Principles Of International Business Exam 1

Ethical issues in International business

Employment practices Human rights Environmental pollution Corruption Moral Obligations

Culture is

Not right or wrong Not about individual behavior Not Inherited Not static

International Investment

The transfer of assets to another country or the acquisition of assets in that country

sweatshop

a factory that violates labor laws regarding wages and working conditions

Monochronic

a rigid orientation to time, in which the individual is focused on schedules, punctuality, and time as a resource

Cross-cultural risk

a situation or event in which a cultural misunderstanding puts some human value at stake

Ethical Strategy

a strategy, or course of action, that does not violate these accepted principles

Sustainability

meeting humanity's needs without harming future generations

International Portfolio Investment

passive ownership of foreign securities such as stocks and bonds for the purpose of generating financial returns

social interest

refer to how the firm performs relative to social justice, such as avoiding the use of child labor, sweatshops, as well as providing employee benefits

Environmental interests

refer to the extent of the firm's impact and harm to the natural environment

Individualism vs. Collectivism

refers to whether a person primarily functions as an individual or within a group

low-context culture

religion explicit explanations, with emphasis on spoken words Such cultures emphasize clear, efficient, logical delivery of verbal messages Communication is direct Agreements are concluded with specific, legal contracts

negotiation

required in many types of business transactions

Asset Valuation

risk that exchange rate fluctuations will adversely affect the value of the firm's assets and liabilities

Exporting

sale of products to customers located abroad from a base in the home country or a third country

Acculturation

the process of adjusting and adapting to a culture other than one's own

Critics of globalization affecting labor policies and environment

Firms avoid costly efforts to adhere to labor and environmental regulations by moving production to countries where such regulations do not exist or are not enforced Put firms who follow rules at a disadvantage position

Globalization of Production

Firms source goods and services from locations around the globe to capitalize on national differences in the cost and quality of factors of production like land, labor, energy, and capital

Effect on the natural environment

Globalization harms the environment by promoting industrialization and other activities that generate pollution, habitat destruction, and other environmental harm

Effect on National culture

Globalization opens the door to foreign firms, global brands, unfamiliar products, and new values. Increasingly, consumers buy similar products, modeled according to Western countries, especially the US. In this way, traditional norms, values, and behaviors may homogenize over time. National identity may be lost to 'global' culture.

2) Country (Political) Risk

Government intervention, protectionism, and barriers to trade and investment. Bureaucracy, red tape, administrative delays, corruption Lack of legal safeguards for intellectual property rights Legislation unfavorable to foreign firms Economic failures and mismanagement Social and political unrest and instability

Effect on the poor

In poor countries, while globalization usually creates jobs and raises wages, it also tends to disrupt local job markets MNEs may pay low wages and many exploit workers or employ child labor Globalizations benefits are not evenly distributed The gap between rich nations and poor nations is getting wider

supporters of globalization

Increased trade and cross border investment means: - lower prices for goods and services -greater economic growth - higher consumer income and more jobs

Intellectual Property Violations

Intellectual property Intellectual property rights

Foreign Direct Investment (FDI)

Investment made by a foreign company in the economy of another country.

Environmental Pollution

Issues arise when regulations in host nations are inferior to those in home nations Companies escape tight emission limits by moving production to developing countries

Offshoring and the Flight of Jobs

Jobs are lost as firms shift production of goods and services abroad in order to cut costs and obtain other advantages. Firms benefit, but communities and industries are disrupted.

motivation/benefits of International Business

Lower cost Better R&D Learning Higher sales Networking

Loss of National Sovereignty

MNE activities can interfere with governments' ability to control their own economies and social-political systems Some firms are bigger than the economies of many nations Some argue that global competition in the context of global free trade makes MNEs less powerful

Decision-Making styles

Managers make decisions continually on the operations and future direction of the firm

Critics of globalization affecting jobs and income

Migration of manufacturing jobs Lower demand for unskilled workers and lower wages at developed nations Income inequality between high skilled and low skilled workers increases at developed nations

Corporate Social Responsibility (CSR)

Operating a business to meet or exceed the ethical, legal, commercial, and public expectations of customers, shareholders, employees, and communities. Helps firms avoid increased taxation, regulation, or other legal actions by local government activities

International Business

Performance of trade and investment activities by firms across national borders

Perceptions of Time

Time dictates expectations about planning, scheduling, profit streams, and what constitutes tardiness in arriving for work and meetings

cultural differences

arising from different languages, lifestyle, attitudes, customs, religion, where a cultural miscommunication jeopardizes a culturally-valued mindset or behavior

human rights

basic human rights are not respected in many nations in the world Freedom of association, speech, assembly, movement, etc.

