COLLEGE OF COMMERCE

BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP

MODULE 1 PACKET
AE 05: INTERNATIONAL BUSINESS AND TRADE

MODULE 1 OVERVIEW:

Welcome to Module 1 – Globalization and International Business

In this module, we will discuss the introduction and overview of global marketing.
We will be discussing the importance of global marketing and why we need to study
international and global marketing activities.

Over the last two centuries trade has grown remarkably, completely transforming
the global economy. Today about one fourth of total global production is exported.
Understanding this transformative process is important because trade has generated
gains, but it has also had important distributional consequences.

Over the past two decades, we have witnessed

the globalization of markets and production.
2. The globalization of markets implies that
national markets are merging into one huge
marketplace. However, it is important not to
push this view too far.
3. The globalization of production implies that
firms are basing individual productive activities
at the

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optimal world locations for the particular

activities. As a consequence, it is increasingly
irrelevant
to talk about American products, Japanese
products, or German products, since these are
being
replaced by "global" products.
Over the past two decades, we have witnessed
the globalization of markets and production.
2. The globalization of markets implies that
national markets are merging into one huge
marketplace. However, it is important not to
push this view too far.
3. The globalization of production implies that
firms are basing individual productive activities
at the
optimal world locations for the particular
activities. As a consequence, it is increasingly
irrelevant

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to talk about American products, Japanese

products, or German products, since these are
being
replaced by "global" products.
Over the past two decades, we have witnessed
the globalization of markets and production.
2. The globalization of markets implies that
national markets are merging into one huge
marketplace. However, it is important not to
push this view too far.
3. The globalization of production implies that
firms are basing individual productive activities
at the
optimal world locations for the particular
activities. As a consequence, it is increasingly
irrelevant
to talk about American products, Japanese
products, or German products, since these are
being
replaced by "global" products.
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At the end of this module, you are going to submit output specifying how you apply
the lessons you learned from this module in reality as a global marketing most especially in
the current global scenario.

CONSULTATION HOURS:
Phone or Messenger: 3 – 4:00 PM Wednesdays and Saturdays
Virtual time: 4 - 5 PM Tuesdays

MODULE 1 LEARNING OBJECTIVES:

By the end of this module, the students will be able to:
1. To define globalization and international business and show how they affect each other
2. To understand why companies engage in international business and why international
business growth has accelerated
3. To discuss globalization’s future and the major criticisms of globalization
4. To become familiar with different ways in which a company can accomplish its global
objectives
5. To apply social science disciplines to understanding the differences between
international and domestic business
6.

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COURSE CONTENT FOR MODULE1:

Introduction to Global Marketing
ACTI DESCRIPTION TIME
VITY TO
COMP
LETE
Introduce and
Introd 30
Familiarized one another,
uctio minute
Discuss House Rules and
n s
set expectation
Lectu
15
re Define globalization and
minute
discu international business
s
ssion

Why companies engage

Lectu
in international business 30
re
and why international minute
discu
business growth has s
ssion
accelerated
10
Revie
Quick review minute
w
s
Lectu Globalization’s future and 30
re the major criticisms of minute
discu globalization. s
ssion
Activi Giving instructions for the 15

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minute
ty activity
s
Social science disciplines
Lectu
to understanding the 30
re
differences between minute
discu
international and s
ssion
domestic business
20
Summative quiz for
Quiz minute
module 1
s

LECTURE DISCUSSIONS
Module I - Globalization and International Business

1.1 Globalization is the ongoing process that deepens and broadens the relationships
and interdependence among countries. International Business is a mechanism to bring
about globalization.

The importance of Global Markets

Global markets are expanding rapidly. The combine value of merchandise exports
has exceeded $15 trillion annually. In addition, exports of commercial services has
account for more than $3 trillion. For many years, international trade has grown faster than
domestic economies, further contributing to the ever increasing pace of globalization.

International business - consists of all commercial transactions—including sales,

investments, and transportation—that take place between two or more countries
Increasingly foreign countries are a source of both production and sales for domestic
companies

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Importance of International Marketing

1. Important to expand target market – Target market of a marketing organisation will be
limited if it just concentrate on domestic market. When an organisation thinks globally, it
looks for overseas opportunities to increase its market share and customer base.

2. Important to boost brand reputation – International marketing may give boost to a

brand’s reputation. Brand that sold internationally is perceived to be better than the brand
that sold locally. People like to purchase products that are widely available. Hence,
international marketing is important to boost brand reputation.

3. Important to connect business with the world – Expanding business into an

international market gives a business an advantage to connect with new customers and
new business partners. Apple - the tech giant designs its iPhone in California; outsources
its manufacturing jobs to different countries like - Mongolia, China, Korea, and Taiwan; and
markets them across the world. Apple have not restricted its business to a nation, rather
expanded it to throughout the world. The opportunities for networking internationally are
limitless. The more "places" a business is, the more connections it can make with the
world.

4. Important to open door for future opportunities – International marketing can also

open door for future business opportunities. International marketing not only increases
market share and customer base, it also helps the business to connect to new vendors, a
larger workforce and new technologies and ways of doing business.
(https://www.enotesmba.com/2016/04/importance-of-international-marketing.html)

1.2 Why companies engage in international business

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1. To Expand Sales: pursuing international sales increases the potential market and
potential profits
2. To Acquire Resources: may give companies lower costs, new and better products,
additional operating knowledge
3. To Diversify or Reduce Risks: international operations may reduce operating risk by
smoothing sales and profits, preventing competitors from gaining advantage

Factors Contributing to Rapid Growth of International Business

1. Increase in and expansion of technology
2. Liberalization of cross-border trade and resource movements
3. Development of services that support international business
4. Growing consumer pressures
5. Increased global competition
6. Changing political situations
7. Expanded cross-national cooperation

Modes of Operation in International Business

• Merchandise exports and imports
• Service exports and imports
 Tourism and Transportation
 Service Performance
 Asset Use
• Investments
 Foreign Direct Investment (FDI)
Portfolio Investment

Multinational Enterprises

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Multinational Enterprises (MNEs) take a global approach to markets and production.

Sometimes they are referred to as multinational corporations or companies (MNCs) or
transnational companies (TNCs).

