D080 Managing in a Global Business Environment
Most Favored Nation Rule
- A WTO member country cannot discriminate against its trading partners. - Emphasizes equality across all trading partners
Fourth Industrial Revolution
- A blurring of the lines between physical, biological (people/power), and digital - Merging what is human and what is technology brings great potential but also challenges.
Flat Rate System
- A certain tax percentage is paid on the profit earned no matter what level of profit is earned. - The United States moved away from tax brackets to a flat rate system to attract more foreign companies to come and do business in the country.
Horizontal Contract Vertical Structure of Law
- A choice of clause specifies the law and jurisdiction under which international disputes will be settled. - International businesses operating in different countries include this to clarify ahead of time how disputes will be handled. - Convention that provides gap filler for terms not expressly stated in agreements between two companies (ex. the UN Convention on Contracts for the International Sale of Goods applies to contracts for the international sale of commercial goods)
Horizontal FDI
- A company trying to open a new market or build a new production facility in another country (ex. a retailer that builds a store in a foreign country to sell to the local market) - Related to the market entry and product specialization stages of entering a global market
Forward Contract
- A customized contract between two parties (a middleman writes the contract for the parties) - No set amount or exchange date for settlement - Settlement uses agreed upon rate - Available for currencies that are less often exchanges such as those in developing nations - Mitigates risks from real-time fluctuations of the exchange rate
Common Market of the South (MERCOSUR)
- A customs union, not an actual common market - Members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela - An economic trade initiative with clear political goals committed to the consolidation of democracy and maintenance of peace throughout the southern cone (ex. agreements in nuclear field) - Has suspended Venezuela indefinitely starting in 2016, due to human rights violations and a lack of commitment to democracy - Constituents compose nearly half the wealth in all Latin America (South America)
Crowdsourcing
- A large number of people who invest small amounts of capital into a business - Individuals with potential business ideas can raise capital and support prior to producing a given product or service. - Many investors cumulatively provide enough to kick-start a venture. - Reimbursements in the forms of credits or incentives are used as motivation rather than money.
Quotas
- A quantity limit on an imported product - Absolute quota: an absolute quantity limit on an import (limit on the number of value of goods imported during a certain period) - Tariff rate quota: a combination of a tariff and a quota (initial quota is at a lower duty rate, additional amounts are at a higher duty rate) - Domestic businesses are protected (their goods are purchased and their revenues increase, making a positive impact on wages, jobs, and the economy). - Limiting imports reduces the amount of supply in the economy, allowing the US market to increase its prices and generate greater profit (less competition). - Foreign producers sell less under the quota, but to bring in the same amount of revenue, they increase the price of the imported goods.
Future Contract
- A standardized contract that requires a set amount of currency to be exchanged at the agreed rate - A date of exchange is specified, which takes place on the exchange market. - Available for currencies that are the most commonly traded currencies of the world (ex. the US dollar, British pound, Japanese yen, European euro, etc.) - Future and forward contracts are very similar.
Internal Control Systems
- A system of rules and procedures designed to ensure the accuracy and reliability of financial and accounting information - The redundancies that are built into a system to make certain that it accurately maintains material statements - Prevent discrepanies (unintentional errors) and irregularities (intentional, fraudulent misrepresentation) from occuring - Identify errors and irregularities after they occur so that corrective action may be taken (internal auditing, multiple sets of eyes, etc.) - Cut down on discrepancies and unintentional errors by helping guide people through the process for what, when, and how one is supposed to do something (segregating employee duties, assigning specific duties to each employee, using mechanical devices, keeping records, etc.)
Information and Communication Technology (ICT)
- Agriculture is one of the most vital areas needing this intervention (importance of smart phone technology). - It helps farmers learn about crop pricing, informs them about the status of their crops, provides information about irrigation of their groups, etc.
Subsidiary
- Aka Greenfield Venture - Direct operating present in another country, completely under their control - Build business where no prior business existed - Foreign direct investment (FDI). - Advantages include local market knowledge, being seen as an insider to employ locals, and maximum control - Disadvantages include high cost, high risk due to unknowns, and slow entry due to setup time
Multinational Corporations (MNCs)
- Aka Multinational Enterprises (MNEs) - For profit companies that move natural resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located (owns and controls manufacturing services, R&D facilities, or other business entities on foreign soil) - Operates in two or more countries, leveraging the global environment to enter new markets to increase revenue - One of the instruments of globalization and the primary means of foreign direct investment (FDI) - Large corporations with significant amounts of resources (capital, management, talent, and technology) at their disposal - Willing and able to take on huge risks (leading to huge rewards) needed to globally operate - Maximizing profits and shareholder wealth - Look for countries with high-growth potential and a rising per-capita income, as well as a growing middle class with high demand for goods and services - Can enter foreign markets as foreign direct investors, exporters, licensors, franchisors, joint ventures, strategic partners, etc.
Pegged Exchange Rate
- Aka the fixed exchanged rate - A currency's value is tied to the value of some other country's currency, sometimes to a set of other currencies or something valuable such as gold. - To ensure that a currency will hold its pegged value, the country's central bank maintains reserves of foreign currencies and gold. - The central bank can use these reserves to intervene in the foreign exchange market to compensate for excess demand or take up the excess supply of the country's currency. - Government tries to maintain constant currency value against a specific currency or good - Value is decided against a fixed weight of asset, currency, or basket of currency. - Automatic re-balancing doesn't occur and constant government intervention in the market is needed (buying, selling reserves of foreign currencies and gold, adjusting interest rates, and altering fiscal policies). - We tend to see a fixed exchange rate policy being used when a small economy's gross domestic product (GDP) is heavily dependent on international trade with a much larger economy or set of economies (ex. the country of Belize fixed its currency to the US dollar to avoid the instability that comes with currency fluctuations). - Gold standard is common, and makes trade investments easier and more predictable for smaller economies.
Pegged Float Exchange Rate
- Aka the fixed float exchange rate - Hybrid of the fixed and floating exchange rate policies where a country's central bank will set a range or band within which the currency's value may freely float. - If the currency drops below the range's floor or grows beyond the range's ceiling, the central bank will intervene to pull the currency's value back within the acceptable range. - Currencies are pegged to some band or value, which is either fixed or periodically adjusted. - Countries such as India use the pegged float exchange rate to obtain the benefits of a free floating system, but still has the option to intervene and minimize the associated risks.
Floating Exchange Rate
- Aka the fluctuating exchange rate - Freely fluctuates with supply and demand in the foreign exchange market - Countries that use the floating exchange rate policy include all NAFTA and EU countries. - Automatically adjusts to economic circumstances - Free floating or managed floating (dirty floats) - Most use managed floating where exchange rates fluctuate day-to-day. - Small economies that depend heavily on exports tend not to use the floating exchange rate system due to the risks associated with rapid appreciation and depreciation of currency value.
Database Management System (DBMS)
- All of the big data is stored. - Purpose is to organize and store the data in a way that makes it easy to retrieve the data - Database collects raw data and turns it into information to run the business and perform business analysis (accessed by running reports)
Intra Firm Loans/Trade Credits
- Allow customers/subsidiaries deferred payments on goods and services for a period - Borrow capital from parent; external transaction costs are eliminated
Crawling Pegs
- Allows gradual depreciation or appreciation - Pegs a specific value while allowing it to glide in response to external market uncertainties
National Labor Committee
- An NGO that has been developed to create minimal labor standards - Anti-sweatshop activities to work actively to try and avoid sweatshops - Prohibits slave or forced labor - Restricts the use of child labor - Mandates basic job safety protections and rights of workers to form unions
Host Country National
- An employee of an organization who is a citizen of the country in which the company's operations are located - Ex. citizens of China are considered host country nationals if the facilities are located there
Sherman Antitrust Act
- Antitrust law used to prevent a monopoly - Dealt with limiting the power of price maker cartels (group of firms that work together to set prices) and preventing them from monopolizing an industry
Clayton Antitrust Act
- Antitrust law used to prevent a monopoly - Defines unethical business practices like price fixing and monopolies - Upholds various rights of labor unions
Federal Trade Commission Act
- Antitrust law used to prevent a monopoly - Established the Federal Trade Commission - Oversight body that aims to protect consumers and stop unfair, deceptive, or fraudulent practices in the market - Conducts investigations, sues companies or people who violate the law, and develops rules for the market - Ability to approve or reject mergers - Prohibits unfair methods of competition, and unfair acts or practices that affect businesses
Export Financing
- Banks will advance funds against payment obligations, shipment documents, or storage documents. - Aka secured financing, it uses contracts as collateral. - Riskier and harder to get than business loans - Involves global equity (global stock markets) and overseas debt (international borrowing/loans and bonds) - Ex. if a subsidiary or franchise wants to relocate outside of the country, the parent company will sometimes provide a loan to the franchisee to help finance their startup
Transnational Strategy
- Basic global business strategy - High in global integration, high in local responsiveness - Combines standardization and multidomestic strategies - Customizing things to meet local needs, while also achieving economies of scale through standardization - Difficult to maintain - Used when a company encounters a significant cost pressure from its international competitors, but products must be offered to meet local customer needs
Standardization Strategy
- Basic global business strategy - High in global integration, low in local responsiveness - Whole world is one market, very little variation - One product/marketing campaign for all of the markets - Used in business-to-business - Produces efficiencies because the common activities are centralized - Machine tools/equipment and info technologies are universal and don't need customization. - Produces efficiency by centralizing many common activities such as product design, gaining scale economies in manufacturing, simplifying the supply chain, and reducing marketing costs
Multidomestic Strategy
- Basic global business strategy - Low in global integration, high in local responsiveness - Customizing products or processes to the specific conditions in each country - Management is centralized in the home country, but country managers are given the latitude to make adaptations (modifications). - Country managers are the ones who best understand the local laws, customs, and tastes, as well as how to meet needs, make modifications, adapt to things, and take differences into account. - Sacrifices scale efficiencies for responsiveness to local conditions (laws, customs, tastes)
Export Strategy
- Basic global business strategy - Low in global integration, low in local responsiveness - Using the same product, strategies, and marketing approach in all of the different markets - No customizing, modifying, or catering to local tastes - Exporting products around the globe without the intention to expand globally (staying a domestic company) - Earns revenue by sending products overseas
Similarities Between the IMF and World Bank
- Both established in 1944 at the Bretton Woods Conference - Owned and directed by governments of member nations - Almost every country on earth is a member of both institutions. - Both concern themselves with economic issues - Both focus on broadening and strengthening the economies of their member nations - Hold joint annual meetings - Headquartered in Washington, DC USA - Share joint task forces, sessions, and research efforts
Determinants of Location Decisions
- Both raw materials coming into the plant and finished goods going out have minimized shipping costs (companies often locate plants close to suppliers, customers, or both to make the most efficient decisions based on their value to weight ratio of products) - Workforce multinationals tend to locate in areas with large numbers of workers with necessary levels of skill, education, or experience. - Multinationals tend to choose locations with low fixed costs (land, labor, construction, utilities, taxes, etc.) - Country and community factors also come into play because differences and cultural norms can create problems in communication and workstyles that affect productivity, as well as economic, social, and political stability. - Companies seek locations with favorable business environments (local governments might offer financial incentives such as tax breaks to incentivize them to do business in their locales).
