Chapter 1: globalizing business

International business is defined as a business (or firm) that engages in international (cross
border) economic activities and/or doing business abroad. The most frequently discussed foreign
entrant is the multinational enterprise (MNE). This is a firm that engages in foreign direct
investment (FDI). FDI is investment in, controlling, and managing value-added activities in other
countries. Global business included both international business activities covered by traditional IB
books and also domestic business activities.

Emerging markets/economies (previously, development economies). Gross domestic product

(gdp): The sum of value added by resident firms, households and government operating in the
economy. Another parameter is the purchasing power parity, which is an adjustment to reflect the
differences in cost of living. PPP: Purchasing Power Parity is a conversion that determines the
equivalent amount of goods and services different currencies can purchase. Important emerging
economies: BRIC, they generate 28% of world GDP in PPP. Gnp GNI: GDP+ and the net income
earned abroad, during a particular accounting year

Global economy is a pyramid. Triad: N.A. - Western EU and Japan. Second tier 20 000 - 2000
Base of the pyramid, for countries where people make less than 2000 a year. Reverse innovation
an innovation that is adopted first in E.E. and then diffused around the world, innovation then is not
top down but bottom up

3 important reasons for studying IB

1. Enhance you employability and advance your career in the global economy
2. Better preparation for possible expatriate assignments abroad
3. Stronger competence in interacting with foreign suppliers, partners and competitors and in
working for foreign-owned employers in your own country

G-20: 19 major countries plus the EU, who meet biannually. Expats receive an international
premium; a significant pay raise when working overseas.

main question: what determines the success and failure of firms around the globe.

1. perspective 1. an institution-based view.

Success and failure of firms are enables and constrained by institutions. Institutions are the rules of
the fame. Formal institutions: regulations and laws(formal rules) and informal rules (values).
Informal institutions include cultures, ethics and norms.

2. Resource-based view
The institution based view primarily deals with the external environment, the resource-based view
focuses on a firm internal resources and capabilities. Liability of foreigners: the inherent
disadvantage that foreign firms experience in host countries because of their nonnative status.
Successful firms acquire and develop unique and enviable resources and capabilities, competitors
will try to imitate and then innovate in an effort to outcompete the winning firms.

Globalisation (closer intergration)

1. a new force sweeping through the world in recent time
2. a long run historical evolution since the dawn of human history
3. a pendulum that swings from one extreme to another from time to time

Yet, there is not a single globally integrated market. Therefore it is better to speak of semi
globalisation (middle of total isolation - globalisation). Meaning that barriers to market integration
at borders are high, but not high enough to completely insulate countries form each other

2008 recession -> risk management’s (minimalizing the impact of high risk) importance increased
as well as that of scenario planning (preparing for different outcomes).
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Chapter 2: understanding politics, laws and economics (formal institutions)

institutional transitions: fundamental and comprehensive changes introduced to the formal and
informal rules of the game that affect firms as players.

Institutional framework: formal and informal institutions governing individual and firm behaviour.

Degree of formality examples supportive pillars

formal instituions Laws, regulations and rules Regulatory (coervice power of the
through the political, legal and government )
economic system

informal institutions norms, cultures and ethics normative ( the idea of norms
influencing individual and firm
behavior) , cognitive (internalized
values and beliefs that guide
individual and firm behaviour

Most importantly institutions reduce uncertainty. This because, institutions influence the
decision-making process of both individuals and firms by signalling what conduct is legitimate and
acceptable and what. not. Without institutional framework -> transactions costs increase (the
costs of doing business). A big source of transaction costs is through economic opportunism, the
subversion of morality to profit (cheating / misleading etc.)

Institution-based view of global business, interaction firm + institutions -> results in firm behaviour /
outcome. Two propositions
1. managers and firms are rational
2. informal constraints play a bigger role when formal constraints are unclear or fail.

political system: how is a country governed politically. Democracy -> through elected
representatives. For business, a democracy equals individual right to freedom of expression and
organisation, as well as the right for foreign individuals and firms that come to do business.
Besides that we have (communist / right-wing / theocratic / tribal totalitarianism —> higher political
risk, this may lead to nationalisation of foreign assets

Legal system: by specifying the do’s and the don’ts they form the first regulatory pillar that supports
institutions. Civil law relies on comprehensive statues and code. While common law (more
flexibility) relies on precedent and traditions from previous judicial decisions. In rare cases there is
theocratic law.

Property right: the right to use an economic property and derive income and benefits form it. I.e.
intelectual property rights for patents, copyrights and trademarks. IPR system should stimulate
innovations and discourage violation by ordinary people and firms

Economy system. How a country is governed economically. Market economy (laissez-faire), and
command economy (all factors of production should be owned and controlled by the state. Most
frequently we see mixed economies.