Development of Global Marketing

- The term Global Marketing has been in use only since the 1980’s. Before that
decade, international marketing was the term used most often to describe marketing
activities outside one’s domestic market. Global Marketing is just a new label for an old
phenomenon, however provides a new vision.
 Domestic marketing – Marketing activities aimed at a firms domestic market.
 Export marketing – marketing activities undertaken when a firm sells its products
abroad and when those products are shipped from one country to another.
 International marketing – Marketing activities undertake when a company becomes
significantly involved in local marketing environment in foreign countries.
 Multi-domestic marketing – A company that possesses extensive investment in
assets abroad and operates in a number of foreign countries as thought it were a
local company.
 Pan-regional marketing – A regional strategies encompass a number of markets
such as Pan-European, NAFTA (North American Federal Trade Agreement).
 Global marketing - A global marketing strategy involves the creation of a single
strategy for a product, service, or company for the entire global market nonetheless
incorporates flexibility for local adaptation.

1.3 Criticisms of Globalization: Growing Income Inequality

 More Losers than Winners

The previous articles in this module covered the topic of globalization in depth. Some of the points
of discussion were about how globalization has succeeded in lifting millions of people out of
poverty. While accepting this fact, it is also the case that globalization has created income
inequality which when coupled with inflation and falling living standards has resulted in a class of
people who are losing out more than gaining from the process of globalization. If we take each of
these factors into consideration, it becomes clear that globalization leads to worsening income
gaps and the transfer of wealth from the bottom to the top.

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 Increase in Social Tensions

Globalization by virtue of being a process that benefits elites and the educated more has
contributed to social tensions where the native populace without the benefit of English speaking
skills or the necessary attributes to partake of the fruits of globalization end up resenting the
success of the class that benefits from globalization. This has resulted in social tensions wherein
those left out of the process of globalization envy those who have benefited from it and this leads
to periods of unrest and fights at the slightest provocation. Indeed, as one of the experts on
globalization.

 Lack of Class Mobility

The ongoing global economic crisis has brought home the fact that youth born into a certain class
are likely to remain in that socio-economic class without hopes of social mobility or progress. This
is because globalization has skewed the game in favor of those with the required skills and
attributes and has restricted the upward movement of people along the social ladder. Though this
is just one reason, the other reason of class stratification and lack of opportunities are equally
pernicious as far as the limitation of social mobility is concerned. Therefore, it is high time for the
elites to address these problems because ultimately the rising tide should lift all boats and not only
those that belong to the privileged class.
Future of International Business and Globalization

• Further globalization is inevitable.

• International business will grow primarily along regional rather than global lines.
• Forces working against further globalization and international business will slow
down both trends.

1.4 Difference Between International and Domestic Operations

When operating abroad companies may have to adjust their usual methods of
carrying out business. Foreign conditions often dictate a more suitable method, and the
operating modes used for international business differ from those used on a domestic
level.

Physical and Social Factors Affecting International Business Operations

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To operate within a company’s external environment, its managers must have

knowledge of business operations and a working knowledge of social sciences, and how
they affect all functional business fields. It includes

 the political, social, economic and cultural relationships within the international system
 foreign policy, diplomacy and other modes of interaction between the countries of the
world
 the significance of foreign societies, cultures, and systems of government
 the international movement of people as immigrants, refugees, workers, students,
tourists and investors
 the role of international organizations
 the globalization of the world economy
 foreign languages
 history

Sources:

 John D. Daniels, International Business, 16th Edition, Pearson, 2018

 Kate Gillespie and H. David Hennessey. Global Marketing, 3rd (2013) ed.Singapore,
Cengage Learning
 Vern Terpstra; James Foley; Ravi Sarathy, International Marketing, Naper Publishing
Group; 10th edition (2012)
 (https://www.enotesmba.com/2016/04/importance-of-international-
marketing.html)

MODULE 1, ACTIVITY 1: ACTIVITY OUTPUT

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Instructions: In Easy format, please submit your assignment as on or before the start of
the 2nd Module.

QUESTIONS FOR DISCUSSION

1. How is global marketing as a field related to your future career? How would you
expect to come into contact with global marketing activities?
This question parallels the chapter sections on “Why Study Global Marketing” and “A
Need for Global Mindsets.” Answers are personal but may include:
o A desire to work in international marketing
o Working in domestic marketing but dealing with foreign competitors
o Entering other professions but with an international orientation
2. What do you think are the essential skills of a successful “global marketer”?
Again, this calls for a personal response, but suggestions at this introductory stage
might include:
o A knowledge of and sensitivity to other cultures
o Foreign language knowledge
o An understanding of the global economy as well as national politics and laws
o A good knowledge of your domestic business
o The ability to identify market opportunities internationally
o An understanding of how to manage within a multinational firm
3. Which important skills make up an effective “global mindset”?
A global mindset involves an ability to predict what foreign competitors will do next.
Skills might include being able to think like your competitors: understanding their
background and culture as well as speaking their language; knowing how to integrate
actions among national markets; and synthesizing experiences across national
markets.

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RUBRIC FOR ACTIVITY 1

GRADING RUBRIC FOR WRITTEN ASSIGNMENTS

LEVELS OF ASSESSMENT

BELOW MEETS EXCEED EXEMPL S

STANDA STANDA S ARY – 5 C
RD – 2 RD – 3 STAND PTS. O
PTS. PTS. ARD – 4 R
PTS. E

O Writing Writing is Writing is Writing

R lacks coherent coherent shows
G logical and and high
A organizati logically logically degree of
NI on. It organize organize attention
Z shows d. Some d with to logic
A some points transition and
TI coherenc remain s used reasoning
O e but misplace between of points.
N ideas lack d and ideas Unity
unity. stray and clearly
Serious from the paragrap leads the
errors. topic. hs to reader to
Transitio create the
ns coherenc conclusio
evident e. n and stirs
but not Overall thought
used unity of regarding
througho ideas is the topic.
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L Shows Content Content Content

E some indicates indicates indicates
V thinking thinking original synthesis
E and and thinking of ideas,
L reasoning reasonin and in-depth
O but most g applied develops analysis
F ideas are with ideas and
C underdev original with evidences
O eloped thought sufficient original
N and on a few and firm thought
T unoriginal. ideas. evidence and
E . support
N for the
T topic.