Association of Southeast Asian Nations (ASEAN)
- Can be characterized as a common market, except labor movement across member nations is restricted - Most important trading partner has been China, but has now expanded to Australia, New Zealand, and India - Focuses on the economic, social, cultural, and technical cooperation as well as promoting regional peace and stability - Initially interested in preventing domination by external world powers
Expatriates
- Citizens living and working outside their home country - Can be home country nationals (citizens of the country in which the company is headquartered), or third country nationals (citizens of neither the home or host country, but another country entirely) - Need to learn the language, culture, goal setting, managing family/stress, and repatriation (return and transition back to country)
Brownfield FDIs
- Companies or government entities use existing production facilities to launch new production activity - Cleans up facility from production to a less polluting one (like an office space/residential area) - Less expensive and faster implementation - Challenges include existing employees, outdated equipment, entrenched processes, and cultural differences.
Vertical FDI
- Company invests internationally to provide input to its core operations (pertains to a company's value chain) - Related to the value chain disaggregation stage of entering a global market - Backward vertical FDI: investing in the supply field for production or resources for core operations - Forward vertical FDI: investing in the distribution field for selling or distributing goods - Largest global companies do both
Financial Accounting Standards Board (FASB)
- Connected to GAAP - Self-governing and supported by the US government, accounting establishments, and privately owned companies
International Accounting Standards Board (IASB)
- Connected to the IFRS - Creates international standards of accounting - 75% of reps must agree on standard/changes and most provide two alternatives. - Adherence is voluntary but many countries mandate IFRS.
Cultural Attributes in China
- Connection (networking) between 2 or more unequal parties that includes exchange of favors (guanxi) - Fosters strong harmonious relationships but can also encourage bribery and corruption ("you owe me one") - When yes is said with a flat tone, it indicates possibility, not an agreement. - Chinese media companies control most of the digital content in China (3 of them).
Swap Contract
- Coordinated transactions to trade currencies for investment purposes at a locked in rate - This gives back investment revenue in the home country's currency. - Buy-sell transactions that occur on multiple dates will have a locked currency rate and this will help eliminate interest rate fluctuations.
Compensation and Benefits Challenges
- Cost of living and benefits - Pay systems and legal mandates/requirements
Special Drawing Right
- Created by the International Monetary Fund (IMF) - International monetary reserve asset, aka the basket of currencies (US dollar, British pound, Japanese yen, Euro, Chinese Renminbi) - Allocated to IMF member countries and can be used to pay debts or loan out to other countries
PULL Model
- Customer driven - Less inventory is carried, products and services are customized, order accuracy is improved, product development time and cycle time is reduced, and products are sent to the market more quickly. - The integration of e-commerce has produced greater cost efficiency, distribution flexibility, improved customer service, and shipping track/monitor capabilities. - Inherent financial saving benefits are passed on to customers. - More efficient production, improved material management, shipping, distribution, and fewer returns lead to more cost savings (ex. Toyota's JIT Production System).
Centralized Decision-Making
- Decisions are made at higher levels in the organization. - Employees feel more secure. - Inefficient decision-making - Consistency of processes and output
Decentralized Decision-Making
- Decisions are made at lower levels in the organization. - Employees feel more empowered, but less secure. - Inconsistent decision-making - Flexibility to meet local needs
Desired Political System for Globalization
- Democratic political system - High levels of political stability that give businesses confidence to operate in the country - Business freedom to operate in the market (with few limitations from the government), transparent governance that reduces corruption, freedom of speech, independent judiciary, etc. - Business owners must consider the country's political system and choose the best one that fits their needs (ex. some oil companies prefer authoritarian governments because they require a significant amount of long-term investment and government coordination).
Crawling Bands
- Determined by international agreements or by unilateral decision by a central bank - Bands are adjusted in response to economic circumstances and indicators. - Pegged with horizontal bands: similar to crawling bands, but they are allowed to fluctuate within a larger band of greater than 1% of the currency's value
Economic System
- Determines a country's economic production of goods and services - A country has to determine what to produce, how to produce the product, and who gets the final product.
Generally Accepted Accounting Principles (GAAP)
- Developed by the FASB - Provides guidance by which financial statements are prepared for US publicly traded companies (national set of standards) - Standardization enables diverse organizations and parties and communicate effectively.
International Financial Reporting Standards (IFRS)
- Developed by the IASB - International set of standards (accounting principles used outside of the US) - Harmonization and unification of various accounting standards used throughout the world - Relevant due to increased international investments - Mandated by many countries
International Considerations
- Developed countries have good infrastructure. - Developing countries are emerging markets with fragmented distribution networks, limited logistics, smaller retailers/street vendors, and geographic barriers. - Intermediaries can expand due to regulations affecting import and export across national boundaries (the more that needs to get involved, the more expensive it gets, which increases the cost of the product for the customer). - Entering a new market option = joint venture or partnership with local company (acquires a local company to have immediate access to a large-scale distribution or builds own distribution from beginning)
World Bank
- Developmental institution that encourages developing countries to borrow for infrastructure and development projects which will improve quality of life and their under-developed economic system to promote prosperity (and therefore investing in people to help build sustainable economic growth) - Initial goal was to help Europe rebuild their infrastructure - Current goal is to provide long-term loans to support the development of poor nations to help them fight poverty and eventually improve the quality of life in developing areas - Such projects cannot be done within one or two years, which is why the loans offered by the World Bank are long-term. - Investment bank owned by governments of member nations - Borrows and loans to those who qualify and meet long-term loan requirements (doesn't have to be a member country) - Low interest, interest-free credits, and conditional grants - The International Bank for Reconstruction and Development (IBRD) is linked to the World Bank's initial goal to rebuild Europe's infrastructure.
Digital Divide
- Discrepancy in access to IT between populations (countries, regions) - About countries who have access to technology (the "haves"), and the countries who don't (the "have nots") - The economic divide (reduction in cost of technology), usability divide (even after people can afford technology, it is rather complicated and something they don't understand how to use), and empowerment divide (people are not using technology to the full potential that they paid for it) - Incentive to build digital infrastructure in countries because the greater use of technology provides a shortcut to economic advancement (which is important in order for countries to thrive and become better places to conduct business)
General Data Protection Regulation (GDPR)
- EU body of law - Regulation that protects EU citizens from companies using their personally identifiable information (PII) in unwanted ways. - They must explicitly opt in to grant permission for data to be used. - Applies to any companies anywhere in the world processing the data of EU citizens (includes American companies) - In the EU, privacy is seen to outweigh interests of commerce. - Companies that do not follow GDPR can be fined 4% of their annual global turnover or 20 million euros in fines. - After a breach, users must be notified within 72 hours of becoming aware of that breach. - In the United States, the federal trade commission (FTC) requires companies to create and post a privacy policy regarding collection and sharing of private information.
Market Capitalization Macroeconomic Indicators
- Economic growth rates (ex. product demand and trends) - Exchange rate stability (ex. converting foreign revenue into home country dollars) - Health of foreign banking system and interest rates (ex. ease of loan approval) - Liquidity of stock and bond markets - Most important indicators are political, stability, and security
Market Economy
- Economic system - Businesses and resources are privately owned. - Minimal government control on business operations - Economic production is determined by market supply and demand. - Focuses on maximizing profits - Competition helps set prices. - Innovative, productive, and profitable - Capitalism requires this type of market.
Command Economy
- Economic system - Observed in countries such as Cuba and North Korea - 100% government controlled (resources, assets, and businesses) - The government determines who, what, when, and where of goods, production, and distribution. - The system's property is publicly owned. - Black markets are common. - The economy is less flexible and slower to react to change. - Can lead to neglection of societal needs - Currency is regulated by the government. - Economic production is regulated by the government which challenges globalization.
Mixed Economy
- Economic system - Observed in the United States - Stands in between a command economy and a market economy - While the market is still the major determining power of economic production, the government has more controls on industries in this economy. - The government intervenes the market only when necessary (ex. stimulus checks and small business loans being sent out to help the society during the covid pandemic). - Most economies fall here.
Traditional Economy
- Economic system - Observed in very underdeveloped areas such as Africa, Southeast Asia, and Latin America - Farming is the main focus. - More self-sufficient and sustainable than other countries but low standard of living (usually struggling with poverty) - Families produce agricultural products to feed themselves. - No extra products due to the lack of advanced technological levels (no surplus) - The exchange of goods and services without the use of money (bartering)
United Nations Environmental Program
- Efforts to protect shared global environment and limit the impact of big business on the world's natural resources - Regulations are difficult because sovereign rights of nations preclude the United Nations from enforcing regulations. - United Nations compliance is normally voluntary, and agreements tend to be non-binding.