Relativism

belief that ethical truths are not absolute but differ from group to group

Masculine cultures value

competitiveness, assertiveness, ambition, and the accumulation of wealth

1) Cross-cultural risk

cultural differences, negotiation patterns, decision making styles, ethical practices

Indulgence vs. Restraint

degree to which people in a society attempt to control their impulses and desires

power distance

describes how a society deals with the inequalities in power that exist among people Low societies have small gaps between the weak and powerful High societies exhibit big gaps between weak and powerful

long term vs short term orientation

describes the degree to which people and organizations defer gratification to achieve long-term success

individualistic

each person emphasizes his/her own self-interests Competition for resources is normal Individuals who compete best are rewarded

high-context culture

emphasize nonverbal/indirect language Communication aims to promote smooth, harmonious relationships such cultures prefer polite, "Face-saving" style that emphasizes a mutual sense of care and respect for others Care is taken not to embarrass or offend others

code of ethics

formal statement of ethical priorities

currency exposure

general risk of unfavorable exchange rate fluctuations

Inflation

high inflation, common to many countries, complicates business planning and the pricing of inputs for finished goods

intellectual property

ideas or works created by individuals or firms and includes a variety of proprietary, intangible assets

All value-adding activities

including sourcing, manufacturing, and marketing - can be performed in international locations

Foreign tax

income, sales, and other taxes vary widely worldwide, with implications for company performance and profitability

Ethics

moral principles and values that govern the behavior of people, firms, and governments rewarding right and wrong

Feminine cultures value

nurturing roles, interdependence among people, and taking care of less fortunate people.

Globalization of Markets

ongoing economic integration and growing interdependency of countries worldwide

World Trade Organization (WTO)

polices world trading system and ensures nations adhere to the rules established in WTO treaties

Employment Practices

poor practices in developing countries Sweatshop conditions at Nike's subcontractors' operations Lewis's contractor- 74 hour work week and contract terminated

Importing/Global Sourcing

procurement of products or services from suppliers located abroad for consumption in the home country or a third country

Foreign Corrupt Practices Act

prohibits U.S. companies from paying bribes to foreign government officials in order to gain business

contagion

rapid spread of financial or monetary crisis's from one country to another

uncertain avoidance

refers to the extent to which people can tolerate risk and uncertainty in their lives High societies create institutions to minimize risk and ensure security Low societies managers are relatively entrepreneurial and comfortable with risk

Economic interests

refers to the firm's economic impact on the localities where it does business, such as regarding job creation, wages, and public works

grease payments

small inducements intended to expedite decisions and transactions, or gain favors

free trade

the absence of restrictions to the flow of goods and services among nations

Corruption

the abuse of power to achieve illegitimate personal gain

Globalization

the interconnectedness of national economies and the growing interdependence of buyers, producers, suppliers and governments around the world

intellectual property rights

the legal claim through which proprietary assets are protected from unauthorized use by other parties via trademarks, copyrights, and patents

Factories of production

the resources-including land, labor and capital- that are needed to produce goods and services

Value Chain

the sequence of value adding activities performed by the firm in the process of developing, producing, and marketing a product or service

language

the spoken and unspoken means of communication

Culture

the values, beliefs, customs, arts, and other products of human thought and work that characterize the people of a group

Ethnocentrism

the view that one's own culture is better than anyone else's culture

Collectivist

ties among individuals are important Business is conducted in a group context Life is fundamentally cooperative experience Conformity and compromise help maintain harmony

cross-culture literacy

understanding how the culture of a country affects the way business is practiced

4) Commercial Risk

weak partner, operational problems, timing of entry, competitive intensity, poor execution of strategy General risks such as these lead to sub-optimal formulation and implementation of the firm and international value-chain activities

Critics of Globalization

worry that globalization will cause: - job losses _environmental degradation - the cultural imperialism of global media and MNEs

Firm-level consequences of market globalization

• Countless new business opportunities for internationalizing firms • New risks and intense rivalry from foreign competitors • More demanding buyers who source from suppliers worldwide • Greater emphasis on proactive internationalization • Internationalization of firm's value chain