D Main Main Main Main

E points points points points well
V lack are well developed

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E detailed present develope with high

L developm with d with quality
O ent. Ideas limited quality and
P are vague detail supportin quantity
M with little and g details support.
E evidence develop and Reveals
N of critical ment. quantity. high
T thinking. Some Critical degree of
critical thinking critical
thinking is thinking.
is weaved
present. into
points

S Mostly in Approac Attains Shows

T elementar hes college outstandin
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E or no usage of tone is beyond
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F Fails to Meets Meets Meets all

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R format and and and
M and assignm assignm assignme
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of essay neat but correctly ns are

needs may assembl correct;
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MODULE 2 PACKET
AE 05: INTERNATIONAL BUSINESS AND TRADE

MODULE 2 OVERVIEW:

Welcome to Module 2 – The Global Economy

In the past fifty years the global economy has changed rapidly. Particularly marked has
been the development of world economic integration and standardised products. Coca
Cola, Nissan and Marlboro cigarettes are examples of products which serve nearly every
market. Generally there have been four major changes: capital movements rather than
trade have become the driving force of the global economy, production has become
"uncoupled" from employment, primary products have become "uncoupled" from the
industrial economy and, the world economy is in control - individual nations are not,
despite the large world economic share of the USA and Japan.

You are set for an incredible journey starting from the legacy of mercantilism 1500-1750!
Have fun in the world of marketing!

CONSULTATION HOURS:
Phone or Messenger: 9 - 10 AM Mondays | 9-10 AM Thursdays
Virtual time: 4 - 5 PM Thursdays

MODULE 1 LEARNING OBJECTIVES:

By the end of this module, the students will be able to:

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1. Distinguish among the basic theories of world trade: absolute advantage,

comparative advantage, and competitive advantage.
2. Discuss the pros and cons of global outsourcing.
3. List and explain the principal parts of the balance-of-payments statement.
4. Describe how and why exchange rates fluctuate.
5. List and describe the major agencies that promote world trade, as well as those that
promote economic and monetary stability.
6. Describe common trade restrictions and explain their impact on international
marketers.
7. Compare the four different forms of economic integration.

COURSE CONTENT FOR MODULE 2: The Global Economy

ACTI DESCRIPTION TIME
VITY TO
COMP
LETE
Lectu
30
re International
minute
discu Dependence of Nations
s
ssion
Video
10
Prese Basic Theories of World minute
ntatio Trade s
n
Lectu
30
re
Global Outsourcing minute
discu
s
ssion
Activit Grouping & Giving 20
y Instruction for the Activity minute
Instru
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ction s
Lectu
30
re
Balance of Payment minute
discu
s
ssion
Lectu
re
discu
ssion 30
with Exchange Rates minute
Video s
Prese
ntatio
n
Grou
p International Agencies for
1½
Prese Promoting Economic and
hours
ntatio Monetary Stability
n
Lectu Protectionism and Trade
re Restrictions and Entry 30
discu Modes to International mins
ssion Marketing
30
Summative quiz for
Quiz minute
module 2
s

LECTURE DISCUSSIONS
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2.1 International Dependence of Nations

Foreign goods are central to the living standards of all nations. Countries vary
widely in their reliance on foreign trade. China became the top exporter while United
States of America becomes the top dependent country in the world.
Thus, both China and USA supports the creation of an average of 11,500 jobs for these.

The Growth of Word Trade(WTO)

An international organization designed by its founders to supervise and liberalize

international capital trade. The organization officially commenced on January 1, 1995
under the Marrakesh Agreement, replacing the General Agreement on Tariffs and Trade
(GATT), which commenced in 1947. The World Trade Organization deals with regulation of
trade between participating countries; it provides a framework for negotiating and
formalizing trade agreements, and a dispute resolution process aimed at enforcing
participants' adherence to WTO agreements which are signed by representatives of
member governments and ratified by their parliaments.
The WTO has 153 members representing more than 95% of total world trade and 30
observers, most seeking membership. The WTO is governed by a ministerial conference,
meeting every two years; a general council, which implements the conference's policy
decisions and is responsible for day-to-day administration; and a director-general, who is
appointed by the ministerial conference. The WTO's headquarters is at the Centre William
Rappard, Geneva, Switzerland.

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History of WTO

ITO and GATT 1947

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was
established after World War II in the wake of other new multilateral institutions dedicated to
international economic cooperation - notably the Bretton Woods institutions known as the
World Bank and the International Monetary Fund. A comparable international institution for
trade, named the International Trade Organization was successfully negotiated.
(https://www.wto.org/)

The On GATT to WTO agreements fall into a structure with six main parts:
 The Agreement Establishing the WTO
 Goods and investment — the Multilateral Agreements on Trade in Goods including
the GATT 1994 and the Trade Related Investment Measures
 Services — the General Agreement on Trade in Services
 Intellectual property — the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS)
 Dispute settlement (DSU)
 Reviews of governments' trade policies

FUNCTIONS OF THE WTO

Among the various functions of the WTO, these are regarded by analysts as the most
important:
 It oversees the implementation, administration and operation of the covered
agreements.
 It provides a forum for negotiations and for settling disputes.

