International Business Operations Exam 1 (CH 1-3)
Types of Economic Systems
- (Planned) Command - Mixed - (Free Market) Market
Purchasing Power Parity (PPP)
- A conversion that determines the equivalent amount of goods and services that different currencies can purchase - (PPP) - conversion has been done
Expatriate Manager (Expat)
- A manager who works abroad
Three Views of Globalization (3)
- A pendulum that swings from one extreme to another from time to time - Globalization is neither recent or one-directional - Goes back and forth - Changes based on what's happening in the world
International Premium
- A significant pay raise when working overseas
Subcultures
- A subset of a larger culture group - Country, region, student, gender, ethnic
Scenario Planning:
- A technique to prepare and plan for multiple scenarios (either high risk or low risk) - To assist with risk management
Global Mindset
- Ability to recognize, read, and adapt to cultural signals so effectiveness isn't compromised - Allows you to understand how to interact with different cultures (you have to be able to adapt)
What determines the success and failure of firms around the globe?
Core Perspectives: Institution-Based View Resource-Based View
Reverse Innovation (Frugal Innovation) 1
Traditional View: innovation flows from developed to developing countries
Globalization and Semiglobalization
- Current era of globalization originated in the aftermath of WWII (1945 +) * Western countries committed to global trade and investment - 1950s - 1970s * Communist countries - self-sufficiency * Non-communist developing countries - protectionism (want to protect non-domestic industries to protect their trade)
Components of Culture
- Aesthetics (beauty, colors) - Numbers (some numbers are lucky in some countries, but unlucky in others) - Time (24 hour clock vs 12 hour clock; westerners have watches, africans have time) * don't rely on watches as deadline, it's about relationships - Personal Space - Social Structure - Education - Religion - Language
Market Economy
- All factors of production should be privately owned - Supply: Quantity producers will provide at a specific selling price - Demand: Quantity buyers will purchase at a specific selling price - Less government interference in business - Free choice * alternative purchase options - Free enterprise * firms choose products and markets - Price flexibility (competition) * prices follow supply and demand
Totalitatianism
- Also can be called dictatorship - One person or party exercises ABSOLUTE political control over the population - Authority imposed on people - Lack of constitutional guarantees - Restricted (to none) political participation
Nongovernmental Organization (NGO)
- An organization that is not affiliated with any government - Usually against major globalization
Black Swan Event
- An unpredictable one that is beyond what is normally expected and that has severe consequences * Extremely rare * Severe consequences * Cannot be predicted beforehand - Very rare and catastrophic
Stakeholder
- Any group or individual who can affect or is affected by the achievement of a firm's objectives - Primary: Shareholders, Customers, Employees, Suppliers - Secondary: Government, Community
Language
- Approximately 1,000 languages in the world - More than 1/2 of world's population speak 23 - English is the top spoken language
Semiglobalization
- Barriers to market integration at borders are high, but not high enough to insulate countries from each other completely
Theocratic Law
- Based on religious teachings - Islam is pro business
Ethnocentricity
- Belief that one's own ethnic group or culture is superior to that of others - Discouraged - Extreme
Buddhism
- Believe in simple life - Belief that there is a reason for suffering and that it will be ended - Lead out of suffering and into enlightenment
BRICS
- Brazil, Russia, India, China, South Africa - Worldwide GDP, cross-border trade, and per capita GDP soared - BRIC became a buzzword - South Africa was added changing the label to BRICS
5 Moral Precepts
- Buddhism - 1. Refrain from taking life - 2. Refrain from taking what is not given (stealing) - 3. Refrain from the misuse of senses or sexual misconduct (don't lust/commit adultery) - 4. Refrain from wrong speech (lying) - 5. Refrain from intoxicants that cloud the mind
International Business
- Business (firm) that engages in international (cross-border) economic activities and/or the action of doing business abroad
Global Business
- Business around the globe - Includes: * international (cross-border) business activities * domestic business activities - Full circle (what happens in other countries that affect our businesses here and vice versa)
Decline of Central Planning
- Central planning failed to: * Create economic value * Provides incentives * Achieve rapid growth * Satisfy consumer needs
Three Legal Traditions
- Civil Law - Common Law - Theocratic Law (Islamic Law)
Types of Political Risk
- Conflict and violence (seen in tribal totalitarianism) - Terrorism and kidnapping - Property seizure - Policy changes (prices change, taxes change, and this affects businesses)
Ways to Understand Cultural Differences
- Context Approach - Cluster Approach - the Dimension Approach
Transaction Costs
- Cost of doing business
Hinduism
- Cows are sacred (no beef) - 94% in India - Worlds oldest organized religion - Alcohol is generally avoided
Normal Institutions
- Culture - Norms - Ethics
What Drives Economic Development
