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.