Principles of the trading system

The WTO establishes a framework for trade policies; it does not define or specify
outcomes. That is, it is concerned with setting the rules of the trade policy games. Five
principles are of particular importance in understanding both the pre-1994 GATT and the
WTO:
1) Non-Discrimination. It has two major components: the most favored nation (MFN)
rule, and the national treatment policy. Both are embedded in the main WTO rules on

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goods, services, and intellectual property, but their precise scope and nature differ
across these areas.
2) Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise
because of the MFN rule, and a desire to obtain better access to foreign markets. A
related point is that for a nation to negotiate, it is necessary that the gain from doing so
be greater than the gain available from unilateral liberalization; reciprocal concessions
intend to ensure that such gains will materialize.
3) Binding and enforceable commitments. The tariff commitments made by WTO
members in a multilateral trade negotiation and on accession are enumerated in a
schedule (list) of concessions. These schedules establish "ceiling bindings": a country
can change its bindings, but only after negotiating with its trading partners, which could
mean compensating them for loss of trade. If satisfaction is not obtained, the
complaining country may invoke the WTO dispute settlement procedures .
4) Transparency. The WTO members are required to publish their trade regulations, to
maintain institutions allowing for the review of administrative decisions affecting trade,
to respond to requests for information by other members, and to notify changes in trade
policies to the WTO. These internal transparency requirements are supplemented and
facilitated by periodic country-specific reports (trade policy reviews) through the Trade
Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability
and stability, discouraging the use of quotas and other measures used to set limits on
quantities of imports.
5) Safety valves. In specific circumstances, governments are able to restrict trade. There
are three types of provisions in this direction:
a) articles allowing for the use of trade measures to attain noneconomic objectives;
b) articles aimed at ensuring "fair competition";
c) provisions permitting intervention in trade for economic reasons
(https://www.wto.org/)
2.2 Basic Theories of World Trade

1. Absolute advantage - Trade is based on each country selling what it is best at

producing
2. Comparative advantage - Trade can occur between two countries even if one of the
countries has no absolute advantage in any product
3. Competitive Advantage - Michael Porter argues that the theory of comparative
advantage is limited by its focus on the elements of production:
i. –Land
ii. –Labor
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iii. –Natural resources

iv. –Capital
Theory of Competitive Advantage
 Elements of production
 Nature of domestic demand
 Presence of appropriate suppliers or related
industries
 The conditions in the country that govern how
companies are created, organized, and managed

 Nature of domestic rivalry

2.3 Global Outsourcing - procurement strategy in which a business seeks to find the

most cost efficient location for manufacturing a product, even if the location is in a
foreign country. For example, if a toy manufacturer finds that manufacturing
and delivery costs are lower in a foreign country due to lower wages of foreign employees,
the company might close the domestic factory and use a foreign manufacturer.

The most commonly outsourced streams of business include:

 IT outsourcing
 Legal outsourcing
 Content Development
 Web Design and Maintenance
 Recruitment
 Logistics
 Manufacturing
 Technical/Customer Support

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Source: Boeing 787 Dreamliner Assembly 

WHY DO ORGANIZATIONS OUTSOURCE THEIR BUSINESS PROCESS?

THE KEY FACTORS WHICH HAVE LED TO A GROWING TREND OF

OUTSOURCING ARE

 Lack of expert-labor in some portions of the business process

 Availability of cheaper labor, whilst not comprising on the quality of output
 Ability and feasibility to concentrate on the other crucial business process

These factors have specifically contributed to most of the outsourced partners across
different locations in the world. Expertise in communication capabilities, technical
expertise and favorable financial packages are the most important advantages of
outsourcing to India.

Outsourcing most commonly known as off-shoring has pros and cons to it. Most of
the time, the advantages of outsourcing overshadow the disadvantages of
outsourcing.

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The Advantages of Outsourcing

 Swiftness and Expertise: Most of the times tasks are outsourced to vendors who
specialize in their field. The outsourced vendors also have specific equipment and
technical expertise, most of the times better than the ones at the outsourcing
organization. Effectively the tasks can be completed faster and with better quality output
 Concentrating on core process rather than the supporting ones: Outsourcing the
supporting processes gives the organization more time to strengthen their core business
process
 Risk-sharing: one of the most crucial factors determining the outcome of a campaign is
risk-analysis. Outsourcing certain components of your business process helps the
organization to shift certain responsibilities to the outsourced vendor. Since the
outsourced vendor is a specialist, they plan your risk-mitigating factors better
 Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire
individuals in-house; hence recruitment and operational costs can be minimized to a great
extent. This is one of the prime advantages of offshore outsourcing

The Disadvantages of Outsourcing

 Risk of exposing confidential data: When an organization outsources HR, Payroll and

Recruitment services, it involves a risk if exposing confidential company information to a
third-party
 Synchronizing the deliverables: In case you do not choose a right partner for
outsourcing, some of the common problem areas include stretched delivery time frames,
sub-standard quality output and inappropriate categorization of responsibilities. At times it
is easier to regulate these factors inside an organization rather than with an outsourced
partner
 Hidden costs: Although outsourcing most of the times is cost-effective at times the
hidden costs involved in signing a contract while signing a contract across international
boundaries may pose a serious threat
 Lack of customer focus: An outsourced vendor may be catering to the expertise-needs
of multiple organizations at a time. In such situations vendors may lack complete focus on
your organization’s task (K. Gillespie and H. Hennessey,2013)
2.4 Balance of Payments - (BOP): an accounting record of the transactions between
the residents of one country and the residents of the rest of the world over a given period
of time.

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Balance of payments accounts are an accounting record of all monetary

transactions between a country and the rest of the world. These transactions include
payments for the country's exports and imports of goods, services, financial capital,
and financial transfers. The BOP accounts summarize international transactions for a
specific period, usually a year, and are prepared in a single currency, typically the
domestic currency for the country concerned. Sources of funds for a nation, such as
exports or the receipts of loans and investments, are recorded as positive or surplus items.
Uses of funds, such as for imports or to invest in foreign countries, are recorded as
negative or deficit items.

2.5 Exchange Rate - The price of a nation’s currency in terms of another currency. An
exchange rate thus has two components, the domestic currency and a foreign currency,
and can be quoted either directly or indirectly. In a direct quotation, the price of a unit of
foreign currency is expressed in terms of the domestic currency. In an indirect quotation,
the price of a unit of domestic currency is expressed in terms of the foreign currency. An
exchange rate that does not have the domestic currency as one of the two currency
components is known as a cross currency, or cross rate.

The Exchange Rate is Determined by Supply and Demand

1. Imports/exports
2. Inflation rate
3. Investors and speculators
4. Government actions

Kinds Exchange rates

1. Floating exchange rates – in which currency rates are determined by market force
– are the norm for most major nations,
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2. Peg Exchange Rate - some nations prefer to fix or peg their domestic currencies
to a widely accepted currency like the US dollar.
3. Spot rate – which is the current rate – or a forward rate, which is the spot rate
adjusted for interest rate differentials.
4. Soft Currencies - Currencies of smaller, less developed countries. Rates can be
determined by the governments of these countries. Governments must eventually
respect supply and demand; currencies often face significant devaluations.
Zimbabwean dollar is a classic example of soft currency.