- Culture school of thought (rich countries tend to have smarter/better work environment - no proof to back it up) - Geography school of thought (depending on location, better environment, more developed - no proof to back it up) - Institutions * Better market supporting institutional frameworks * Protection of property rights - fuels more innovation, entreprenuership, and thus economic growth
Institutions
- Institutions are not static - China, Poland, Russia, Vietnam - Central Planning - Market Competition - Transition Economies
Three Principles of Democracy
- Democracy * Rule by the people through free and fair elections - Constitutionalism * Use of constitutions to limit government by law * Rule of law: No one is above the law (without rule of law, country will not develop; law affects everyone the same) * Constitution: What a government can do * Bill of Rights: What a government cannot do - Liberalism * Freedom, equality, and dignity of the individualism
Democracy
- Democracy was pioneered by ancient Greece - No true democracy in the world - Longest running democracy: The US - Largest democracy (by population): India
Critics of Globalization
- Destroys jobs - Promotes inequality - Exploits workers (especially in poor countries) - Grants MNEs (Multinational Enterprises) too much power - Degrades environment - Lots of non-government organizations believe this
Cultural Literacy
- Detailed knowledge about a culture that enables a person to function effectively within it - Encouraged - Understanding, asking questions
Firm Performance Has Multiple Dimensions (Triple Bottom Line)
- Economic (Profit) * Can't exist without a profit of some sort - Social (People) - Environmental (Planet)
Power Distance
- Egalitaianism (equality) vs authority - The degree to which the less powerful members of a society accept and expect that power is distributed uneqaully - HIGH: * High organization structure * Do not challenge superiors * Leaders make decisions * Subordinates are controlled and monitored closely * Acceptance of privileges that come with power - LOW: * Value equality and democracy * More accepting of those who are junior in age or rank questioning authority * Participative style of management * Consciousness of rights * Flat organizational structure
Foreign Corrupt Practices Act
- Enacted by US Congress in 1977 - Bans bribing of foreign officials
Government's Role in Market Economy
- Enforce antitrust laws (antimonopoly) - Preserve property rights - Provide fiscal and monetary stability - Preserve political stability (reduces political risk)
Why study global business?
- Enhance your employability and advance your career in the global economy (allows you to become a more well-rounded person) - Better preparation for possible expatriate assignments abroad - Builds stronger competence in interacting with foreign suppliers, partners, and competitors - Builds stronger competence in working for foreign owned employers in your own country - The transfer of capital, goods, and services knows almost no boundaries - Learn about world cultures and societies - Be challenged to approach issues from different perspectives
Managing Ethics Overseas
- Ethical Relativism (Morality is relative to the society where it exists) - Ethical Imperialism (There is one universal moral standard)
Resource Based View
- Firm specific resources and capabilities - Focuses on INTERNAL environment - Internal resources and capabilities
Cultural Differences in Context
- Focuses on context *Background against which social interaction takes place - Low-context cultures * Communication is usually taken at face-value - Hihg-context cultures * Communication relies on underlying unspoken conditions or assumptions
Indulgence vs Restraint
- Focuses on happiness and gratification - INDULGENT: * High * Willingness to realize impulse and desires with regard to enjoying life and having fun * Positive attitude * Tendency towards optimism * Place high degree of importance on leisure time - RESTRAINED: * Low * Tendency to cynicism and pessimism * Low-emphasis on leisure time * Control gratification of desires * Actions controlled by social norms * Indulging would be wrong
Institution Based View
- Formal and Informal Rules of the Game - Institutional framework focuses on EXTERNAL environment - Formal: Laws and Regulations (Political, Economic, Legal) - Informal: Cultures, Ethics, and Norms (have to adapt to cultures)
Institutions
- Formal and informal rules of the game - Not static
Institutional Transition
- Fundamental and comprehensive changes introduced to the formal and informal rules of the game - For survival, firms must monitor, decode, and adapt tp the changing rules of the game
Command Economy
- Government taking the commanding heights in the economy - All factors of production are government owned - All supply, demand, and pricing are controlled by the government
Advocates of Globalization
- Greater economic growth and higher standards of living - Improved technology - Extensive cultural exchange
2010
- Greek debt crisis - PIIGS (Portugal, Italy, Ireland, Greece, Spain) - BREXIT (Britains exit from the European Union
Cultural Differences in Cluster
- Group countries that share similar cultures together as one cluster - Underlying idea: People and firms are more comfortable doing business with other countries within the same cluster or civilization
Cultural Differences in Cultural Dimensions
- Hofstede (expert on culture) - Individualism vs collectivism - Power distance - Masculine vs feminine - Uncertainty avoidance - Time orientation - Indulgence vs restraint
Institutions Rules of the Game
