International Business Chapters 1-4

Religion

must look into this before making business dealings in certain countries a. Christianity b. Islam c. Hinduism d. Buddhism e. Confucianism f. Judaism g. Shinto: Japanese religion h. Does globalization endanger traditional beliefs, such as living a life void of materialistic ambitions?

Denationalization

national borders becoming less relevant

Global products/ markets

products marketed in all countries essentially without any changes

Purchasing power parity

relative ability of two countries currencies to buy the same basket of goods in the two countries

Ethical Behavior

set of norms or rules that determine personal behavior in accordance with guidelines for good conduct or morality

Economic System

structure and processes that a country uses to allocate its resources and conduct its commercial activities

Political System

structures, processes and activities by which a nation governs itself.

Nationalization

when you have your investment, and then the government decides that it now belongs to the government/ the country

International monetary fund

an agency created to regulate fixed exchange rates and enforce the rules of the international monetary system.

International Business

any commercial transaction that crosses the borders of two or more nations

Cultural Trait

anything that represents a cultures way of life, including gestures, material objects, traditions and concepts

Political Risk

likelihood that a society will undergo political changes that negatively affect local business activity

Economic development

measure for gauging the economic well-being of one nations people as compared with that of another nation's people

Legal system

its set of laws and regulations, including the processes by which its laws are enacted and enforced. Influenced by political moods and nationalization (devotion of a people to their nation's interests and advancement)

Culture

A set of values, believes, rules and institutions held by a specific group of people

Benefits of Globalization of Production:

1) Access lower-cost workers 2) Access technical expertise 3) Access production inputs

Ways to manage political risk

1) Adaption: incorporate risk into business strategies a. Partnerships b. Localization: adapt products to the local requirements, small yogurt sizes c. Development: International business assists the host country/ region in development d. Insurance against political risk 2) Information Gathering: gather data to better predict and manage risk a. Current employees with relevant information b. Agencies specializing in political-risk services 3) Political Influence: present firm's views on political matters a. Lobbying: influencing local lawmakers b. Corruption: foreign corrupt practices act i. Very common in Mexico, central African countries, etc

Dimensions of Culture:

1) Aesthetics: 2) Values 3) Attitudes 4) Manners and Customs 5) Social Structure 6) Religion 7) Personal Communication 8) Education 9) Physical and Material Environments

Corporate Social Behavior Issues

1) Bribery and corruption 2) Labor conditions and human rights 3) Fair Trade practices a. Fair prices b. Fair labor conditions c. Direct trade d. Democratic community development e. Environmental sustainability 4) Environment a. Carbon footprint: environmental impact of greenhouse gases 5) Businesses and International Relations a. The United Nations: international organization formed after WWII to provide leadership in fostering peace and sustainability around the world

Types of political risks

1) Conflict and violence 2) Terrorism and Kidnapping 3) Property seizure 4) Policy changes 5) Local content requirements: laws stipulating that a specified amount of a good or service be supplied by producers in the domestic market

Creating a global mindset

1) Cultural adaptability 2) Bridging the gap 3) Building global mentality 4) Flexibility is key

Drawbacks of Cross Cultural Business

1) Destroys cultural diversity 2) Homogenizes our world 3) Bankrupts local small businesses

Kof index to measure globalization

1) Economic integration 2) Personal Contact 3) Technological connectivity 4) Political engagement

How to measure development:

1) Education 2) Life expectancy 3) Per capita income 4) Coefficient of the standard of living 5) These are how we can really tell how developed a country is, beyond the GDP growth rate

Arguments against globalization:

1) Eliminates jobs in developed nations 2) Lowers wages in developed nations 3) Exploits workers in developing nations

Corporate Social Responsibility Philosophies

1) Friedman View: companies sole responsibility is to maximize profits for its owners 2) Cultural Relativist: a company should adopt local ethics wherever it operates because all belief systems are determined within a cultural context 3) Righteous moralist: a company should maintain its home country ethics wherever it operates because the home country's view of ethics and responsibility is superior to other views 4) Utilitarian: a company should behave in a way that maximizes good outcomes and minimizes bad outcomes wherever it operates.