North American Free Trade Agreement (NAFTA)
- Encourages trade between Canada, the US, and Mexico - Includes protection and enforcement of intellectual property rights - Includes the country of origin rule, which states that automobiles must have 75% of their components manufactured in the US, Canada, and Mexico to qualify for a zero tariff rate - There is also a labor provision for wages, which states that 40 to 45% of automobile parts must be made by workers earning a minimum of $16 per hour. - Reduces tariffs and trade barriers with the hope that with a free trade zone, companies can benefit from the transfer of goods - Has provisions for workers' rights, environmental protections, and dispute resolution to appease concerns with relocating jobs, due to lower wages and looser environmental laws (shifts them away from low comparative advantage industries)
Children's Online Privacy Protection Act (COPPA)
- Enforced by the Federal Trade Commission (FTC) - A good-faith effort requiring companies that are collecting information from children under the age of 13 to try and determine if the child is under 13 (if so, they need to have parental approval before information is collected about that child)
Franchising
- Entry strategy - A business grants an entrepreneur the right to use their products, names, and processes in exchange for a percentage of the profits. - Obligates the parent firm to provide specialized equipment and/or services to the franchisee (ex. product specification and adaptation, pricing, promotion, distribution strategies), and sometimes to fund some startup costs - The franchisee pays an annual fee which is generally based upon sales generated, and seed money provided for the venture. - The franchisee (owner of individual front) takes most of the risk, while the franchisor (larger company) has low risk. - Fast entry, low cost, and low risk - Cons include less control, licensee potentially becoming a competitor, and the need for a strong legal and regulatory environment (IP and contract law)
Licensing
- Entry strategy - A company capitalizes on their intellectual property that they own, by working with a foreign partner. - Allows one party to use another party's property as their own without paying royalties for a designated length of time (no upfront cost) - Allows a company to have an agreement with a company in a foreign country to manufacture and sell its products for an annual license fee - Fast entry, low cost, and low risk - Cons include less control, licensee potentially becoming a competitor, and the need for a strong legal and regulatory environment (IP and contract law)
Export-Import
- Entry strategy - Can be done over the internet (sending goods and services around the globe from the home base) - Putting up a web page or selling on e-commerce sites like Amazon or eBay - Competition is generally keen and the profit margins may not be high - Distributor can threaten/switch to get lower prices - Fast entry and lowest risk - Cons include low control, low local knowledge, and potential negative environmental impact of transportation
Strategic Alliance/Partnership
- Entry strategy - Like a marriage or convenience - Collaboration of two or more companies that stand to gain revenues through cooperation with each other for specific reasons and for a given period - Shared resources to gain more market share - Creates a very vulnerable relationship because any entity could exit at any time
International Joint Venture
- Entry strategy - Like a marriage with a child - A business that is jointly owned and operated by two or more firms (usually one from the host country and the other from another country) - Shares resources (labor, capital, technology, and management) to penetrate a host country as well as foreign markets, generates and splits profits, and shares commercial risk - Shares costs to reduce investment needed and risk seen as local entities - Usually created when the amount of capital needed to enter into a market is greater than any one company wants to take on - The local partner (host country) will be the most knowledgeable about the domestic, economic, cultural, and political environments. - Usually small projects - Corps use this method to diversify. - Strategic plan needed - Cons include higher costs than exporting/licensing/franchising and integration problems between two corporate cultures
Wholly Owned Subsidiary
- Entry strategy - Like a single parent - Highest risk - A company that is 100% owned by another company - Building and operating a new facility or starting a new company in a new market - Requires capital investment due to building a new company from the ground up
Merger and Acquisition
- Entry strategy - The home country purchases another company in the host country and implements its own international business strategy. - Viewed as a local company with known and established operations - Fast entry - Cons include high costs and possible integration issues with home office
Stock Exchange
- Equity (shares) - Shares/stocks for larger and publicly traded organizations - Riskier, most costly, and less reliable type of financing - Doesn't have to be repaid at a specific time or interest rate, but every offering firm loses some control to stockholders - Global equities and debts promote complicated sources of funding due to foreign currency/exchange rates. - Exchanges include NYSE, NASDAQ, Euronext, Tokyo Stock Exchange, and London Stock Exchange.
International Investors
- Exchanging currencies to settle transactions - Ex. a foreign firm exports to the US; the firm is a supplier of US dollars, demander of their home currency (the firm buys their goods in US dollars, and exchanges their revenue in US dollars for their own currency to pay their workers based in their country)
Creation of New Markets
- Fifth stage of business globalization - Creates new demand due to the reduction of ticket price - Only created with the creation of new demand from new customers, who are now willing to buy products at a lower price (the lower the price, the more likely people will buy, creating demand; those that wouldn't buy before but will now at this new lower price is the "new market")
Political Union
- Fifth stage of regional economic integration - Contains all the features of the economic union, including a unification of all political policies by a common organization - The member nations of a political union agree to be integrated into a single country or political entity. - For some, a political union is an ideal that has not yet been achieved, while others cite that the United Arab Emirates (UAE) and the United States are political unions. - Common economic policies may create common political and foreign policies. - Economic integration presents an alliance of all policies by a common organization.
Market Entry
- First stage of business globalization - Deployment into new countries using business models similar to the ones deployed in their home markets
Free Trade Area
- First stage of regional economic integration - Member countries reduce or even remove all barriers to trade, namely tariffs and quotas among themselves, but independently determine their own trade policies with nonmember nations. - Ex. the countries that compose the North American Free Trade Agreement (NAFTA) have removed all tariffs and quotas with one another, but each country has its own individual trade policy with China
International Monetary Fund (IMF)
- Focuses on maintaining the short-term global financial stability and making international transactions smoother and safer - Initial goal was to restore the international payment system and oversee the fixed exchange rate system (Brenton Woods system) - Current goal is to stabilize the exchange rate for international transactions and promote trade - Seeks to help member countries develop appropriate monetary and economic policies to stabilize the value of the currency - Makes short-term loans to member countries and helps them correct the debt issue - The borrowing nation has to pay off the loan in a short time period - Oversees the international monetary system - Monitors and stabilizes the exchange rate - Guides economic policy development - Resources come from quota subscriptions and membership fees. - Acts like a credit union that only serves its member countries
Economic Globalization
- Focuses on the economic development of participating countries in globalization - The international movement of goods, capital, and services - More trade and investment leads to faster economic development. - Increase in information technology - Improvement in social well-being - Tends to benefit rich countries more than poor countries because there are more gains - Lost jobs in developed countries are due to cheap labor in undeveloped countries. - Environmental damages in developed countries because they do not have well established environmental protection enforced - The use of sweatshops and child labor (unethical labor practices)
Doha Round
- Focuses on the reduction of agricultural tariffs - Developing countries think the use of agricultural subsidies in developed countries is unfair to the farmers in developing countries, while developed countries want to push the developing nations to reduce the agricultural tariff (no agreement can be achieved with such conflict). - An inconclusive round as there is not enough room for negotiation
Uruguay Round
- Focuses on the reduction of general tariffs globally - Started the protection on intellectual property rights for global businesses (TRIPS)
Value Chain Reengineering
- Fourth stage of business globalization - Increases cost savings by reengineering processes to suit local market conditions by substituting lower cost labor for capital - Changes the method of setting up the production line to what is most cost effective (ex. moving from automation to unskilled labor because unskilled labor is cheaper)
Economic Union
- Fourth stage of regional economic integration - Has all the characteristics of a common market, but also adopts a common economic policy (members use a common currency, harmonized taxes, monetary/fiscal policies) - Standard set of laws and regulations for competition, mergers, corporate behaviors, and licensing, etc. - Ex. the European Union (EU)
Financial/Economic Risk
- Global business risk - Analogous to operating and financial risk at home - Management and development of economy - Stability of economy (both financially and politically) - International companies are concerned about economic risks similar to ones that they would be exposed to in their own domestic markets. - Affect macroeconomic measures such as unemployment rates, inflation rates, and interest rates, as well as working conditions, infrastructure, innovation, and availability of resources
Foreign Currency Risk
- Global business risk - Currencies fluctuate against each other every day (even hour to hour). - The currency fluctuations are reflected in what are called spot rates, which are current on-the-spot exchange rates between two currencies (fluctuation in the rate that is the root of two types). - Transaction risk: risk that is heard about most often in businesses (ex. paying a bill that you thought was $100 but the spot rate went up so the bill amount also went up) - Translation risk: has to do with multinational companies and their consolidated financial statements (ex. multinationals using the exchange rate to translate all the assets and liabilities of their subsidiaries into the home currency, where the stockholders reside)
Societal/Cultural Risk
- Global business risk - Ethnic or religious strife within a country (ex. nationalistic movements)
Political Risk
- Global business risk - Global and country-specific - Global-specific risk: has to do with risks (ex. terrorism) that affect businesses on a global scale - Country-specific risk: divided into micro and macro political risks - Macro-risks: affect all the businesses within a country and include things like change in leadership, labor unrest, rioting or civil war, etc. - Micro-risks: affect specific countries and industries and include things like blacklisting companies done by the national government, nationalizing of industries (a government takes control of a private industry), etc. - Possible political changes/instability in a country that impacts financial return on foreign investment - Affects ownership of physical assets, intellectual property, and security of personnel
Legal Risk
- Global business risk - Whether laws on the book are enforced - Adherence to laws of the country (not political, though closely tied) - Lots of countries say that their intellectual property laws (patents, copyrights, and trademarks) are protected, but they're not very well enforced.
Global Integration vs. Local Responsiveness
- Global integration: the degree to which a company can use the same products, decisions, and methods in multiple countries - Local responsiveness: the degree to which a company must customize its products and methods to meet the conditions in other countries - Export, standardization, multidomestic, transnational
Glocalization
- Global marketing strategy - Combination of the standardization and adaptation strategies - Involves using a standardization strategy in foreign markets when possible and an adaptive one when necessary - Adapting to local markets while maintaining a global identity - Appeal to preferences, customs, tastes, and values of customers (often refers to food)
Adaptation
- Global marketing strategy - Used in international markets by firms that are different from those used in their domestic markets - Modification of the domestic product for the foreign market (packaging or product) - Making products that better align or fit with the local needs and nuances of the culture and its market - Often refers to products of efficiency, use, and technology
Standardization
- Global marketing strategy - Used in international markets by firms that are the same as those used in their domestic markets - Keeps the product the same everywhere and maintains strict quality control to stay true to the brand - Helps create economies of scale which increases profits - Ensures consistent quality and builds brand recognition
Global Equity
- Global stock markets - A company will go to the stock markets of the world and sell their stock. - More complex when selling stock abroad than selling domestically (foreign currency that has to be dealt with, different sets of rules that need to followed when using global stock exchanges, etc.) - Companies choose the global market because new consumers can contribute to the company's success, it can be less expensive as opposed to issuing stock in the home country, it gives them more options for funding, etc.
The World is Flat View
- Globalization has leveled the economic playing field as more and more contributions are made by nations outside of the industrialized West group (refers to developed countries such as the US, Japan, and European countries). - The use of technology and the internet has made it easier for businesses to conduct global operations. - The convergence of three more powerful forces include new software and increased public familiarity with the internet, the incorporation of that knowledge into business and personal communication, and the market influx of billions of people from Asia and the former Soviet Union who wanted to become more prosperous quickly.
Government Drivers
- Governments can use a lower tax bracket to attract foreign direct investment (ex. a Chinese company moving their operations to the US because of cheaper taxes). - Governments can also encourage domestic businesses by giving them subsidies (free money offered by the government to help reduce costs of products and charge lower prices). - Trade policies, tech standards, policies and regulations, government/subsidized competitors, and customers affect elements of global strategy.
Free Trade
- Governments do not discriminate against exports and imports. - Few restrictions (markets open to both foreign and domestic supply and demand) - Eliminates tariffs and import/export quotas - Encourages countries to specialize in their comparative advantage area of production and gain economies of scale to improve production efficiency - The negative impacts of free trade include possible manufacturing job loss (developed nations), concerning labor standards and working conditions (developing nations), and domestic businesses facing challenges. - Goods made in developing countries can be offered at more competitive prices because labor is cheaper while still having a greater profit margin. - Import of raw materials to make domestic goods cost less (no tariffs) - Agreements must be approved by both houses of Congress because they involve revenue from trade (whereas treaties only need approval from Senate).
Political Globalization
- Governments seek opportunities to collaborate together and remove barriers (collaboration among countries). - Collaboration to remove barriers has increased world organizations (WTO, World Bank, NAFTA, EU, etc.) and nongovernmental organizations (NGOs). - Before joining, countries have to sign agreements in order to obey rules within the organization. - A con is giving up some independence (reduced importance of their nation-states) because of the need to follow leading countries' requirements (sacrificing some political independence).
Cybersecurity
- Has become a bigger concern for companies over the years as workers and other individuals can access company data more easily these days - New tools are being explored to provide some kind of solution to more effective cybersecurity, such as blockchain and biometrics.