Currency Fluctuations: Impact on Export Markets

When the currency of a foreign market devalues against an exporter’s home currency,
marketers must consider 2 options:

1. Raise prices in the export market in order to preserve margins - Can your brand
command a higher price?
2. Keep prices steady in hopes of sustaining or increasing market share
- Cost containment might help to maintain margins somewhat

2.6 Agencies Promoting Economic and Monetary Stability

1. WTO – World Trade
2. GATT – General Agreement on Tariffs and Trade
3. IMF - International Monetary Fund
4. WB – World Bank
5. Group of 7
6. European Monetary System

International Monetary Fund (IMF)- is the intergovernmental organization that oversees

the global financial system by following the macroeconomic policies of its member
countries, in particular those with an impact on exchange rate and the balance of
payments. It is an organization formed with a stated objective of stabilizing international
exchange rates and facilitating development through the enforcement of liberalizing
economic policies.

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Organization and purpose

The International Monetary Fund was conceived in July 1944 originally with 45
members and came into existence in December 1945 when 29 countries signed the
agreement, with a goal to stabilize exchange rates and assist the reconstruction of the
world's international payment system. Countries contributed to a pool which could be
borrowed from, on a temporary basis, by countries with payment imbalances (Condon,
2007). The IMF was important when it was first created because it helped the world
stabilize the economic system. The IMF works to improve the economies of its member
countries. The IMF describes itself as "an organization of 187 countries (as of July 2010),
working to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth, and
reduce poverty".

IMF Activities
1. Surveillance – This refers to the monitoring of economic and financial development
and policies in member countries at the global level.
2. Technical Assistance – The IMF provides the governments and central banks its
member countries with technical assistance and training in the area of expertise.
3. Lending – The IMF lends to member countries with balance of payment problems.
This pursues the two-pronged goal of providing temporary financing and supporting
financial system.

IMF Accomplishments
1. Increasing volume of trade and investment
2. Adapting to changes in international commerce
3. Allowing more international cooperation (https://www.imf.org/external/index.htm)

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Entry Modes to International Marketing
There are different modes by which a company can inter foreign markets.
 Franchising - is the practice of using another firm's successful business model.
For the franchisor, the franchise is an alternative to building 'chain stores' to
distribute goods and avoid investment and liability over a chain. The franchisor's
success is the success of the franchisees. The franchisee is said to have a greater
incentive than a direct employee because he or she has a direct stake in the
business.Ex. Mc Donalds Enter the Philippines because of franchising.
 Licensing - may be granted by a party ("licensor") to another party ("licensee") as
an element of an agreement between those parties. A shorthand definition of a
license is "an authorization (by the licensor) to use the licensed material (by the
licensee)."

 Manufacturing - takes turns under all types of economic systems. In a free market
economy, manufacturing is usually directed toward the mass production of products
for sale to consumers at a profit. In a collectivist economy, manufacturing is more
frequently directed by the state to supply a centrally planned economy. In free
market economies, manufacturing occurs under some degree of government
regulation.

Forms of Manufacturing
 Assembly plant
 Contract manufacturing
 Joint Venture
 Wholly-owned Plant
 Exporting - refers to selling goods and services produced in home country to other
markets.

World Bank is an international financial institution that provides loans[2] to developing

countries for capital programs. It comprises two institutions: the International Bank for
Reconstruction and Development (IBRD) and the International Development
Association (IDA). The World Bank is a component of the World Bank Group, and a
member of the United Nations Development Group.

The World Bank's official goal is the reduction of poverty. According to its Articles of
Agreement, all its decisions must be guided by a commitment to the promotion of foreign
investment and international trade and to the facilitation of capital investment.

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THE WORLD BANK

1818 H Street, NW Washington, DC 20433 USA

Goals of World Bank

1. Eradicate Extreme Poverty and Hunger: From 1990 through 2004, the proportion
of people living in extreme poverty fell from almost a third to less than a fifth.
Although results vary widely within regions and countries, the trend indicates that
the world as a whole can meet the goal of halving the percentage of people living in
poverty. Africa's poverty, however, is expected to rise, and most of the 36 countries
where 90% of the world's undernourished children live are in Africa. Less than a
quarter of countries are on track for achieving the goal of halving under-nutrition.
2. Achieve Universal Primary Education: The percentage of children in school in
developing countries increased from 80% in 1991 to 88% in 2005. Still, about 72
million children of primary school age, 57% of them girls, were not being educated
as of 2005.
3. Promote Gender Equality: The tide is turning slowly for women in the labor
market, yet far more women than men- worldwide more than 60% – are
contributing but unpaid family workers. The World Bank Group Gender Action Plan
was created to advance women's economic empowerment and promote shared
growth.
4. Reduce Child Mortality: There is some improvement in survival rates globally;
accelerated improvements are needed most urgently in South Asia and Sub-
Saharan Africa. An estimated 10 million-plus children under five died in 2005; most
of their deaths were from preventable causes.
5. Improve Maternal Health: Almost all of the half million women who die during
pregnancy or childbirth every year live in Sub-Saharan Africa and Asia. There are
numerous causes of maternal death that require a variety of health care
interventions to be made widely accessible.