- Institutional Framework (formal and informal institutions)
Institutions-Based View of Global Business
- Institutions, firms, firm behaviors - Institutions and firms (dynamic interaction) - Firms and firm behaviors (Industry conditions and firm-specific resources and capabilities) Institutions and firm behaviors (formal and informal constraints)
Intellectual Property Rights
- Intangible - Rights associated with the ownership of intellectual property - Copywrite: authors and publishers - Trademark: specific names, brands, designs to differentiate their products from others - Patents: awarded by government to inventors of new products or processors
Personal Space
- Intimate distance (bodily contact, hug/kiss) - Personal distance (family + friends) - Social distance (chat with colleague/acquaintance) - Public distance (public speaking)
Lingua Franca
- Link language - Global business language (english) - English speaking countries contribute the largest share of global economic output - Countries sharing a common language find it easier to do business with each other - Because of this, kids start learning english young
Three Views of Globalization (2)
- Long-run historical evolution since the beginning of human history - Globalization is nothing new and will always exist - Import Quota: Limit or Cost to Amount Brought in
Time-Orientation
- Long-term orientation vs short-term orientation - Pragmatic vs normative - LONG-TERM/PRAGMATIC: * More focus on the future rather than the past * Practical and careful * Perseverance * Adaptable * Strong propensity to save and invest * Thrifty * Willingness to wait for results - SHORT-TERM/NORMATIVE * Focused on the past and the present * Respect for tradition * Set short-term goals * Seek immediate satisfaction * Quick results
Mixed Economy
- Most countries are mixed economies - Has elements of both a market economy and a command economy - Traditional system (depended on farming, fishing, family values, etc...) - Countries with highest degree of economic freedom: Singapore - Free markets are not totally free - It boils down to a matter of degree (largely depends on political system)
Combating Corruption
- Most influential anti-corruption NGO - Headquartered in Germany - High level of corruption = low level of economic development
Three Views of Globalization (1)
- New force sweeping through the world in recent times * Opponents of globalization * Beginning in the late 20th century * Arguments against focus on: > Manufacturing decline, job loss, and income inequality in high-income countries > Environmental stress and sweatshop labor in low-income countries > Global warming and climate crisis on a worldwide basis
Informal Institutions: Norms, Culture, and Ethics
- Normative (Values, beliefs, actions; acceptable + expected behavior in society) - Cognitive (Internalized values and beliefs; your own belief system)
Informal Institutions
- Norms, Cultures, and Ethics
Emerging Economies in the Global Market (Triad)
- North America (US and Canada) - Western Europe - Japan
Major Formal Institutions
- Political Systems - Legal Systems - Economic Systems
Authoritarianism
- Political plurality is undermined and concentrated government power is imposed - Democracy may be nominally maintained, but political opposition is suppressed - Hungary, Poland, Russia - Government power
Formal Institutions
- Political, Legal, Economic
Legal System
- Property rights - Intellectual property rights
Globalization and Semiglobalization (2)
- Rapid growth in 1990s and 2000s drew backlash - Inaccurate historical view that globalization is new - International travel curtailed - Global trade and investment flows slowed down
Strategic Response
- Reactive * Passive * Deny responsibility * Do less than required - Defensive * Focus on regulatory compliance * Admit responsibility but fight it * Do the least that is required - Accommodative * Accept responsibility * Cognitive beliefs and values internalized * Do all that is required - Proactive * Anticipate institutional chnage * Do more than is required
Formal Institutions
- Regulatory - Made up of rules and regulations that control behavior - Coercive power of governments
Three Pillars That Support Those Institutions
- Regulatory, Normative, Cognitive
Reverse Innovation (Frugal Innovation) 1
- Reverse Innovation: innovation flows from developing to developed countries
Gross Domestic Product (GDP)
- The sum of value added by resident firms, households, and governments operating in an economy - Anything that adds value to your country - Gross National Product/Gross National Income (GNP, GNI) * GDP plus income from nonresidential sources abroad - GDP (WITHIN A COUNTRY) - GNI (ANYWHERE)
Ethics
- Right and wrong - Principles and standards of conduct governing individual and firm behavior
Civil Law
- Roman law and Napoleon's France - Oldest, most influential, most distributed, around world - Uses comprehensive statutes and codes - Less flexibility - Less confrontational - Only one state in the US uses a form of civil law: Louisiana
Political Systems
- Rules of the game on how a country is governed politically - Democracy, Totalitarianism, Authoritarianism
Opportunism
- Self-interest through lying and cheating - Major source of transaction costs
Cultural Differences and Global Business
- Sensitivity to cultural differences does not guarantee success but can at least avoid blunders - Being insensitive almost always guarantees failure
Christianity
- Single largest religion - Glory of God - Protestant work ethic
Education
