porter's national competitive advantage theory : - A nation's relative ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources International product life cycle : - A theory explaining why a product that begins as a nation's export eventually becomes its import Economies of scale - Situation where the average cost of producing each unit of output decreases as a plant gets larger and output increases Experience curve : - Reduction of unit costs of production as accumulated volume increases, due to improved efficiency resulting from increased cumulative experience and learning
Difference between international and foreign business
International business : 1. biz who's activities carried out across national borders Importance: increasing scale /scope of activities occurring across national borders. 2. involves 3 environments : a. domestic b. foreign, c. international Foreign Business: denotes the operations of a company outside its home or domestic market; many refer to this as business conducted within a foreign country.
Pro and Anti- Globalization Arguments & Forces
It is important to recognize the various perspectives on globalization, because their arguments can generate appeal (or rejection) both intellectually and emotionally. ARGUMENTS SUPPORTING GLOBALIZATION 1.Free trade is the best strategy for advancing the world's economic development. 2.Data have shown a clear and definitive link between liberalization of trade and economic growth. 3. On a wide range of measures— poverty, education, health, and life expectancy—more people have become better off at a faster pace in the past 60 years than at any other time in history. 4. Expanded trade is also linked with the creation of more and better jobs. CONCERNS WITH GLOBALIZATION 1.Some fundamentally oppose the very process and outcomes of globalizationon ideological grounds, while others may merely be concerned about finding ways to better manage globalization processes and the resulting outcomes. 2. Globalization Has Produced Uneven Results across Nations and People 3. Globalization Has Had Deleterious Effects on Labor and Labor Standards 4. Globalization Has Contributed to a Decline in Environmental and Health Conditions Injurious social implications Uneven results across nations & people - Lack of competitiveness - Reduced state sovereignty - Unfair representation and accountability in supranational institutions - Lack of host governments bargaining power vis-à-vis MNCs - Loss of national & cultural identity - "Race to the Bottom" - Deleterious effects on labor & labor standards - Decline in environmental & health conditions Anti Global Forces - Some governments - Labor interests - Environmental interests - Anti-business interests - Protectionist & anti-immigrant interests in U.S. & Europe Global Environmental Forces * Foreign / Domestic / International Controllable Internal v Uncontrollable External Controllable Internal : Factors of production - Capital - Raw materials - People - Organization's activities Personnel - Finance - Production - Marketing Uncontrollable External : Competitive - Distributive - Economic - Socioeconomic - Financial - Legal - Physical -Political - Sociocultural - Labor - Technologica
International Trade Theories
Mercantilism : - A complex political and economic arrangement, mercantilism traditionally has been interpreted as viewing the accumulation of precious metals as an activityEssential to a nation's welfare Theory of Absolute Advantage : Theory that a nation has absolute advantage when it can produce a larger amount of a good or service for the same amount of inputs as can another country or when it can produce the same amount of a good or service using fewer inputs than could another country Theory of Comparative : Theory that a nation having absolute disadvantages in the production of two goods with respect to another nation has a comparative or relative advantage in the production of the good in which its absolute disadvantage is less
Globalization
Modern Eras 1870 - 1974 & 1980 - date - both eras have things in common 1. Booming Trade : - Driven by falling transport costs & better communications - Integrated capital markets & overseas investments - Mass Migration 2008-09 - Mostly positive economic growth - Trade rebounded, but then went flat. - Weak cross-border capital flows Globalization Economic : - The global integration of consumer, business & financial markets. - The global integration of labor & production. Political - The rise in influence & power of supranational (international & regional) institutions Cultural - The global transmission of values, ideas, cultural & artistic expressions
Types of trade restrictions
Monetary Barriers : - blocked currency - differential exchange rates - government approvals * note: These restrictions just apply to barriers to the trade of goods & services. Capital controls related to FDI will be discussed later. - Quotas & voluntary export restraints - Local content requirements - Health, safety, product quality, & environmental standards - Administrative procedures - Embargoes
Effects of cultural protectionism
New Technologies : easier circumvention Insulation from competitive pressure : weaken industries Subsidies : discourages creative choices weaken industries Quotas : low quality local production to fulfill government mandates
Drivers of Globalization
Political Decisions : - Preferential trading arrangements -single combined markets - Lower trade & investment barriers - Deregulation & privatization within countries - Opening of economies to outside world - Multinational & bilateral agreements Advances In Technology ** Free Trade Business Imperatives : - Computers - Communications technology (1stXerox fax machine in 1966; cable & satellite TV systems) - The Internet - Network computing - Logistics (1stbar code in U.S. in1974 3. Business Imperatives - Global competition - Home market saturation - Economies of scale & scope - Savings from outsourcing & offshoring - "Financialization" of corporations (i.e. focus on short-term profits)
Types of foreign investment
Portfolio : - the purchase of stocks and bonds solely for the purpose of obtaining a return on the funds invested FDI : - The purchase of sufficient stock in a firm to obtain significant management control
Origins of international business
Well before the time of Christ, Phoenician and Greek merchants were sending representatives abroad to sell their goods. Subsequently, a vast expansion of agricultural and industrial production in China stimulated the emergence of an internationally integrated trading system. The impact of the emerging international trading system was extensive. Politics, the arts, agriculture, industry, and other sectors of human life were profoundly influenced by the goods and ideas that came with trade. The rise of the Ottoman Empire before 1300, ultimately spanning Europe, North Africa, and the Middle East, profoundly influenced the emerging trade routes for people, goods,money, animals, and microorganisms that spanned from England to China, across the Mediterranean and Northern Africa, and through Central Asia and the Indian Ocean region. In 1600, Great Britain's British East India Company, a newly formed trading firm, began to establish foreign branches throughout Asia, an action soon followed by many of the other European nations intent on exploiting trade opportunities for national advantage,including Portugal, the Netherlands, and France. A number of multinational companies existed in the late 1800s. One of the first American companies to own foreign production facilities, have worldwide distribution networks, and market its products under global brands was Singer Sewing Machine. multinational firms existed well before World War I, and the level of intracompany trade of multinationals in 1930, as a percentage of overall world trade, may have exceeded the proportion at the end of the 20th century.
Why companies enter foreign markets
Why do nations trade? *Mercantilists : did so to build up store- houses of precious metals. *Adam Smith's theory of absolute advantage : showed that a nation will export goods that it can produce with less labor than can other nations. *Comparative Advantage : (Ricardo) proved that even though a country is less efficient than other nations, that country can still profit by exporting goods if it holds a (comparative advantage) in the production of those goods. *Newer explanations: a nation tends to export products requiring a large amount of a resource that is relatively abundant in that nation. *International investment theory : Product and factor market imperfections provide firms, primarily in oligopolistic industries, with advantages not open to indigenous companies. * internalization theory : firms will seek to invest in foreign subsidiaries, rather than license their superior knowledge, to receive a better return on the investment used to develop that knowledge. * Dynamic capabilities perspective: firms must have not only ownership of specific knowledge or resources, but also the ability to dynamically create and exploit capabilities in order to achieve success in FDI. Eclectic theory: an IC's choice of its overseas production facilities. The firm must have location and ownership advantages to invest in a foreign plant.