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6. Combat HIV/AIDS, Malaria, and Other Diseases: Annual numbers of new HIV
infections and AIDS deaths have fallen, but the number of people living with HIV
continues to grow. In the eight worst-hit southern African countries, prevalence is
above 15 percent. Treatment has increased globally, but still meets only 30 percent
of needs (with wide variations across countries). AIDS remains the leading cause of
death in Sub-Saharan Africa (1.6 million deaths in 2007). There are 300 to 500
million cases of malaria each year, leading to more than 1 million deaths. Nearly all
the cases and more than 95 percent of the deaths occur in Sub-Saharan Africa.
7. Ensure Environmental Sustainability: Deforestation remains a critical problem,
particularly in regions of biological diversity, which continues to decline.
Greenhouse gas emissions are increasing faster than energy technology
advancement.
8. Develop a Global Partnership for Development: Donor countries have renewed
their commitment. Donors have to fulfill their pledges to match the current rate of
core program development. Emphasis is being placed on the Bank Group's
collaboration with multilateral and local partners to quicken progress toward the
MDGs' realization. (https://www.worldbank.org/)

Different Types of Regional Economic Integration

 Free Trade Area - Two or more countries agree to eliminate trade barriers and
tariffs between their countries. Countries continue to have individual agreements
with other countries. The North American Free Trade Agreement is between
Mexico, Canada, and the U.S.
 Customs Union - A trade agreement between 2 or more countries. Elimination of
the internal barriers and tariffs. Establishment of common external barriers and
tariffs to other countries. Mercosur, referred to as the Southern Common Market,
includes the countries of Argentina, Brazil, Paraguay and Uruguay
 Common Market - Elimination of the internal barriers and tariffs between 2 or more
countries. Establishment of common external barriers to trade. Free movement of
the factors of production, including labor, capital and information The European
Union is a common market.

2.7 Protectionism

The reality of world trade is that countries protect its markets from foreign companies
by setting up tariffs, quotas, and nontariff barriers.

• Barriers to trade can take any of the following forms:

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– Legal (tariffs and quotas)
– Exchange
– Psychological (nontariffs)
– Private market

• Arguments for protectionism:

– Protection of infant industry
– Protection of the home market
– Need to keep money at home
– Encouragement of capital accumulation
– Maintenance of the standard of living and real wages
– Conservation of natural resources
– Industrialization of a low-wage nation
– Maintenance of employment and reduction of unemployment
– National defense
– Increase of business size
– Retaliation and bargaining

Trade Barriers

• Tariffs
• Quotas and Import Licenses
• Voluntary Export Restraints (VER)
• Boycotts and embargoes
• Monetary barriers
– Blocked currency
– Government approval
– Differential Exchange rates
• Standards
• Antidumping penalties
• Domestic subsidies and economic stimuli

Sources:

 Kate Gillespie and H. David Hennessey. Global Marketing, 3 rd (2013) ed.Singapore,

Cengage Learning
 (https://www.wto.org/)
 (https://www.imf.org/external/index.htm)
 (https://www.worldbank.org/)

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MODULE 2, ACTIVITY 1: GROUP PRESENTATION

Instructions:
1. The class will be divided into teams
2. Each team will be assign topic for simple research task
3. Each team will then do a video presentation based on the given requirements for a
certain topic

Note: The teams/pairs must use the official template that will be sent in doing this output.

RUBRIC FOR ACTIVITY 1: Group Video Presentation

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al wa
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tat It ea ry t all
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e ck al idea l
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Di le of the exc
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MODULE 3 PACKET
AE 05: INTERNATIONAL BUSINESS AND TRADE

MODULE 3 OVERVIEW:

Welcome to Module 3 – CULTURE, MANAGEMENT STYLE AND BUSINESS

SYSTEMS!

Many of the additional complexities and problems faced by international marketers stem
from differences in the cultural and social environment which the marketer faces when
marketing internationally. Influences of cultural differences when marketing across national
boundaries take on a heightened importance.
We know how people consume, their needs and wants, and the ways in which these wants
are satisfied are determined by culture. Culture is the human-made part of environment
that includes knowledge, beliefs, morals, laws, customs and other elements acquired by
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humans in society. Because cultures are so different between countries, cultural forces
and factors take on a particular significance for the international marketer. In this Module,
we will highlight some of the possible areas or aspects of culture where there may be
important differences when marketing in foreign markets.

You are set for an incredible journey! Have fun in the world of marketing!

CONSULTATION HOURS:
Phone or Messenger: 9 - 10 AM Mondays | 9-10 AM Thursdays
Virtual time: 4 - 5 PM Thursdays

MODULE 3 LEARNING OBJECTIVES:

By the end of this module, the students will be able to:
1. The necessity for adapting to cultural differences
2. How and why management styles vary around the world
3. The extent and implications of gender bias in other countries
4. The importance of cultural differences in business ethics
5. The differences between relationship oriented and information oriented cultures

COURSE CONTENT FOR MODULE 3:

CULTURE, MANAGEMENT STYLE AND BUSINESS SYSTEMS
ACTI DESCRIPTION TIME
VITY TO
COMP
LETE
Lectu
The necessity for 20
re
adapting to cultural minute
discu
differences s
ssion
Lectu
How and why 10
re
management styles vary minute
discu
around the world s
ssion
Film Film Title: GungHo 2 hours
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Show
(Cultural Differences)
ing
Lectu
The extent and 10
re
implications of gender minute
discu
bias in other countries s
ssion
Lectu
The importance of 10
re
cultural differences in minute
discu
business ethics s
ssion
Lectu The differences between
10
re relationship oriented and
minute
discu information oriented
s
ssion cultures
Activi
Case Study 2 hours
ty
30
Quiz Summative quiz minute
s

LECTURE DISCUSSIONS

3.1 Culture - refer first to the betterment or refinement of the individual, especially
through education, and then to the fulfillment of national aspirations or ideals. (Early 19th
century)
- To refer to a universal human capacity. ( Mid 19 th century)
- In the 20th century, "culture" emerged as a central concept in anthropology,
encompassing the range of human phenomena that cannot be attributed to
genetic inheritance. Specifically, the term "culture" in American anthropology
had two meanings:
o (1) the evolved human capacity to classify and represent experiences
with symbols, and to act imaginatively and creatively; and

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o (2) the distinct ways that people living in different parts of the world
classified and represented their experiences, and acted creatively.