Hofstede Framework

1) Individualism versus collectivism- in the US, individualism is very important 2) Power distance- Inequalities between ranks of people, e.g. Professors and students, managers and employees, etc. a. Very large power distance in South America 3) Uncertainty avoidance- how much you value risk/ security a. Low uncertainty avoidance in South America- Permission slips, etc. b. If you work for the government, you are pretty much set in Spain c. Exam: oposicion? The exam for government jobs 4) Masculinity vs. Femininity: Men have a much easier time finding a job in certain countries, same goes for elected officials a. In certain countries, only women can drive public buses 5) Long-term orientation a. Japanese: very long term orientation b. Western Societies: fairly short term orientation

Arguments for globalization:

1) Labor standards 2) Environmental protection 3) Future markets 4) General fear of race to the bottom

Benefits of International Trade

1) Opens doors to new entrepreneurial opportunity across the globe 2) Provides a country's people with a greater choice of goods and services

Kluckhohn-Strodtbeck Framework

1) Relation to nature: Do people believe that their environment controls them, that they control the environment or that they are part of nature? 2) Time orientation: Do people focus on past events, on the present or on the future implications of their actions? 3) Trust and control: Are people easily controlled and not to be trusted, or can they be trusted to act freely and responsibly? 4) Material or spiritual: Do people desire accomplishments in life, carefree lives or spiritual and contemplative lives? 5) Responsibility to others: Do people believe that individuals or groups are responsible for each person's welfare? a. Anglo-Saxon countries are much more individualistic b. Entrepreneurship is much more common in individualistic societies c. In Spain, its very hard to get a loan without the 6) View of personal space: Do people prefer to conduct most activities in private in public?

Benefits of Cross Cultural Business

1) Specialize and trade to obtain goods 2) Import cultural goods from other nations 3) Protect deeper moral and cultural norms

Advantages of Market Economies

1. Antitrust Law (Competition) 2. Preserve the property rights 3. Monetary and fiscal policy 4. Interest rates: in order to buy a house, you buy the money before with an interest rate. Interest rate is the price of the money, and the monetary policy is the way to determine it. 5. Preserve political stability

Right Wing Totalitarianism

1. Government wants to privatize most things 2. However, the government assigns these things 3. No right to go against the government, freedoms tend to be limited 4. South America during the 70s and 80s

GATT (General Agreement on Tariffs and Trade)

1947-GATT (General Agreement on Tariffs and Trade) made to promote free trade, reduce tariffs and other barriers

World Trade Organization:

1994- World Trade Organization (WTO) - international organization that enforces the rules of international trade i. Help the free flow of trade (promotion) ii. Open new markets- several countries still restrict international trade especially with western countries (middle east, Africa, Asia) iii. Settle trade disputes iv. Agricultural subsidies v. Property rights

World Bank

An agency created to provide financing for national economic development efforts

Communism

Belief that social and economic equality can only be obtained by establishing an all-powerful communist party and by granting the government ownership over all types of economic activity, a much more extreme position. This is a political doctrine. No private rights.

Born Global Firm

Company that adopts a global perspective and engages in international business from or near its inception a. Example: Weekend in Italy—makes Florentine products available to the world b. Amazon is also a good example, online/virtual companies in general

Customs

Customs: Habits or ways of behaving in specific circumstances that are passed down through generations in a culture i. Folk Custom: behavior, often dating back several generations, that is practiced by a homogenous group of people ii. Popular custom: Behavior shared by heterogeneous group or by several groups

Forces driving globalization:

Falling barriers to trade and technological innovation

Mixed Economy

Economic system in which land, factories and other economic resources are rather equally split between private and government ownership

Market Economy

Economic system in which the majority of a nation's land, factories and other economic resources are privately owned, either by individuals or businesses

Centrally planned economy

Economic system where the government owns a nation's land, factories and other economic resources, and plans nearly all economic activity

Tribal Totalitarianism

Ethnic group concentrates all of the political powers 1. Myanmar/ Burma 2. Rwanda 3. Burundi 4. Basically most central African countries

Globalization examples

Global product: apple iPhone Non-global product: country music, jotas (traditional Spanish music for dancing), traditional dress, American flags

Values

Ideas, beliefs, and customs to which people are emotionally attached a. Freedom b. Responsibility c. Honesty

Manners

Manners: Appropriate ways of behaving, speaking and dressing in a culture i. Arab people tend to eat with their right hand ii. Different ways of addressing one another iii. In south America, eating is very formal, you may not put the bread on the table

Human Development Index:

Measure of the extent to which a government equitably provides its people with a long and healthy life, an education and a decent standard of living

Theocracy

Political system in which a countries religious leaders are also its political leaders i. Theocratic Totalitarianism: Political system under the control of theocratic religious leaders, particularly in Arab or muslim countries- Iraq, Iran, Saudi Arabia ii. Koran determines political system

Democracy

Political system in which government leaders are elected directly by the wide participation of the people or by their representatives

Totalitarianism

Political system in which individuals govern without the support of the people, tightly control people's lives and do not tolerate opposing viewpoints

Secular Totalitarianism

Political system in which leaders rely on military and bureaucratic power. Political party or person gives direction!