Cultural Attributes in Latin America
- High power distance (hierarchy) - Social relationships foster trust and respect in business. - Situations take precedence over schedules (time is space). - Old-world manners and formality when not well acquainted - Conservative and professional in business but outgoing and warm when well-acquainted physically - Family is the most important social unit.
Masculinity vs. Femininity
- Hofstede's cultural dimension - "Tough vs. tender" cultures - Masculine cultures: preferences in society for achievement, heroism, assertiveness, and material rewards for success (roles clearly defined) - Feminine cultures: preferences in society for cooperation, modesty, caring for the weak, and quality of life (roles not defined) - The United States, Mexico, Japan, and China have masculine cultures. - Denmark has a feminine culture.
Individualism vs. Collectivism
- Hofstede's cultural dimension - Emphasis on "I" or "We" - Individualist cultures: made up of loosely-knit social frameworks, expecting individuals to take care of only themselves and immediate families, and having a preference for working alone - Collectivistic cultures: made up of tightly-knit social frameworks, seeing themselves as part of a team with society, expecting society members to look after each other, and having preference for groups - Individualism, competition, and self-realization vs. commonality and group loyalty - Extent for which we take responsibility for our own destinies and choose our own goals over company goals - The United States and Denmark are individualistic. - Mexico, Japan, and China are collectivistic.
Orientation
- Hofstede's cultural dimension - How concerned the society is with the future - Result of understanding differences between cultures of the east and the west - Long-term oriented: willing to make investments now to prepare for the future (values persistence, perseverance, thriftiness, and having a sense of shame) - Short-term oriented: concerned for the present over the future (modern, immediate effect of relationships and obligations) - Japan and China have long-term orientation. - The United States, Denmark, and Mexico have short-term orientation.
Indulgence vs. Restraint
- Hofstede's cultural dimension - How much we give in to gratification - Indulgence: societies that allow relatively free gratification (enjoying life and having fun) - Restraint: societies that suppress gratification of needs and regulate it by means of strict social norms - Freedom of choice, spontaneity, and instant gratification of needs instead of self-control or behavior regulated by social norms - The United States, Denmark, and Mexico have indulgent societies. - Japan and China have restraining societies.
Uncertainty Avoidance
- Hofstede's cultural dimension - Risk loving vs. risk fearing - The degree to which members of a society feel uncomfortable with uncertainty and ambiguity - Low uncertainty avoidance: encourages creativity, less formality/structure, and increased competition - High uncertainty avoidance: rigid code of beliefs/behavior, less competition, low-risk decisions, preference of instructions, stability, and formality - Companies that are high on uncertainty avoidance prefer to partner together so they don't have to worry about local practices and government relationships. - The United States, Denmark, and China have low uncertainty avoidance. - Mexico and Japan have high certainty avoidance.
Power Distance
- Hofstede's cultural dimension - The degree to which power is distributed throughout a society or culture - Hierarchies and differences between people (can be seen as the distance between a subordinate and a superior) - Low power distance: equal distribution of power between individuals in society (not concerned with rank, title, and authority) - High power distance: concerned with showing respect for rank, title and authority - The United States and Denmark have low power distance. - Mexico, Japan, and China have high power distance.
Tax Brackets
- If the corporate profit is within a certain range, one particular tax rate will be paid (if it falls within a different range, a different tax rate will be paid). - European countries tend to have lower rates, while many developing countries have rates above worldwide average.
Cap and Trade System
- Implemented by the European Union - Aka the carbon tax system - An attempt to limit and reduce the amount of carbon dioxide that is emitted in the world (amount of energy necessary to produce a product and the attempt to reduce the amount use) - Adds a tax to a business based on the amount of carbon that they emit in their operations - Allows businesses to trade credits for carbon emissions and are allocated a certain amount of carbon (which can also be sold to other companies if they don't use all of it) - Operates in all 28 EU nations and covers around 45% of the EU's greenhouse gas emissions
Cost Drivers
- Includes economies of scale and other factors (economies of scope) that can reduce the production cost for the company - Economies of scale: allows for reduction of costs (the per unit cost of the product drops as the quantity of the product produced increases) - Economies of scope: a company uses the same production facility to produce multiple products, reducing the cost (ex. Apple using one production line to produce iPhones, iPods, and iPads because they are very similar) - Focuses on factors of production cost reduction, such as labor cost or national resources cost reduction
Competition Drivers
- Increasing profit and competitiveness of the company by going global - Increased access to technologies increases the interdependence of its operations, allowing them to stay on top in their field.
Indirect vs. Direct Distribution
- Indirect distribution: involves the use of third-party intermediaries such as agents, wholesalers, and retailers to move products from the producer to the final consumer (ex. producer to wholesaler to retailer to consumer) - Direct distribution: involves a producer who performs all the functions (ex. producer straight to the consumer)
Personally Identifiable Information (PII)
- Information about oneself that can be controlled by oneself - Includes name, social security number, birthday, place of birth, maiden name, medical records, educational records, financial records, employment information, etc.
Patents
- Intellectual property protection - A legal protection that grants exclusive rights or monopoly rights to the inventor of a product or process - Excludes others from making, selling, or using the invention for a period of time (ranges from 5-20 years depending on the invention type or the country it is being considered in) - Once the period is over, generics are allowed. - Details of patent applications are publicly disclosed. - The owner has the right to defend the invention in court. - Can be granted within a single country or internationally
Copyrights
- Intellectual property protection - Exclusive legal rights that authors, playwrights, publishers, artists, composers, performers, photographers, and other creators have to publish and disseminate their work - Government gives owner of the invention the right to exclude others from making or selling the invention for a set period - Rights are granted for lifetime + 70 years (in the US) - Original works of authorship
Trade Secret
- Intellectual property protection - Keeping the intellectual property a secret (ex. coca cola not sharing the ingredients of their sodas)
Trademarks
- Intellectual property protection - Protection from any word, name, symbol, device, or combination used in commerce to identify and distinguish the goods of one manufacturer or seller from the goods manufactured or sold by others - Unique identifiers of a business (phrase, name, word, picture, symbol, design) - Prevents people or companies from being able to profit off of your idea, and protects brand integrity
Globalization
- Interdependence and interconnectedness among companies and countries around the globe - International integration that arises from the interchange of world views, products, ideas, and other aspects of culture - A process to remove all kinds of barriers among countries - Ultimate goal is to promote collaboration and interdependence of countries
Overseas Debt
- International borrowing/loans and bonds - Involves the same tax deductions (as loans and bonds) that lower the cost of financing for debt (because interest is a business expense)
Worst Forms of Child Labor Convention
- International convention - Aims to eliminate child labor and slavery (sale and trafficking of children, debt bondage, forced or compulsory recruitment of children for use in armed conflict, child prostitution, etc.) - Assistance to remove and provide rehabilitation and education
Maritime Labor Convention
- International convention - Aka the "Seafarers' Bill of Rights" - Sets out seafarers' rights to decent working conditions
Domestic Workers Convention
- International convention - Details specific rights and protections for domestic workers working in both their home countries and as migrant workers
Neo-Mercantilism
- International trade theory - A new modern day thinking of the Mercantilism theory - Trade surplus increases wealth (more export, less import) - Governments can use trade barriers such as tariffs and quotas to limit export and protect the domestic industry. - Countries promote a combination of protectionist policies (subsidies) and restrictions and domestic industry subsidies.
Heckscher Ohlin Theory
- International trade theory - Aka the Factor Endowment Theory - Says that any production needs factors of production to get started with (labor, land, natural resources, capital, and technology) - Countries produce and export goods that require resources or factors that are in abundant supply and are therefore cheaper. - Countries import goods that require resources in short supply but in higher demand (ex. China and India have cheap labor for textiles and garments).
Mercantilism
- International trade theory - Explains international trade occurence as a way for a country to earn gold and silver coins (money) - Believes that the only way to make a country wealthier and stronger is to earn money through international trade - Trade surplus increases wealth (more export, less import)
Global Strategic Rivalry Theory
- International trade theory - Firms participate in international trade because they would like to increase their competitive advantage. - Multinational corporations and efforts to gain competitive advantage against other global firms in their industry - Sustainable competitive advantage through barriers for entry through R&D, intellectual property rights, economies of scale, unique process/methods, industry experience, and access/control of resources/raw materials
Absolute Advantage
- International trade theory - Uses the absolute production cost to determine specialization - Both exporting and importing countries win as free trade generates values and encourages specialization. - A country's living standard is what matters to make the country wealthier, not money. - Country's ability to produce a good more efficiently (cheaper and/or faster) than another nation = specialization - Increased productivity = increased profit - Can be the result of a natural endowment (ex. Saudi Arabia and their oil)
Comparative Advantage
- International trade theory - Uses the opportunity cost to determine specialization - Each country has limited resources to produce products. - When a country uses the resources to produce one product, it gives up the opportunity of using the resources to produce another product (one or the other). - Producing goods at the lowest opportunity cost = more efficiency in producing the current product - A country giving up less to produce the current product = gaining competitive advantage in the area (area of specialization)
Country Similarity Theory
- International trade theory - When a firm tries to export extra inventory to a foreign country, it chooses the country that is similar to its home country (customer preferences, living standards, etc.). - Countries in the same or similar stage of development have similar preferences. - Trade in manufactured goods occurs between countries that are similar in per capita incomes, and intra-industry trade is standard. - Helps the understanding of trade in goods with brand names, and product reputations are important factors in decision-making and purchase processes
Portfolio Investors
- Invest in a company's stocks, bonds, or assets for a financial rate of return - For investment purposes, not to manage a company
Foreign Direct Investment (FDI)
- Investment or acquisition of foreign assets with the intent to control or manage them - Include investing in companies, new property facilities and equipment, or participating in some type of partnership with a foreign company - Long-term strategy to strengthen economic and financial market position through purchasing of new assets, capital, or participation in joint business ventures - Country can have an inward (positive) or an outward (negative) net FDI inflow - Don't need to sell in a foreign market for it to be a good option for direct investment (low-cost production and export all products) - Direct involvement in management and ownership control
Long vs. Short Position
- Investment strategy in purchasing an asset and forecasting its value to either increase or decrease - Long position: a value of an asset that is expected to rise - Short position: a value of an asset that is expected to fall short
Regional Economic Integration
- Involves agreements among nations in the same geographical area to reduce or eliminate trade barriers such as tariffs and quotas - Establishes a single political, economic, and trade policy - Collaboration of countries in a specific geographic area is used to increase competitive advantage. - Occurs more for economic reasons (rather than political) - Meant to increase interregional trade and lead to a more competitive trade position and more efficient resource allocation - Helps nations attain higher living standards by encouraging specialization, lowering prices, providing more choices on goods/services, increasing productivity, and allowing for more efficient use of natural resources - Allows a country to focus on issues relevant to their stage of development as well as encourage trade between neighbors
Foreign Portfolio Investment (FPI)
- Involves purchasing stocks in a foreign business - The portfolio investor is eligible to receive dividend payments and participate in all decisions usually by voting at shareholder meetings, and sell the stocks at any time for a profit or a loss. - No active involvement in management
Equity
- Issuance of shares - Paying dividends to shareholders (not tax deductible because not a business expense) - More expensive form of finance than loans or bonds (also a risker and less reliable source of income) - Risks include not knowing the share price and the demand, and having to share ownership of the company with multiple stockholders.