Adaptation - is a key concept in international marketing and willingness to adapt is a

crucial attitude. It as an accommodation required on small matters as well as large ones.
10 Basic Criteria as guide to Adaptation
1. open tolerance
2. flexibility
3. humility
4. justice/fairness
5. ability to adjust to varying tempos
6. curiosity/interest
7. knowledge of the country
8. liking for others
9. ability to command respect
10. ability to integrate oneself into the
environment

Business Customs
1. Cultural imperatives -are the business customs and expectations that must be
met, conformed, recognized and accommodated if relationships are to be
successful.
Sample words known by successful business people
Chinese – Guanxi
Japanese – NingenKankei
Latin American - Comapdere
2. Cultural electives - relate to areas of behavior or to customs that cultural aliens
may wish to conform to or participate in but that are not required.
Sample Customs: Greet another man with a Kiss (some countries)
Eat food that are disagree with the digestive system
Drink alcoholic beverages (cheers for good health….)
Japanese Symbolic bow
Czech Republic aperitif (drinking liqueur at the beginning
of the meeting
Arab business associates will offer coffee as part of
important ritual of establishing a level of friendship
3. Cultural exclusives - are those customs or behavior patterns reserved exclusively
for the locals and from which the foreigner is barred and must not participate.

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The Impact of American Culture
Ways in which U.S. culture has influenced management style include, but are not limited
to, the following:
1. “Master of destiny” viewpoint – people can substantially influence future
2. Independent enterprise as the instrument of social action – as an entity that has
rules and continuity of existence
3. Personnel selection and reward based on merit
4. Decisions based on objective analysis – that the management strived to be
scientific towards objectivity in decision making and accuracy of data.
5. Wide sharing in decision making
6. Never-ending quest for improvement – the ability to innovate to provide quality life
for people in the future
7. Competition yielding efficiency– improvement and regeneration

3.2 Management Styles Around the World

Because of the diverse structures, management values and behavior encountered
in international business, there is considerable variation in the business is conducted.
Cross-cultural differences influence management styles in the following areas:

1. Authority and Decision Making – Business size, ownership, public accountability and
cultural values that determine the prominence of status and position (PDI – Power
Distance Index) combine to influence the authority structure of business.
2. Management Objectives and Aspirations – The training and background of
managers significantly affect their personal and business outlooks. Society as a whole
establishes the social rank, status of management and cultural background dictates
patterns of aspirations and objectives among businesspeople. Example includes:
Security & mobility, personal life & affiliation and social acceptance and power and
achievement.
3. Communication Styles – The ability to communicate, understand and translate in the
different language face-to-face or using technology.
4. Formality and Tempo - The breezy informality and haste that seen to characterize
American business relationships appear to be American exclusives that business
people form other countries not only fail to share but also fail to appreciate. A German
executive commented that he was taken aback when employees of his Indiana client
called him by his first name. He noted in Germany you don’t do that until you know
someone for 10 years – and never if you are at a lower rank. This apparent informality
however does not indicate a lack of commitment to the job. Comparing British and
American business managers, an English executive commented about the American

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manager’s compelling involvement in business. At a cocktail party or a dinner, the
American is still on duty.

https://www.statista.com/chart/12868/the-worlds-most-spoken-languages/

5. P-Time versus M-Time - TheMonochronic orientation (or "M-Time") views time as

sequential and linear. Time is seen as being a limited resource which is constantly
being used up, and thus scheduling tends to be "tighter," more rigid, with great
importance placed on promptness.

From the Monochronic perspective, late arrival for a meeting is viewed as rudeness,
and events and activities are scheduled sequentially, one after another, to avoid
overlapping. This perspective is oriented to the future.

The Polychronic orientation (or "P-Time") views time in a more "circular" fashion, as
the turning of the seasons, and time is seen as renewing itself each year. Scheduling
tends to be "loose" and flexible, with many last-minute changes to even highly
significant events and activities. Often many activities are juggled simultaneously, and
promptness is not considered important. This perspective is oriented to the past and/or
present.

Monochronic people are more likely to be task-oriented than relationship-oriented, and

may be viewed bypolychronic observers as "valuing things over people."

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In contrast, polychronic people are more relationship-oriented than task-oriented and
thus may be viewed by monochronic observers as not taking their work and goals
seriously.

Monochronic people are likely to feel insulted when a polychronic acquaintance or

colleague is late for a meeting;
polychronic people are likely to be offended when a monochronic acquaintance or
colleague seems too focused on their work to swap stories about their families or what
is going on in the world around them. "

6. Negotiations Emphasis - A core leadership and management skill is the ability to

negotiate effectively in a wide range of business contexts, including deal-making,
employment discussions, corporate team building, labor/management talks, contracts,
and handling disputes.But it is important to remember that negotiation process is
complicated and the risk of understanding increases when negotiating with someone
from another culture.

3.3 Gender Bias in International Business

The gender bias against women managers exists in some countries, coupled with
myths harbored by male managers, creates hesitancy among US multinational companies
to offer women international assignments.
Women are not accepted in upper level management roles in Asian, Middle
Eastern, and Latin American – women are not typically found in upper levels of
management and men and women are treated very differently. Gender bias poses
significant challenges in cross-cultural negotiations.

Hofstede Measures of Culture

• Power distance - The extent to which less powerful members within a society
accept that power is unevenly distributed

o High power distance societies

o Children expected to be obedient to parents
o Subordinates are less likely to contradict bosses

• Individualism-collectivism - The world is viewed as in-groups and out-groups

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o Individuals are identified by group allegiance and role
o Groups are established, strong, and cohesive – You don’t just choose which
group to join!
o Non-group members may eventually become “trusted” outsiders
o Individualistic cultures are more open to outsiders and foreign ideas

• Masculinity-feminity
o Masculinity is associated with assertiveness
o Masculine societies value ambition, competitiveness, and high earnings
o Femininity is associated with modesty and nurturing
o Feminine societies are concerned with public welfare and caring for the
underdog

• Uncertainty avoidance - The state of being uneasy or worried about what may
happen in the future.
o Anxious in general
o Uncertainty avoidant societies
o Don’t like ambiguity
o Consider the different to be threatening
o Tend to be better implementers than innovators

Hofstede Scores

Business ethics - is complex in the international

marketplace because value judgments differ widely among culturally diverse groups. It is a
form of applied ethics or professional ethics that examines ethical principles and moral or
ethical problems that arise in a business environment. It applies to all aspects of business
conduct and is relevant to the conduct of individuals and entire organizations.

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Generally Condemn Practices (Unethical)
1. Corruption - varyingly defined from culture to culture. In philosophical, theological, or
moral discussions, corruption is spiritual or moral impurity or deviation from an ideal.
Corruption may include many activities including bribery, fraud and embezzlement.
Government, or 'political', corruption occurs when an office-holder or other
governmental employee acts in an official capacity for his or her own personal gain.