Dimensions of Market Globalization

• Integration and interdependence of national economies • Rise of regional economic integration blocs • Growth of global investment and financial flows • Convergence of buyer lifestyles and preferences • Globalization of production activities • Globalization of services

Societal Consequences of Market Globalization

- contagion - loss of national sovereignty - offshoring and the flight of jobs - effect on the poor - effect on the natural environment - effect on national culture

Supporters of globalization affecting Jobs and Income

Benefits outweigh the costs Cheaper producers and higher purchasing power Increase income levels at developing world benefits US Technological improvements make unskilled labor less valuable Should invest in education

Manufacturing and transportation technologies

Revolutionary developments permit manufacturing that is low-scale and low cost, via computer-aided-design of products (CAD), robotics, and IT-managed production lines. In transportation, key advances include fuel-efficient jumbo jets, giant ocean-going freighters, and containerized shipping. The cost of international transportation has declined substantially, spurring rapid growth in global trade. Collectively, technological advances have greatly reduced the costs of doing business internationally.

Variation in Ethical Standards

Ethical standards vary from country to country.

international trade

Exchange of products and services across national borders, typically through exporting and importing

Religion

a system of beliefs or attitudes regarding a being or system of thought that people consider sacred, divine or the highest truth; and the associated moral values, traditions, and rituals

Business Ethics

accepted principles of right or wrong governing the conduct of business people

Developed countries vs. Developing countries

advanced vs. emerging about 54% of global GDP depends on trade WTO is credited with lowering tariffs from lofty pre-WWII heights to an average of about 5% today

Masculinity vs. Femininity

Refers to a society's orientation based on traditional male and female values.

Four Risks of International Business

-Cross-Cultural Risk -Country Risk -Currency (Financial) Risk -Commercial Risk

3) Currency (Financial) Risk

-Currency exposure -Asset valuation -Foreign taxation -Inflationary and transfer pricing

Supporters of neomercantilism include:

-Labor unions (who want to protect domestic jobs), -Farmers (who want to keep crop prices high), and -Some manufacturers (that rely on exports).

Benefits of free trade

-More and better choices for consumers and firms. -Lower prices of goods for consumers and firms. -Higher profits and better worker wages (because imported input goods are usually cheaper). -Higher living standards for consumers (because their costs are lower). -Greater prosperity in poor countries.

Drivers of Market Globalization

-Worldwide reduction of barriers to trade and investment -Market liberalization and adoption of free markets -Industrialization, economic development, and modernization -Integration of world financial markets -Advances in technology

Hofstede's Typology of National Culture

Power Distance Individualism vs. Collectivism Uncertain avoidance Masculinity vs. Femininity Long-term vs. Short term restraint Indulgence vs. restraint

changing demographics of the World

The decline in barriers to the free flow of goods, services, and capital More and more international business Emerging Markets EX. 1960s US dominated industrial power accounting for about 38.3% of world output. Today the US accounts for 20%

Normativism

The belief that ethical behavioral standards are universal, and firms and individuals should seek to uphold them consistently around the world.

Drivers of unethical behavior

Top management sets goals and incentives aimed at promoting good outcomes that instead encourage bad behaviors Unethical behavior may exist in firms with an organization culture that does not emphasize business ethics Business people may behave unethically because they fail to ask if something is unethical -Decisions are made based on economic logic without consideration for ethics Expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture

Supporters of globalization affecting labor policies and environment

Tougher environmental and labor standards are associated with economic progress As countries get richer from free trade they implement tougher environmental and labor regulations Free trade does not lead to more pollution and labor exploitation it leads to less

Globalization of Markets: What is it and what drives it?

Unprecedented growth of international trade Trade between nations, accompanied by substantial flows of capital, tech, and knowledge Development of sophisticated global financial systems and mechanisms that facilitate the cross-border flow of products, money, tech, and knowledge Greater collab among nations through multilateral regulatory agenices

Mercantilism

a belief popular in the 16th century that national prosperity results from maximizing exports and minimizing imports Does not support free trade maintain trade surplus

Polychronic

a flexible, nonlinear orientation to time, whereby the individual takes a long-term perspective and emphasizes human relationships

Company Internationalization and the Value Chain

•The most significant implication of market globalization for companies is that a purely domestic focus is no longer viable in most cases. •Market globalization compels firms to internationalize their value chain, and access the benefits of international business. •Value chain: The sequence of value-adding activities performed by the firm in the process of developing, producing, and marketing a product or a service. •Globalization allows the firm to internationalize its value chain, leading to various advantages.