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