Economic development because:

1. the culture side, not long valid -> racism; western people are smarter and more motivated
2. Geography school of thought, not decisive -> rich countries are endowed with natural
resources not convincing anymore
3. Institutional scholars argue that institutions are the basic determinants of the performance of
an economy.
1. lack of formal market -> small scaled trading -> not economic of scales
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 2. emergence of formal -> firms to specialise and participate in long distance trading
3. IPR protection -> innovation, entrepreneurship and thus economic growth
4. Firms and individuals grow and specialise - > they profit from trade.

Washington consensus. Private ownership > state ownership. Interference by state / IMF /
Worldbank results in heightens of moral hazard

Chapter 3: Emphasizing cultures, ethics and norms

Informal institutions come from socially transmitted information and are part of culture, ethics and
norms.

Culture: collective programming of the mind, through which we distinguish one group from another
cultural group. Ethnocentricism, believes that one’s own culture can be viewed as superior when
compared to that of someone else. Culture has no 1-1 relation with a nation. A culture has many
layers and we distinguish 4 major components.

1. A language that is adopted as a common language between speakers whose native

languages are different. English is today’s dominant language in global business.
2. 85% of the world’s population has some religious belief. Crucial to know because religious
difference have led to numerous challenges
3. Social structure how is a society organised w.r.t. rigidity and flexibility as a result of the
(in)formal rules of the game. This consists of both the level of social stratification (important) for
local hiring and staffing norms) and social mobility.
4. Education teaches children the mainstream values and norms and so it fosters a sense of
cultural identity. in collectivistic societies -> focus on right and wrong. in indiividualist society,
more focus on initiate and independent thinking. In social rigid socketed. Education = means to
maintain social stratification, while in socially rigid societies through education you increase
social mobility.

cultural differences
In low context culture communications can be taken at face value without much reliance on
unspoken text, in contrast to high context culture. Context is important to prevent
misunderstanding. This is what we call the context approach of culture. Yet, only focussed on
context.

Another approach, is the cluster approach from which several academics have come up with their
own way of classifying including the following. However, it does not go into differences in a cluster
1. Ronen and shenkar cluster
2. GLOBE clusters
3. Huntington civilisations (civilzation is the highest cultural grouping of people and the broadest
level of cultural identity of people).

People are more comfortable doing business with people from their cluster / civilisation because of
common language / history and customs.

Dimension approach by Hofstede is most influential.

1. power distance. the extent to which less powerful members within a country expect and accept
that power is distributed unequally.
2. individualism. an individuals identity is fundamentally his own, and not tied to his collective
group. Individual achievement and freedom are highly valued within individualism
3. Masculinity versus felinity. the level of sex role differentiation. Masculinity -> man have
assertiveness and women have more caring professions.
4. uncertainty avoidance. Refers to the extent members of a society place a premium on job
security and retirement benefits, as well as the resistance to change.
5. Long term orientation. Instant gratification or focus on future savings.
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Ethics refers to the principles, standards and norms of conduct that govern individual and firm
behaviour. Code of conduct. A set of guidelines for making ethical decisions. There is a grey area
of things that are legal but unethical. Therefore firms have come up with a code of conduct: A set of
guidelines for making ethical decisions. Currently, there is a debate on firms ethical motivation.
1. A negative view suggest that firms present themselves to be ethics-conscious under social
pressure just to appear better instead of becoming better
2. A poistiive view. firms have self-motivation to be more ethical, so social presssure is not
necessary
3. An instrumental view, good ethics is useful for making money

Ethics in country A can be different from country B. Ethical relativism (all ethical standards are
relative). Ethical imperialism: a perspective that suggest that there is one ‘absolute’ set of ethics.

Middle of the road guiding principle

- respect for human dignity and basic rights should determine the absolute minimal universal
ethical standards
- Respect local traditions
- Understand and respect institutional context.

Ethics helps to combat corrutpion. See FCPA act, first US but has global influence.

how do firms respond to ethical challenges?

1. Reactive: passive. Deny of responsibility, do less than required
2. Defensive: focusses on regulatory compliance. Admit responsibility but fight it, do the least that
is required.
3. Accommodative: accept responsibility, and do all that is required
4. Proactive: anticipate responsibility and do more than is required

debates and extensions

Economic development: Western values v.s. Eastern values
cultural change: Convergence v.s. Divergence
Opportunism v.s. individualism / collectivism

Five profiles of cultural intelligence (go to 3 phase: awareness, knowledge and skills)

Profiles Characteristics

the local with people from the same background +. But iwht
people from different cultural background -

the analyst observes and learn from others -> plans a strategy
for interaction with others

the natural relies on intuition when interacting with other

the mimic creates a comfort zone by adopting their general

posture and communication style. (Not mocking)

the chamelon can be mistaken for a native Has insider skills and
outsider perspective -> bigger results than natives

Implications for action: 6 rules of thumb when venturing overseas

1. be prepared
2. slow down
3. Establish trust
4. understand the importance of language
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5. respect cultural differences
6. understand that no culture is inherently superior in all apsects.

A savvy managers (= good understanding and practical skills) have to bear in mind that norms
shift over time and that the informer rules of the game change.
For cultural intelligence —> best to totally immerse within a foreign culture.