- Socially rigid societies * education is one of the primary means to maintaining social stratification * Most selective university in the world: Indian Institute of Management - Socially mobile societies * education is typically one of the leading forces to break down social barriers
5 Principles of Business
- Specific to Islam - 1. Sell lawful items - 2. Honesty - 3. Good treatment of staff - 4. No deception/fraud - 5. Charity
Institution Based View
- Success and failure of firms are enabled and constrained bt insitutions
Managing Ethics Overseas
- THREE CORE PRINCIPLES * Respect for human dignity and rights (health, safety, right to education) * Respect for local traditions * Respect for institutional context (the legal, political, economic system)
Views on Ethical Motivation
- THREE VIEWS: * Negative (only appear to be ethical) * Positive (do right because it's right) * Instrumental (a means to an end; willing to be ethical to make money; not internalized)
Four Asian Tigers
- Taiwan - Hong Kong - Singapore - South Korea - Educated population, high savings rate
Property Rights
- Tangible - Legal rights to use an economic property and to derive income and benefits from it - Property document (deed; proof of ownership) - WHY DID DEVELOPED ECONOMIES BECOME "DEVELOPED?": PROTECTION OF PROPERTY RIGHTS
Corruption
- The abuse of public power for private benefits usually in the form of bribery, in cash or in kind
Globalization
- The close integration of countries and peoples of the world - Used to describe how trade and technology have made the world more connected and interdependent - When one things happens in one country, it will affect another
Culture
- The collective programming of the mind which distinguishes the members of one group or category of people from another - Your value/belief system - Geert Hofstede
Masculine vs Feminine
- The extent to which a society values traditionally masculine attributes or traditionally feminine roles - MASCULINE: * Driven by achievement, competition, success, excellent * Lead by Japan - FEMININE: * Driven by quality of life, caring for others, work/life balance, managers are supportive * More consensus-oriented * Gender roles overlap significantly
Uncertainty Avoidance
- The extent to which societies tolerate risk or are risk averse. Degree a society feels uncomfortable with _______ - HIGH: * Avoid risk * Less tolerant of risk or uncertainty * Follow routines and make plans * Intolerant of unorthodox ideas * Emotional need for rules * More traditional - LOW * Tolerate risk * Comfortable with uncertainty * More relaxed attitude * Deviance from norms easily tolerated * No more rules than necessary * Schedules are flexible * Innovation is not threatening
Liability of Foreignness
- The inherent disadvantage that foreign firms experience in host countries because of their non-native status - Something that happens internally that makes drives and makes them successful
Norms
- The normal behavior - Prevailing practices of relevant players
Great Recession (2008-2009)
- The party suddenly ended in 2008 - Global economy plummets - Unemployment skyrockets - Global economy turned the corner due to unprecedented gov't intervention
Economic Systems
- The rules of the game on how a country is governed economically
Social Structure
- The way a society broadly organizes its members with rigidity or flexibility - Social stratification * hierarchical arrangement of individuals to social categories (strata) within a society - Social mobility * The degree to which members from a lower social category can achieve a higher status - Highly stratified - low social mobility
Individualism vs Collectivism
- The worth of an individual versus the worth of the groups of which that person is a member ("me versus the group") - INDIVIDUALISTIC: * Ties between individuals are loose * Individual achievement and freedom are highly valued * Seek freedom in workplace * Assertive, competitive, self-reliant - COLLECTIVIST: * Strong group cohesion * Collective accomplishments * Relationship over the task * Cooperative, obedient, self-sacrificing * Behavior per social norms * Emphasis on harmony within group
Forms of Totalitarianism
- Theocratic (divine guidance, oppressive) - Communist (classless society, state controls everything) * China, North Korea, Vietnam, Cuba, Laos - Tribal (tribal or ethnic control) - Right Wing (hates communism, military) * Goal: to keep communism out
Acquiring Cultural Intelligence
- Three Phases * Awareness * Knowledge * Skills - Understand and adjust
Key Role
- To reduce uncertainty
Political Systems and Business
- Totalitarianism and Authoritarianism - Degree of hostility toward business varies - Generally not as good for business as democracy - Wars, riots, protests, chaos, breakdowns - High levels of political risk - Risk associated with political changes that may negatively impact domestic and foreign firms
Piracy
- Unauthorized use of Intellectual Property
2 Pillars of Islam
1. Praying 5 times daily 2. Fasting (during Ramadan)
Top Countries for Education
1. United States 2. United Kingdom 3. Australia 4. Germany 5. Canada
Nonmarket (political) Strategy
A strategy that centers on leveraging political and social relationships
Institutional work
Purposive action aimed at creating, maintaining, and disrupting institutions
Risk Management
The identification and assessment of risks and preparation to minimize the impact or high-risk events
Bounded Rationality
The necessity of making rational decisions in the absence of complete information