Attitudes

Positive or negative evaluations, feelings and tendencies that individuals harbor toward objects or concepts. These reflect underlying values. a. Attitudes toward time b. Attitudes toward work c. Attitudes toward cultural change

Corporate Social Responsibility

Practice of companies going beyond legal obligations to actively balance commitments to investors, customers, other companies and communities

Cultural Diffusion

Process whereby cultural traits spread from one culture to another 1) Certain facets of a culture are adopted by other cultures 2) Fast food has spread through Europe

Pro/ Cons of cross cultural business with respect to national sovereignty

Pros: Globalization has benefitted societies by helping to spread democracy worldwide Cons: Supranational institutions reduce autonomy of national, regional and local governments

International Trade

Purchase, sale or exchange of goods and services across national borders

Cultural Imperialism

Replacement of one culture's traditions folk heroes, and artifacts with substitutes from another 1) More imposing than cultural diffusion 2) Colonies are a great example, lots of Spanish influence in South/Latin America

Political Ideologies

Set of structures, institutions, activities by which a certain country governs itself- these fall on a scale of 3 groups

Small businesses and entrepreneurs

Small companies and individuals becoming increasingly active in international trade and investment a. These grow much faster, usually operate in brand new markets with new products/ ideas b. Can be represented graphically with Quantity of units/ time (on an s curve) c. Usually start by exporting until the product reaches maturity

Ethnocentricity

The belief that ones own ethnic group or culture is superior to that of others

Anarchism

The belief that only individuals and private groups should control a nations political activities, any form of central government or public good is oppressive

Technological Dualism

Use of the latest technologies in some sectors of the economy coupled with the use of outdated technologies in other sectors

Aesthetics

What a culture considers good taste in the arts, the imagery evoked by certain expressions and the symbolism of certain colors a. Music, painting, dance, drama, architecture b. More colors in the united states, more casual c. In Chile, you must dress up if you are a professor in front of your students. Students had to dress up for finals. d. Muslim cultures like green, but in asia it denotes sickness e. For stocks, china has opposite color system: red is going up, green is going down

Comparative Advantage

When a nation cannot produce a good more efficiently than other nations, but it can produce that good more efficiently than it does any other good, we say that this is a case of comparative advantage

Multinational Corporation

a business that has direct investments in the form of marketing of manufacturing facilities abroad in multiple countries a. These subsidiaries may not be entirely owned by one company/country

Social Structure

a cultures fundamental organization, including its groups and institutions, its system of social positions and their relationships and the process by which its resources are produced

Subculture

a group of people that share a unique way of life within a larger, dominant culture (language, race, lifestyle, attitudes, etc) 1) 1500 dialects in India! 2) Punk, goth, etc

Absolute Advantage

a. A nation with an absolute advantage can produce a greater output of a good or service than other nations using the same amount, or fewer, resources B. Countries can concentrate on producing goods for which they hold an absolute advantage and trade with other nations for other goods C. Destroys the mercantilist idea of a zero sum game, both countries end up with more due to trade

Barriers to trade:

a. Barriers: tariffs, quotas, embargos b. 1947-GATT (General Agreement on Tariffs and Trade) made to promote free trade, reduce tariffs and other barriers c. 1994- World Trade Organization (WTO) - international organization that enforces the rules of international trade i. Help the free flow of trade (promotion) ii. Open new markets- several countries still restrict international trade especially with western countries (middle east, Africa, Asia) iii. Settle trade disputes iv. Agricultural subsidies v. Property rights

Types of Property Seizure:

a. Confiscation: don't receive any sort of compensation for your assets i. This is more common with 2 countries that are in conflict, government may confiscate all of the products coming from the other nation ii. This is also very common between Bolivia and Chile due to a conflict over the physical frontier between the two countries b. Expropriation: transfer of assets for small compensation c. Nationalization: forced transfer of assets to the government i. Example: most of the firms in Venezuela are in the hands of the government and most industry is no longer private ii. Government in Chile decided to nationalize all of the mining firms

Civil Law

a. Dates to roman times in 5th century BC b. Rules and statues constitute a legal code i. At times, anything goes if it hasn't been addressed in the code (china copyright issues) c. Defines all obligations, responsibilities and privileges d. Three Branches: i. French ii. Scandinavian iii. German

Education

a. Education level i. Well educated attract high-paying jobs, while poorly educated attract low paying manufacturing jobs b. Informal education at home as well c. The brain drain phenomenon: Departure of highly educated people from one profession, geographic region, or nation to another

Technical Innovation

a. Email and videoconferencing- better coordination and control b. Internet and World wide web- Improved communications and management c. Company intranets and extranets d. Advances in transportation technologies- quicker and more secure shipping