Staffing Challenges
- Language barriers - Workplace cultural differences - Performance evaluations - Compensation issues
Financing Sources
- Large company (traditional) funding: sources that all companies have available to them whether domestic or international (cash, loans, bonds, equity aka shares) - Small/startup company funding: small companies tend to use these funding options (venture capital, angel investors, FFF, crowdsourcing) - International funding: sources that are available, commonly used by international companies (global equity, overseas debt, export financing)
Sarbanes Oxley Act (SOX)
- Law aimed at increasing the level of ethical transparency within corporate America (improving the public's trust) - Addresses financial accountability issues - Provides whistleblower protections - Applies to any business that wants to be listed on the US Stock Exchange - Requires that public companies adopt and disclose a code of ethics of business conduct, and have it publicly posted - Clarifies auditor-independence issues (private auditors checking on these publicly traded companies to prevent unethical behavior) - Places increased accountability on senior executives in management - Strengthens the disclosure of insider trading and transactions (ex. an employee selling stock based on information not known by the public) - Prohibits company loans to executives - Increases the potential prison sentence for fraud to 25 years
Vertical Structure of Law
- Legal structure - A higher authority that could impose and enforce the law (ex. the US federal government imposing laws on the states) - A structure of law where those at the top govern those at the bottom - The two sources of law in the US are the common law (customs and precedents set by other court decisions) and the Uniform Commercial Code (UCC). - Obligations of contract terms, obligations for each party, etc.
Horizontal Structure of Law
- Legal structure - Neither party is dominant over the other (an agreement between equals). - Enforcement is difficult so provisions are sometimes made to submit to treaty-created dispute resolution panels.
Religious Law
- Legal system - Aka Theocratic Law - Mostly impacts businesses in Middle Eastern and Southeast Asian countries - Based on religious guidelines and focuses on moral standards - Islamic law and the prohibition of interest - Other religious laws include the Talmudic law (Jewish community), Cannon law (Christian community), and customary law which is usually observed in an area where there is no strong justice system.
Civil Law
- Legal system - Used in Continental Europe and Central American countries - The judge applies the law code (rarely uses the jury). - The judge first investigates the case, determines the facts of the case, then applies the legislature's written laws.
Common Law
- Legal system - Used in the United States and United Kingdom - The jury determines innocence or guilt based on facts. - The judge determines which law applies to the case.
Contracts
- Legally enforceable promises - Damages compensation when the contract is broken - The need of a strong legal system with clearly defined property rights in order to have enforceable contracts
Loans and Bonds
- Loans: typically referred to as bank loans - Bonds: money received from the bond holder and paying back that money along with the promised interest rate - Both are considered debt and less expensive because interest that is paid is tax deductible (considered a business expense).
Perfect Competition
- Lots of buyers and sellers in the market - No barriers to entry or exit - Firms can look at the market conditions and decide if they want to enter or exit (no restrictions to either). - Producers compete, and consumers can buy from any producer. - A clear channel of information about the market conditions to both consumers and to businesses - Firms and consumers are price takers (no one firm, no one consumer, or no groups of firms or consumers are going to have market power). - Prices are taken from the market, which are the determining factors (supply, demand, number of firms, consumers).
Producing Products for International Markets
- Manufacturing in the home country, then exporting (justified when a company is not faced with prohibitively high shipping costs, importation delays, and local tariffs and quotas on imported goods and services due to exchange rate fluctations) - Global inputs/components with local assembly (ex. a US computer company purchases high tech components globally but performs customized assembly in Singapore) - Local production (ex. a company sources, materials, and manufactures the product in the foreign country to take advantage of lower cost labor, regional suppliers, and local knowledge)
Multinational Production
- Maximizes production potential of multiple regions simultaneously to increase efficiency and mitigate production risks - Don't necessarily need one factory to build a product, instead choose a variety of partners in different countries - Strategies include manufacture and export, global components with local assembly (concern with coordination issues and supplier quality, country-of-origin effect), and local production (complete production in a foreign country = high investment and political risks but takes advantage of lower-cost labor, regional suppliers and local resources and knowledge) - Things to consider are production processes and cycles, resource/availability cost, demographics, culture, rapid technological advances, shipping/logistics, fixed costs of business investment, economic/business growth, government incentives/requirements, cost reduction, insourcing/outsourcing, etc.
Management Information System (MIS)
- Methods and equipment that provide info on a daily basis about all aspects of a firm's operations - Categorize and identify ideas - Helps make decisions that result in substantial operational and cost benefits
Global Players
- Multinational corporations (MNCs) that have become conglomerates with worldwide reach - Have roles economically, politically, socially, and culturally
Greenfield FDIs
- Multinational corps build new in developing countries - Creates long-term jobs - Incentives to companies are tax breaks, subsidies, etc. because they invest in infrastructure, energy, and water to increase jobs and wages in the host country
Technical Barriers
- Non tariff/quota barrier - Standards that need to be met before goods can enter or leave country - Used to limit trade, such as special sanitary measures, requirements for packaging (size and weight), standards for labeling, ingredient standards, etc. - The government can place more regulations to make trade more difficult.
Voluntary Export Restriction
- Non tariff/quota barrier - The exporting country can voluntarily reduce export quantity to avoid harsher punishment from the importing country. - Ex. the imports of vehicles from Japan has hurt the US automobile industries, so the US uses a 30% tariff rate on imported vehicles from Japan to limit the number of vehicles the Japanese government exports
Government Procurement Programs
- Non tariff/quota barrier - Used to ensure that government departments buy from local businesses, not international businesses - Ex. congress signed the Buy American Act to require the US government to prefer US made products for its purchases
Bureaucratic Delays
- Non tariff/quota barrier - Used to make trade more difficult - Delays at ports/borders due to admin/red tape increases the uncertainty and cost of maintaining inventory. - Ex. if the US customs take three months to process the export and import documentation, it would greatly reduce foreign businesses' interests in trading with American businesses
Human Resource Management
- Not just hiring, payroll, and other administrative tasks, but a strategic tool to help a company achieve its goals around the globe - Going beyond admin tasks to address hiring decisions, expatriate adjustment, cultural conflicts, and differing benefits and compensation
Corporate Social Responsibility (CSR)
- Obligations to society to demonstrate a commitment to environmental sustainability, social justice, and philanthropy - The goal is to increase long-term profits and shareholder trust through positive public relations and high ethical standards. - Includes the welfare of a wide range of stakeholders (all people and places affected by company activities) - Companies need to consider all of their actions on society, taking into account the externalities that they may be aware of even though they may not pose a cost directly to the firm.
Benefits of MNCs
- Often overcome trade problems (ex. after the United States imposed tariffs on European Union produced steel, the EU retaliated by imposing its own tariffs on US manufactured Harley Davidson motorcycles; Harley Davidson responded by moving some of its production to other countries to sidestep the EU tariffs) - Ability to sidestep regulatory problems (ex. a US MNC facing certain restrictions against foreign companies in the EU can merge with a French company facing restrictions in the United States so that the combined organization is seen as a "home" company in both markets) - Can shift production from one location to another as market conditions change (ex. if a natural disaster has shut down operations in country A, the MNC can increase production in countries B and C) - Can exploit R&D in research centers around the world (ex. a laundry detergent formula developed in Japan and small gear components designed in Spain) - Ability to save on labor costs (ex. if faced with pressure to increase wages, an MNC can threaten to shut down operations in a highly unionized environment and move to a country with lower labor costs)
Monopoly
- One producer of a good which allows quantity produced and price level to be set by that producer with no competition (price maker) - Consumers are price takers (no power over the price). - Smaller quantity of goods (no other firms producing that good) - Higher prices
Market Drivers
- Opportunity to find the convergence of needs (foreign consumer demand = domestic consumer demand) that allows the same or similar product to be produced in bulk - No redesigns needed because the needs are the same
Option Contract
- Option or right (but not obligation) to exchange a set amount of currency on a set date at an agreed-upon rate - The party holding an option does not have to exchange currencies if they don't want to. - The buyer has the option to put (up for sale), call (to buy) a currency, or pay a premium to the seller instead.
Private Export Funding Corporation (PEFCO)
- Organization specializing in export financing - A private sector organization providing export financing to international companies
Overseas Private Investment Corporation (OPIC)
- Organization specializing in export financing - Agency of the US government (a public organization that loans money to private firms) - Supports business investments in developing countries
Japan External Trade Organization (JETRO)
- Organization specializing in export financing - Assists foreign companies in exporting their products into Japan
Export-Import Bank of the United States
- Organization specializing in export financing - Supports the financing and facilitating of US exports (goods and services) for those buyers who are unable to get financing purchases in their own countries - Provides credit support covering up to 85% of a transactions export value
Teams Structure
- Organizational structure - Composed of people with complementary skills working together for a common purpose (ex. multiple teams of people going head to head against each other) - Less hierarchical with shared leadership and objectives - Often used by technical companies like Google
Matrix Structure
- Organizational structure - Groups people simultaneously by function and division (ex. the NA division, European divison, and Asian division further broken down into functional departments such as R&D, marketing, finance, distribution, etc.)
Divisional Structure
- Organizational structure - Groups people together to serve the needs of products, markets, or geographical regions - Product structures include TVs, computers, smart phones, and home appliances. - Market structures include residential, business, and government customers. - Geographical structures include the NA, European, and Asian divisions.
Functional/Departmental Structure
- Organizational structure - Groups people together who hold similar positions, perform similar tasks, or use the same kinds of skills (ex. R&D, finance and accounting, marketing, distribution, etc.)
Cooperative Institution
- Owned and directed by the governments of member nations - Gives short-term loans to member countries to assist with debt issues to prevent impact on trading partners
Dictatorship
- Political system - A single person that possesses absolute power without effective constitutional limitations - The ruling class can be in power for as long as they want as long as nobody objects. - Oppressive policies
Anarchy
- Political system - Citizens have the power to determine all policies that the country needs (no government needed). - Every political and economic policy determination requires an all citizen vote.
Oligarchy
- Political system - Used in Russia and China - A small group of elite members that gains power to control the country - Power is centralized within a leadership team, rather than involving everyone in every decision (people can still participate in activities and work while the small group in power handles bigger issues of the society). - Tends to exclude outsiders as the ruling class gains more expertise (ex. Russia's ruling class being in control of the country for a long time) - Can sometimes turn into a dictatorship (ex. Putin becoming president and being able to change the constitution so he can have an unlimited term)
Monarchy
- Political system - Used in the United Kingdom - Relates to the royal power (a king or queen rules the country) - Absolute monarchy system: the king or queen still has absolute power to control every aspect of the country and make policies - Constitutional monarchy system: the queen acts only as the symbol of the country, while the prime minister has the absolute administration power over the country
Democracy
- Political system - Used in the United States - Gives citizens the right to vote for political leaders - A government is formed to represent the citizens and make decisions on all kinds of policies. - Includes congress and senate
Supply Chain Management
- Process of obtaining raw goods from the supplier, converting those goods into products, and placing them in front of customers - Sequenced in the production and distribution of a commodity, flow of goods, and associated information from source to consumer - Includes production planning, purchasing, materials management, distribution, customer service, and sales forecasting
PUSH Model
- Product driven - Order and promotion process involves layers of corporate bureaucracy - Linear process starts with raw materials through delivery to retail and purchase by customer - Production cycle serves suppliers as much as customers - The marketing process focuses on pushing the product onto the customer.
Operations Management
- Production side of supply chain management - Deals with production issues such as location selection and staffing - Needs to look where and how the company adds or subtracts value
World Intellectual Property Organization (WIPO)
- Protects intellectual property globally - Established by the UN - Develops a global IP infrastructure, builds international respect for IP, and implements global policies related to IP - Ensures that member states properly implement WIPO standards - Helps settle disputes at the global level
Trade Related Aspects of Intellectual Property Rights (TRIPS)
- Protects intellectual property globally - Established by the WTO - All WTO member nations must comply with WIPO protections and conventions.
Conditionalities
- Purpose is to help the borrowing nation cut expenditures to save money and pay off loans later (a criticism of the IMF and World Bank) - A borrowing nation might privatize or deregulate their industries to save expenditures (ex. a government privatizing the healthcare industry by giving previously government owned healthcare facilities to private parties, due to spending cuts).
Hedging
- Reduces currency risk (ex. not putting all of the money in a bet) - Addresses losses before they occur through speculation - Exchange rate is agreed upon and locked in at the start of the contract, regardless of the exchange rate at the time of actual exchange
Antitrust Enforcement
- Regulates consumer affairs and safeguards the market from anticompetitive practices and monopolies - Criminal sanctions and financial penalties against individuals - The WTO establishes global standards in competitive markets in conjunction with individual nation laws, while the EU has a centralized admin system for enforcement, and the US considers it criminal law.
Central America Free Trade Agreement (CAFTA)
- Removed all tariffs on US consumer and industrial exports as well as agricultural products by 2020 - Reduces barriers to the US, their largest export market, and increases attraction for foreign direct investments (FDIs)
Uniform Commercial Code (UCC)
- Rules that govern the obligations of parties, specifically to the offer, acceptance, and performance of sales - Imposes general obligations on the parties involved - Deals with unfair contract terms - Involves rules for merchants - The UCC and common law both help the US determine how to govern and enforce contracts.
Product Specialization
- Second stage of business globalization - Transfers full production process of a particular product to a foreign country to produce that product and save costs - The focus of this stage is to take advantage of other countries' comparative advantages such as labor, natural resources, operational expenses, etc.
Customs Union
- Second stage of regional economic integration - Has all the features of a free trade area except that member nations have common trade policies with nonmember countries - Ex. members of the Common Market of the South (MERCOSUR) have to all agree whether a tariff should be imposed on goods manufactured in India
UN Convention on Contracts for the International Sale of Goods (CISG)
- Sets rules for the sale of goods between parties from countries that signed on to the treaty - Creates a uniform law for the parties that adopt it - Applies to contracts for the international sale of commercial goods - Provides gap-fillers (terms that may not be expressly stated in the contract)
Why MNCs Go Abroad
- Significant competition in the home market has led to decreasing profit margins and market saturation for product/service. - Identification of new business opportunities abroad based upon competitive advantages in production, technology, and/or management - Reach new customers - Access cheaper resources - Minimize risk of business cycle fluctuations
Angel Investors
- Similar to venture capitalists - Individuals with capital to spare who have taken an interest in a particular business or product - Act as advisors or object investors - A valuable source of funding for small companies and startup companies
Enterprise Resource Planning (ERP)
- Software solution designed to integrate all of a company's data (so each person in each department has the data they need to do their job) - Connects departments to help them operate on a more complex global scale
Geocentric Approach
- Style of global human resource management - Decisions are made at the home office but with input from the field. - Staffed with a mix of expatriates and locals (host, home, and third country nationals) holding key positions throughout the company - Integration between the parent company and subsidiaries that allows for differences but shared resources across organizations - The company has a global perspective and tries to integrate people and divisions from around the world in order to work with the best talent. - The company and its subsidiaries coordinate and cooperate as an integrated organization, allowing more efficiency. - Fluid movement lends to diversity in workforce. - Cons include higher travel costs and investment in skills training as executives travel more
Polycentric Approach
- Style of global human resource management - Foreign subsidiaries are given control over HR policies and decision-making. - Key leadership positions are given to locals/host country nationals (the company values efficiency and respects the talents and education of the host country's workforce, and does not believe that a one-size-fits-all approach will succeed). - Locally staffed efficiently, effectively, and trustworthy by host-country nationals - Local employees are more engaged and motivated (have the ability to promote). - Needs of the local office are addressed. - Flexibility to adjust to local conditions and local market needs - Potential for overlapping efforts or dual demands for shared resources
Ethnocentric Approach
- Style of global human resource management - Hiring only those from the home country for key management positions in foreign subsidiaries - Same HR policies are used in the home country and foreign subsidies - Top-down decisions from home office - This approach may be chosen if the company does not trust the abilities or training of foreign workers. - Company maintains control as well as consistency of the product quality and messaging - Cons include decision-making not accounting for foreign needs or culture and lack of diversity/motivation (host country or third country nationals cannot promote)
Technology Trends
- Supercomputers: fast in calculations and used for assessing and analyzing tons of data - 3D printing: the production of an item using a process where the printer layers one substance on top of another (can make objects/prototypes with complex geometries) - Artificial intelligence (AI): the increase in computing power that has enabled computers to learn algorithms (learn from experience by looking at previous data and patterns) - BOTs (internet robots): used to help with customer service that reside in the computer system and help customers through robotics, to answer common questions they may have - Augmented and virtual reality: used mostly by creative industries, with augmented reality using a real-world setting and virtual reality being completely virtual - Blockchain: a peer-to-peer network that provides an open distributor record of transactions between two parties (allows transactions to occur without a middleman)
Ethics
- System of moral principles and a branch of philosophy that defines what's good for individuals and society (morality of what is right or wrong) - Morals, principles, and "what is good for society" are defined by culture and social norms. - Values that govern actions and behavior of individuals in the business and of the business organization itself - Regulates employee behavior - Cultural differences make it very difficult to legislate ethical codes, as what is acceptable in one context may be illegal in another - Social norms and ethical standards may be different in each country (a business may operate in a country that permits actions that would be considered unethical under that business's ethical code). - Western cultures are primarily rule-based, while most of the world's cultures are relationship-based.
Tariffs
- Taxes imposed to limit trade (classified based on type, purpose, or value) - Bring in extra revenue for the government - Imports often cost more, and the cost of tariffs are passed down to the consumer. - Encourages country dependance on itself; domestic businesses can make more and sell more - Import tariffs: taxes imposed on imported products (more common) - Export tariffs: taxes imposed on exported products (restrict the world supply of goods or raise tariff revenue) - Revenue tariffs: used to raise tax revenues for the government - Protective tariffs: used to reduce imports and protect domestic industries, making imports more expensive to purchase than equivalent domestic goods - Specific tariffs: flat rate taxes charged for each unit of a product (flat rate on import) - Ad valorem tariffs: collected as percentages of values of imported products - Compound tariffs: combination of specific tariffs and ad valorem tariffs
Impact on Global Staffing Challenges
- Technology has allowed companies to reduce their costs when it comes to recruiting, hiring, and paying employees. - No longer limited to the geographical footprint of wherever the company is physically located - Able to recruit, hire, employ, and train employees from all over the world (reduces the cost of labor for companies) - Allows us to more easily be able to staff with live people 24/7 - Enables us to provide local support for local needs, which is important in a lot of industries
Acceptable Use Policy (AUP)
- Terms of service agreement - Privacy and security at the individual level - Outlines what is/is not allowed while using an organization's services
Business Processes
- The activities that produce a specific output of value to the customer - The management function integrates the business processes across the supply chain. - Integrates both upstream and downstream portions of the supply chain to create an effective value delivery network and provide competitive advantage
Culture
- The beliefs, values, mindsets, and practices of a group of people - The behavior pattern and norms of the group, including the rules, assumptions, perceptions, and logic/reasoning that are specific to the group - Not inherited, but learned usually through one's parents, friends, schools, and other influences - Relatively static and not easily modified, especially by external forces - The responsibility of the global firm to ascertain the level of importance of various aspects of culture in foreign markets - Companies need to recognize and adjust to the cultural environment.
Intellectual Property
- The creative product of one's intellect - Opening ideas up to the global market allows for more companies to copy the product or idea. - Difficult to make but easy to copy - Without intellectual property protection, companies wouldn't want to invest in R&D. - Countries may have different laws and enforcements of intellectual property protections.
International Business
- The exchange of goods, services, and resources across two or more nations (crosses country borders) in exchange for physical goods, money, people, patents, copyrights, data, assets, liabilities, etc. - Promotes foreign direct investment (reduces barriers for investment and encourages governments to release regulation on industries) - Takes place in markets (seen in production where goods are sourced from other countries) - The goal is to maximize profit.
Organizational Structure
- The formal system of task and authority relationships that control how people and businesses coordinate their actions and use resources to achieve organizational goals - Allows for activities based upon a division of labor by departmentalization, standardization, and specialization of functions and tasks - Facilitates coordination and integration of activities through hierarchical supervision, formal rules/procedures, and training/socialization - Sets the organization's boundaries and regulates its contacts with its environment and with other organizations - Vertical linkages: relationships that tie supervisors and subordinates together - Horizontal linkages: relationships between equals in an organization - Flat structures: a few layers of management between frontline employees and the top level - Tall structures: several layers of management between frontline employees and the top level
Economic Growth
- The increase in the amount of goods and services produced by an economy over time - Measures the total market value of the goods and services a country produces (categorized as industrialized nations, less-developed nations, and developing nations) - Conventionally measured as a percentage change in gross domestic product (GDP) or gross national product (GNP)
European Union (EU)
- The most integrated form of economic cooperation - Has its origins in the European Coal and Steel community, which was established in 1950 (the actual EU was created by the Maastricht Treaty in 1993) - Member countries have implemented product labeling standards, eliminated border controls, and established unified policies for energy, agriculture, and social services. - A standard set of laws and regulations pertaining to competition, mergers, and corporate behavior and licensing standards for professionals have been established. - In 2009, the 28 EU countries signed the Treaty of Lisbon, which was designed to make the EU more democratic, efficient, and transparent, as well as tackle global challenges such as climate change, security, and sustainable development. - Larger trading platform to compete against markets of the US, China, and India - Initially formed to end frequent wars between neighboring countries in Europe - Eventually established common currency - Creates monetary and fiscal targets for member countries - Political union treaty, including development of common foreign and defense policy and common citizenship - The Eurozone is a subgroup of EU member states that have adopted the euro as their official currency (the European central bank is responsible for setting the monetary policy for the eurozone). - Benefits include single tariff/tax upon market entry and antitrust enforcement. - Challenges include labor markets and protectionist movement against outsiders.