Theocratic Law

a. Islamic b. Jewish c. Hindu

Physical and Material Environments

a. Physical Environment i. Topography: All the physical features that characterize the surface of a geographic region ii. Climate- many countries have a lot of variation in temperature, people in the south of Chile tend to be much more educated b. Material Culture: All the technology used in a culture to manufacture goods and provide services

Intellectual Property

a. Property that results from intellectual talents and abilities b. Property rights- legal rights to resources and any income they generate c. Industrial Property: patents and trademarks i. Patents: exclusive making, using and selling rights, usually 20 years ii. Trademarks: words or symbols that distinguish a product and its manufacturer, until it becomes generic iii. Copyrights: property right giving creators of original works the freedom to publish or dispose of them as they choose

Mercantilism

based in the idea that a certain country should maintain a trade surplus where they export more than they import- 16th century. At the end of the day, one country is the winner and one country is the loser, the mother nation is richer and the colony is poorer after the transaction

Socialism

belief that social and economic equality is obtained through government ownership and regulation of the means of productions- not necessarily communist! There are certain aspects of participation by the people. This is an economic doctrine

National Culture

culture of a nation, fostered by museums and monuments that preserve legacies of important people and events 1) Filmmaking and broadcasting 2) Guggenheim and Hong Kong Disney

Cultural Literacy

detailed knowledge about a culture that enables a person to function effectively in it, allows you to accept things as normal even when it is different from your own culture

internationalization

entities cooperating across national boundaries

Government's Role in Market Economies

i. Enforcing Antitrust laws ii. Preserving property rights iii. Providing a stable fiscal and monetary environment iv. Preserving political stability

Decline of central planning

i. Failure to create economic value ii. Failure to provide incentives for productivity iii. Failure to achieve rapid growth iv. Failure to satisfy consumer needs

Qualities of Democracies

i. Freedom of expression ii. Periodic elections iii. Full civil and property rights: perhaps the most important component! 1. This also applies to the case of the ownership in shares, and avoid the piracy of software a. Government in Thailand has very lax legislation so copies are abundant and it is very hard to get people to pay for the real thing b. Thailand has great democracy, but poor property rights iv. Minority rights v. Non-political bureaucracies

Features of Totalitarianism

i. Imposed Authority ii. Lack of constitutional guarantees iii. Restricted participation

Features of market economies

i. Laissez Faire economic origins 1. Let the market do things by itself, let the market do what it wants ii. Free Choice iii. Free Enterprise: companies can choose their line of business and enter/ exit at will iv. Price Flexibility v. Prices decided by the equilibrium price, supply and demand

Pillars of Mercantilism

i. Maintain trade surplus ii. Government intervention iii. Exploit colonies

Social Stratification

i. Social Stratification: process of ranking people into social layers or classes ii. Social mobility: ease with which individuals can move up or down a cultures social ladder iii. Caste system: system of social stratification in which people are born into a ranking or caste, with no opportunity for social mobility 1. Tourists are at the top of the pyramid, get to bypass basically everything iv. Class System: system of social stratification in which personal ability and actions determine social status and mobility

Flaws of Mercantilism

i. World trade is a zero sum game ii. Limits colonies market potential iii. Constrains output and production

Personal Communication

system of conveying thoughts, feelings, knowledge, and information through speech, writing and actions a. Spoken and written language b. Lingua franca: Third or "Link" language understood by two parties who speak different native languages c. Body language: languages communicated through unspoken cues, including hand gestures, facial expressions, physical greetings, eye contact, and the manipulation of personal space d. Generally pretty straightforward with American investors. With Chinese investors, there is a much more intricate negotiation system. They also generally will not say no, and use more convoluted methods. e. Difference ideas of personal space

Pluralism

the belief that both private and public groups play important roles in a nation's political system, most political systems of democracy fall into this category

Globalization of Markets

the convergence in buyer preferences in markets around the world, buyers worldwide demand similar goods- supply and demand are becoming more global

Globalization of production

the dispersal of production activities to locations that help a company achieve its cost minimization or quality maximization objectives for a good or service. Includes sourcing inputs and outsourcing services

Globalization

the trend towards greater economic (monetary and fiscal policy), cultural, political and technological interdependence among national institutions and economies

e-business/commerce

the use of computer networks to purchase, sell or exchange products

Common Law

usually found in Anglo-Saxon countries, based on previous decisions a. Tradition: Nations legal history b. Precedent: past cases before the courts c. Usage: how laws are applied

GNP

value of all goods and services produced by a country's domestic and international activities in a year

GDP

value of all goods and services produced by a domestic economy in a year by nationals and non-nationals inside its borders

Purchasing power

value of goods and services that can be purchased with one unit of a country's currency