Outsourcing
- The process where a company (the purchaser) contracts with a third-party company to provide inputs (labor, component parts, raw materials, etc.) to the purchaser's final output - Results in cheaper labor and easier labor laws in other countries
CAGE Analysis
- The world is spikey (multi-domestic) instead of flat. - Countries are so different from each other in many aspects that trade barriers still exist. - Culture: differences between countries decrease trade volume - Administration: similar countries trade more frequently; similar administration/membership in the same trading bloc makes it easier for countries to trade with each other, and countries trade with countries with similar trading conditions due to ease - Geography: distance between countries (increases the cost of transportation), shared borders vs. ocean ports, and time zones, topography, and climate - Economics: differences in demographic and socioeconomic conditions impacts trade volume and country size, affects gross domestic product (GDP), per capita income, cost differences (labor, natural resources, capital), infrastructures (distribution, communication, technology), and business systems, etc.
Value Chain Disaggregation
- Third stage of business globalization - Separates production process and focuses on completing each activity in the most advantageous locations
Common Market
- Third stage of regional economic integration - Has all the features of a customs union in addition to which restrictions on the movement of labor, technology, and capital among member countries has been removed - Workers no longer need a work permit or visa to work in another member country of a common market. - Ex. the Association of Southeast Asian Nations (ASEAN) and the Common Market for Eastern and Southern Africa (COMESA)
4 Aspects of Globalization
- Trade and transactions - Capital and investment moments - Migration and movement of people - Dissemination of knowledge
Antidumping
- Trade barrier to limit trade - A company dumps its extra inventory on a foreign country's market and sells the product at a price that is even lower than the production cost. - Charging lower prices for products in the foreign market but not in the home market - Predatory pricing in foreign markets - A government can use an antidumping tariff, sometimes called a countervailing duty, to challenge dumping behavior (for the purpose of protecting local businesses).
Limiting Outsourcing
- Trade barrier to limit trade - A developed nation could use trade barriers to limit trade and outsourcing to protect domestic manufacturing workers. - By making the imported product more expensive, the government could then encourage domestic buyers to buy more domestically made products (giving domestic businesses opportunities to produce more and hire more workers).
Infant Industry Argument
- Trade barrier to limit trade - A special form of protectionism as the government would protect an infant industry, not just any industry - A new industry at the beginning stage of development that is not mature enough to compete with matured foreign businesses - Until established and able to compete better in the world market, it is protected with high tariffs on competing imports.
Embargoes
- Trade barrier to limit trade - Aka sanctions - Prohibition (ban) on import/export to certain countries, usually involving direct military/air blockage (legal, not acts of war) - Vary from restriction in trade - Imposition of tariff to complete ban on blockage of trade - Can be used if two countries have a poor political relationship - Country is usually self-sufficient or a closed economy if they can do this
National Security
- Trade barrier to limit trade - Related to political reasons - Ex. the US government requires the army to purchase necessary products from American companies as this relates to national security
Health and Safety
- Trade barrier to limit trade - Related to social reasons - Banning products for health and safety reasons (ex. Food and Drug Administration and Bureau of Consumer Protection) - Ex. if a battery imported from Vietnam causes fires on cars, the government might stop importing the batteries as this is a product safety issue - Ex. if a processed food imported from a foreign country contains bacteria and causes citizens to be hospitalized, the government might limit the imports of that food as well
Protectionism
- Trade barrier to limit trade - The general protection on any industry to help them face global competition brought by trade
World Trade Organization (WTO)
- Trade moderator of the world that enforces rules and reviews each governments' trade policies, evaluating them for fairness and transparency - Encourages the international trade of goods, services, and intellectual properties between member countries by overseeing agreements through negotiations (Uruguay and Doha rounds) on the lowering of trade barriers - Transparent trade policies - Non-discrimination among members and trading partners (most favored nation)
Cultural Globalization
- Transmission of ideas, meanings, and values around the world (barriers are reduced or removed because of globalization) - Increased awareness of international communities and cultural integration because of immigration - Loss of uniqueness of country's culture (not as homogeneous)
Criticisms of the WTO
- Transparent requirement hurts national sovereignty (any WTO member country that wants to change the trader policy has to submit the change to the WTO for review; the WTO will then make the policy change public to all member countries) - Trade rules protect developed countries more than developing countries. - The MFN rule gives multinational companies an unfair advantage (a domestic business cannot get a larger market, lower costs, advanced technologies, etc.). - The use of agricultural subsidies hurt developing countries (related to the Doha round). - The impact of free trade on labor rights (could cause unethical practices of labor in developing countries such as child labor and sweatshops) - Ignores environmental concerns
Balance Sheet Approach
- Tries to resolve compensation issues for expatriates - Keeping employees on their home countries' salary structure and balance sheet - Giving employees separate allowances to account for the country/assignment specific pay (base pay stays the same regardless of location) - Separate payments are added on, taken off, or modified based on location (ex. if one is in another country with high taxes, a separate payment will be added on to account for differences in tax obligations).
Clean Water Act
- US environmental law - Act aimed at preventing water pollution - Regarding oil spills, companies are liable to pay $1,100 per barrel spilled in waterways and up to $4,300 per barrel if gross negligence is shown.
Environmental Protection Agency (EPA)
- US environmental law - An agency with the goal of monitoring the environmental practices of industries
National Environmental Policy Act (NEPA)
- US environmental law - Requires federal agencies to prepare environmental impact statements in every recommendation or report on proposals for legislation, and whenever they undertake a major federal action that significantly affects environmental quality
Oil Pollution Act of 1990
- US environmental law - Strengthened EPA's abilities to prevent and respond to oil spills - Requires responsible companies to pay up to $1 billion for cleanup - Can open up civil lawsuits and damages
United States Mexico Canada Agreement (USMCA)
- Updated NAFTA - Added the protection of intellectual property rights, data protection for biological drugs, patent protection, and minimum copyright term - Country of origin rule for automobiles components to meet the zero-tariff rate - Labor provisions for wages of manufacturing of auto parts - Canadian dairy market accessibility to US farmers - Sunset clause calling for review and expiration of agreement
Cash
- Used to grow the company and expand its operations - Amounts to internal financing (cash a company has earned by conducting its business) - Cash kept aside aka retained earnings, is used to finance the future growth and activities of the company.
Fronting Loans
- Used to minimize taxes paid - Loans between the parent company and subsidiary, administered by the bank - The parent gains some tax benefits by fronting loans and it helps out the subsidiary as well. - Allows tax benefits and bypasses local laws that restrict the amount of funds that can be transferred abroad - Tax advantages if subsidiary is in tax haven
Tax Haven
- Used to minimize taxes paid - Locations where the tax rates are extremely advantageous (ex. country with a low corporate income tax rate) - Countries choose to keep their tax rates extremely low in order to attract international investment. - Keeps subsidiaries from paying taxes on interests earned from loans
Transfer Pricing
- Used to minimize taxes paid - Transfers goods between subsidiaries in different countries - Must determine appropriate value of products leaving each country according to the laws of that country to maximize company profitability - Companies will try to charge a price that minimizes the profit of a subsidiary that's located where corporate income tax is high, and they'll maximize profit for a subsidiary located in a country that has a low corporate tax rate (in this way, the total tax liability will be lowered for the company). - Prices need to be consistent with 3rd-party markets (arm's length pricing). - A way to bring profits back to the home country and help shift income from a higher tax country to a lower one
Ethical Consumerism
- Voting with one's wallet (using our money to vote) - Consumers act in the marketplace in ways that are consistent with their ethics. - Purchasing decisions are based on a company's ethical profile (if not in alignment with values, they won't buy the product). - Choosing to support a company based on the goods and services that it produces
Berne Convention
- WIPO convention - International agreement governing copyright and copyright protection - 90+ countries signed and agreed to enforce copyright protection from other countries.
Paris Convention
- WIPO convention - One of the first intellectual property treaties - Established a union for the protection of industrial property
Big Data
- We have gotten good at gathering and storing data. - Biggest challenges are using the data, analyzing it, and using it in a way that provides a competitive advantage and an insight into business (data patterns, business patterns, etc.) - The processing of big data has led to personalized marketing. - Using supercomputers to process big data allows us to track daily activities of individuals and all of their preferences (ex. analyzing data to the point where we can get relevant marketing information to somebody just as they pass one of their favorites stores).
Venture Capitalists
- Wealthy individuals or groups who tend to specialize in startup companies (especially high-tech companies) - Accumulate high amounts of capital from several speculative investors and seek strong business opportunities still in the startup phase - Used by companies who can't get capital or funding anywhere - Provide money but are also involved by providing advice and management experience to the new company very often - Will take ownership of a significant percentage of the new company - High-risk startup companies need VCs, as do born digital companies (also high-risk). - Located wherever high-tech startups are commonly found (ex. Silicon Valley in CA and the Research Triangle in NC) - Represented by a board and determined terms and returns
Rising and Falling Exchange Rates
- When the rate rises, it appreciates or strengthens. - When the rate falls and trades for less, it depreciates or weakens.
Kyoto Protocol
- Written in 1997, with the final phase ending in 2012 - Goal was to reduce greenhouse gas emissions to 5.2% below 1990 levels - Only industrialized countries were responsible in doing their part to stop the global temperature rise. - Targeted greenhouse gases such as carbon dioxide, nitrous oxide, methane, HFCs, PFCs, and sulfur hexafluoride - Threatened US economy and was unsupported by President Bush - Didn't require developing nations to lower emissions at the same rate as developed nations - US didn't ratify because they thought it was unfair that only the developed nations had to reduce their emissions and not the developing nations
Paris Agreement
- Written in 2015, with achievements targeted by 2025-2030 - Goal is to stop the global temperature from rising more than 2° C through reduced greenhouse gas emissions - All countries are responsible in doing their part to stop the global temperature rise. - Targets all anthropogenic greenhouse gases - 1st ever universal global climate deal - Lowers global temperature and reduces global emissions - Requires public action plans and progress - Still not ratified by some nations
Improving Cultural Knowledge
- You can improve cultural knowledge through training (documentary, cultural simulation, and field simulation), and self-guided learning (primary and secondary sources). - Documentary training: watching a video to learn about the culture - Cultural simulation: role-playing or playing games (by taking on different roles) to better understand the culture - Field simulation training: sending people to the country to help them learn about the culture - Primary sources: those we talk to who have firsthand account of the culture - Secondary sources: the written documents we read to learn about the culture
Advantages and Disadvantages of a Matrix Structure
Advantages - Allows team members to share information more readily across task boundaries - Allows for specialization that can both increase depth of knowledge and assign individuals according to project needs Disadvantages - Increased complexity in the chain of command when employees are assigned to both functional and project managers - Can result in a higher manager-to-worker ratio, which can increase costs or lead to conflicting employee loyalties - Blurred authority can result in reduced agility in decision-making and conflict resolution.
Advantages and Disadvantages of Intermediaries
Advantages - Cost and time efficiencies by streamlining transactions - Increased (widened) customer contact base - Marketing expertise, shipping, and handling capabilities Disadvantages - Reduced control over product marketing and relationships with customers - Profit-sharing - Increased error opportunities with more complex distribution channels
Advantages and Disadvantages of a Functional/Departmental Structure
Advantages - Grouping employees with shared skills and knowledge by function allows greater operational efficiency and specialization. - Each group of specialists can operate independently, with management acting as the point of cross-communication between functional areas. Disadvantages - The different functional groups may not communicate with one another, potentially decreasing flexibility and innovation. - May also be susceptible to tunnel vision
Advantages and Disadvantages of a Teams Structure
Advantages - Increased creativity and productivity and mutual accountability - Generates a variety of expertise Disadvantages - More difficult to motivate individual employees when only team accomplishments are rewarded - Increased risk for interpersonal conflicts
Advantages and Risks of Outsourcing
Advantages - Lower costs due to the investment needed in infrastructure and labor costs for a large-scale operation - Greater flexibility in adjusting scale and scope of production at a low cost - Enhanced expertise due to proprietary access to technology or other IP advantages, or cost prohibitive technological investment is required - Greater discipline and increased competition - Separation of purchasers aiding with transparency and accountability in identifying true costs and benefits of certain activities - Freedom to focus on core business activities that create the relative advantage to maximize total value, and allows others to produce the supportive goods and services where they may not have the capability and scale, experience, or abilities to do things efficiently and effectively Risks - Loss of control over quality standards when specific processes or services are outsourced (geographical distance, language differences, etc.) - When certain support services such as information technology, software development, or materials management are outsourced, innovation may be impaired. - The outsourcing of services can be perceived as a breach of the employer/employee relationship. - Higher than expected transaction costs (costs that are decision relevant, but not part of the accounting system)
Advantages and Disadvantages of Direct Distribution
Advantages - The producer maintains control of the product, marketing, and costs. - A shorter channel means the product reaches the consumer faster. - It is less costly in the long term as profits do not need to be shared with intermediaries. - It enables a stronger connection to the customer base. Disadvantages - More expensive in the beginning because it requires capital investment to set up facilities and hire staff - Difficult to manage on a large scale because all functions must be done internally - Must deal with issues in areas such as shipping or government restrictions without experience - Must have own logistics team and transportation
Advantages and Disadvantages of Indirect Distribution
Advantages - There are no up-front costs if using existing distribution networks. - Intermediaries may have more knowledge of the markets. - Intermediaries can use their expertise to speed up the process (using foreign distributors and agents who understand their own markets can be advantageous). Disadvantages - Must trust intermediaries to represent your brand and interact with customers (a concern when selling in a foreign country) - Intermediaries may develop a sense of ownership over the products. - An existing channel may carry competing products as intermediaries do not have exclusive contracts with the producer. - Intermediaries will be in control of the marketing efforts (a concern when selling in a foreign country). - Adds layers of costs and bureaucracy with more intermediaries
Advantages and Disadvantages of a Divisional Structure
Advantages - Work best for companies with a wide variety of products or geographic regions - Affords greater operational flexibility for the company - Concentrates efforts and expertise - The failure of one division does not directly threaten the other divisions. - Subsidiaries benefit from the use of the brand and capital of the home company. Disadvantages - Operational inefficiencies from separating specialized functions (ex. finance personnel in one division do not communicate with those in another division) - Increased accounting and tax implications
Benefits and Costs of Global Expansion
Benefits - Achieves either higher levels of revenue or a lower cost structure within their operations - Looks for opportunities to realize economies of scale by mass-producing goods in markets that have substantially cheaper costs for labor or other inputs, or they may look for economies of scope - Increases financial stability of many developing nations as a positive consequence of globalization - A collaborative global economy may also push the development of technology that could benefit everyone. Costs - Ethical issues, governmental policies, and economic restrictions are all likely when a company moves into an unfamiliar global space. - A multinational company may also face infrastructural and technological challenges in a developing country. - Concerns have been expressed for sustainability in the face of globalization and the ability of richer companies and nations to exercise their power at the expense of less powerful nations.
Benefits and Challenges of FDI
Benefits - Good for the global and local economy - Goes to businesses with the highest potential for growth - Profit motive is non-discriminatory because profit is profit - Risk can be decreased through diversification. - Investing in capital leads to growth in business and in jobs in the host country. Challenges - Can lower the competitive advantage of strategically important industries within host nation - Investors can take advantage of the company (take all assets away and then leave the country).
Benefits and Drawbacks of Trade
Benefits - Removes barriers to trade and investment regionally - Increased efficiency leads to lower prices and higher consumer demand which cycles to increased production and trade. - Higher growth rates in less-developed countries - Expands job opportunities through removal of labor restrictions Drawbacks - Trade exclusivity (which may also be more expensive if only willing to deal with member countries who are more expensive than non-member) - Job loss due to cheaper labor in neighboring countries - Political and economic compromises or giving up rights completely - Mergers and acquisitions within the region blocking larger rivals within the same region (conglomerates) and/or overshadowing smaller firms - Regional trade agreements creating trade barriers with nonmember countries and lowering global free trade - Difficulty competing with cheaper/better imports resulting from specialization (international trade) - Global demand shift causing economic issues for the country of origin because goods are no longer needed (international trade) - Economic/political changes impacting the supply of goods if there is resource dependance between nations (international trade)
Benefits and Challeges of Expatriates
Benefits - Specialized skills, training, or expertise - The blending of cultural backgrounds and knowledge - Maintain control of host country operations (home country nationals) Challenges - Determining the appropriate length and location of an expatriate's assignment - 33% failure of the expatriate to compete an assignment due to culture shock, family, and/or personal issues - The reverse culture shock that expatriate employees experience upon repatriation (returning to home country) - Compensation issues (compensating expatriates using either home country or host country pay levels, and adjusting compensation for differences in home country vs. host country) - Must account for income taxes, housing, goods and services, base salary, overseas premiums, legal requirements for pay in other countries, etc.
Benefits of Regional Economic Integration
Benefits - Trade agreements create more opportunities for trade and investment by reducing or removing trade barriers such as tariffs and quotas, which also increase competition among companies in each integrated region, leading to lower prices for consumers. - Has shown to significantly contribute to the high growth rates experienced in less developed countries - Member nations may find it easier to agree with smaller numbers of countries. - Regional understanding and similarities may also facilitate closer political cooperation and peace. - Production tends to move to countries within the trading bloc that have comparative advantages and various factors of production which increases efficiency. - Increased efficiency is manifested in terms of lower costs of production. - By removing restrictions on the movement of labor, economic integration can help expand job opportunities.
Centralized vs. Decentralized Decision-Making in MNCs
Centralized Approach - Only the top managers make decisions. - Lower-level managers execute the directives. - Inefficient decision-making - Consistency - Ex. top generals in the US Army will pass directions down to lower level officers and enlisted members to carry the directions out Decentralized Approach - Decision-making is pushed down to the managers who are closest to the work or client. - Flexibility to meet local needs - Inconsistent decision-making
Drawbacks of Regional Economic Integration
Drawbacks - Member countries may end up choosing to trade more with one another at the exclusion of nonmembers. - Increased exclusive internal trade may lead to increased trade with less efficient or more expensive producers simply because they are located in a member country. - A regional economic bloc may go a step further and impose greater external trade restrictions to keep all trading internal to the bloc. - As trade stays more internal and competition is reduced, consumers may be faced with price increases. - A common trade policy is necessary before this can happen (most likely to occur in all levels except the free trade area). - Countries may move production to cheaper labor markets in member countries (similarly, workers can move to gain access to better jobs and wages). - Nations may be compelled to give up more of their political and economic rights depending on the requirements of their regional economic bloc. - Countries may see a dilution of their national cultural identity. - Regional integration may encourage mergers and acquisitions within the bloc to create large companies with market power. - External larger companies can dominate small local firms and put them out of business, which requires the free movement of capital and technology.
Criticisms of the IMF and World Bank
IMF - Imbalance of voting power (poorer countries are underrepresented) - Policies are significantly impacted by rich countries. - Conditionalities cause the citizens of the borrowing country to pay a heavy price in the short-run (requiring borrowing countries to make structural adjustments such as privatization/deregulation can make conditions worse in a struggling country). - Projects might hurt environmental quality. World Bank - Imbalance in the leadership - Enforced conditionality causes harm to developing countries. - Privatization of healthcare - Funded projects causing environmental damage
Opportunities and Challenges to International Business
Opportunities - More revenue from foreign sales - Cheaper labor, natural resources, and operational costs - Access to advanced technologies Challenges - Some developing countries might have very loose regulation that results in unethical labor practices (countries have different rules and regulations). - Organizational structure changes as businesses try to create new international divisions. - Public relations could cause hardship to businesses as they have to build customer loyalty. - Different leadership styles in countries due to culture - Different legal and regulatory structures in countries due to different rules and systems
Governments Promoting FDI
Why? - Expanding domestic economies and attracting new technologies, business knowledge, and capital in their country - Investing capital in existing firms and in new enterprises in the host country itself can lead to economic growth and subsequently increase jobs. - Increased employment = decreasing poverty in the host country - Can benefit from the development of new skills, presence of new technologies, business knowledge, and an increase in tax revenues - Opportunities for workforce development How? - Host countries offer businesses a combination of tax incentives and loans to invest. - Host countries develop and modernize local infrastructure such as energy, transportation, and communications to encourage specific industries to invest. - Host country businesses also benefit from infrastructure development and modernization. - Host country governments reduce bureacracy and regulatory requirements for foreign companies. - Countries seek to improve their workforce through education and job training (an educated and skilled workforce is an important investment criteria for many global businesses). - Governments create export processing zones, usually located near a port, to promote export industries (final products are assembled by cheap labor and then exported).
Governments Restricting FDI
Why? - Protecting local industries and critical resources (steel, petroleum, minerals, etc.) because foreign ownership of such strategically important industries could lower the competitive advantage of a host country - Preserving culture, protecting the domestic population, maintaining political/economic independence, and managing economic growth (seek sustainable economic development) - May require that intermediate goods be purchased from host countries - Changes in government/policies may expropriate foreign assets to nationalize critical industries. How? - Host countries can specify ownership restrictions if they want to keep control of local markets or industries in their citizens' hands. - The government may choose to nationalize certain sectors such as petroleum, mining, and steel. - Foreign investors may be required to purchase a certain percentage of intermediate goods and raw materials from host country businesses. - Foreign investors may be required to partner with local businesses, such as forming joint ventures.