Methods of Corruption
a) Bribery - is the improper use of gifts and favours in exchange for personal gain.
This is also known as kickbacks or, in the Middle East, baksheesh. It is the most
common form of corruption. The types of favours given are diverse and include
money, gifts, sexual favours, company shares, entertainment, employment and
political benefits. The personal gain that is given can be anything from actively
giving preferential treatment to having an indiscretion or crime overlooked.
b) Embezzlement and theft- involve someone with access to funds or assets
illegally taking control of them.
c) Fraud - involves using deception to convince the owner of funds or assets to
give them up to an unauthorized party. Examples include the misdirection of
company funds into "shadow companies" (and then into the pockets of corrupt
employees), the skimming of foreign aid money, scams and other corrupt
activity.
d) Extortion and blackmail -centers around the use of threats.
e) Abuse of discretion -refers to the misuse of one's powers and decision-making
facilities. Examples include a judge improperly dismissing a criminal case or a
customs official using their discretion to allow a banned substance through a
port.
f) Favouritism, nepotism and clientelism - involve the favouring of not the
perpetrator of corruption but someone related to them, such as a friend, family
member or member of an association. Examples would include hiring a family
member to a role they are not qualified for or promoting a staff member who
belongs to the same political party as you, regardless of merit.Some states do
not forbid these forms of corruption.
g) Improper political contributions - This is the use of contributions to political
parties to secure illicit power, not because one favours their policies. An
example would be tobacco or alcohol companies funding major political parties
as a means of influencing the policing of their industry.

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The Corruption Perceptions Index ranks countries and territories based on how corrupt
their public sector is perceived to be. A country or territory’s score indicates the perceived
level of public sector corruption on a scale of 0 - 100, where 0 means that a country is
perceived as highly corrupt and 100 means it is perceived as very clean. A country's rank
indicates its position relative to the other countries and territories included in the index.
This year's index includes 180 countries and territories.

https://vajiramias.com/current-affairs/corruption-perceptions-index-cpi-
2019/5e2a74d21d5def517fec7a83/

3.4 Ethical and Socially Responsible Decisions

Areas of decision making where ethical issues arise:

1. employment practices and policies,

2. consumer protection,
3. environmental protection,
4. political payments and involvement in political affairs of the country, and
5. basic human rights and fundamental freedoms

Three Ethical Principles

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Utilitarian Ethics Does the action optimize the "common good" or benefits of all
constituencies?
Rights of the Parties Does the action respect the rights of the individuals involved?
Justice or Fairness Does the action respect the canons of justice or fairness to all parties
involved?

MODULE 3, ACTIVITY: ACTIVITY OUTPUT

1. Simple Case Scenario

You have been asked to attend a meeting with Belgian, Turkish, and Japanese colleagues to
develop a global plan for a new Deodorant.
a. Using the Hofstede scores for these countries, discuss the challenges you would face in
the meeting. Assume your native culture. (Note: Different countries may be substituted.)
b. Give at least 2 Strategies using 4P’s that you think will be applicable for these
countries based on the cultural differences you have seen in the movie.
For purposes of discussion, I will assume a U.S. culture:
  United States Belgium Turkey Japan
Power Distance 40 65 66 54
Individualism 91 75 37 46
Masculinity 62 54 45 95
Uncertainty Avoidance 46 94 85 92

2. Based on the Movie Gung-ho, Identify cultural differences based on the 6

Management Styles Around the World

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RUBRIC FOR ACTIVITY

GRADING RUBRIC FOR WRITTEN ASSIGNMENTS
LEVELS OF ASSESSMENT

BELOW MEETS EXCEEDS EXEMP S

STANDAR STANDA STANDAR LARY – C
D – 2 PTS. RD – 3 D – 4 PTS. 5 PTS. O
PTS. R
E

ORG Writing Writing is Writing is Writing

ANI lacks coherent coherent and shows
ZATI logical and logically high
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errors. from the to create points.
topic. coherence. Unity
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but not ideas is reader
used present. to the
throughou conclusi
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LEV Shows Content Content Content

EL some indicates indicates indicate
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unoriginal. on a few evidence
ideas. s
original
thought

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and
support
for the
topic.

DEV Main Main Main points Main

ELO points lack points are well points
PME detailed present developed well
NT developme with with quality develope
nt. Ideas limited supporting d with
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with little developm quantity. quality
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high
degree
of
critical
thinking.

GRA Spelling, Most Essay has Essay is

MM punctuatio spelling, few spelling, free of
AR n, and punctuati punctuation, distracti
AND grammatic on, and and ng
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ICS distraction, allowing allowing ion, and
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FOR Fails to Meets Meets Meets

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and margins, and evidence L
indentation spacing, correctly s :

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; neatness and assembled. attention
of essay indentatio to
needs ns; essay detail;
attention. is neat but essay is
may have neat and
some correctl
assembly y
errors. assembl
ed with
professi
onal
look.

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MODULE 4 PACKET
AE 05: INTERNATIONAL BUSINESS AND TRADE

MODULE 4 OVERVIEW:

Welcome to Module 4 – POLITICAL AND REGULATORY CLIMATE

In this module, the legal/political aspect is very important in global marketing.

"International law" can be defined as rules and principles that states and nations
consider binding upon themselves. This raises two interesting characteristics of
international law. The first is that "law" belongs to individual nations and international
law only exists to the degree that individual nations are willing to relinquish their rights.
The second is the lack of an adequate international judicial and administrative
framework or a body of law which would form the basis of a truly comprehensive
international legal system.
The international business is also subject to political decrees made by governments
both in "home" and "host" countries. Home governments can apply pressure not to deal
with disapproved parties. These measures may take the refusal to grant an export
licence, or withdrawal of export guarantee cover. The host government may take
measures like taxation, ownership controls, operating restrictions or expropriation.

You are set for an incredible journey! Have fun in the world of marketing!

CONSULTATION HOURS:
Phone or Messenger: 9 - 10 AM Mondays | 9-10 AM Thursdays
Virtual time: 4 - 5 PM Thursdays

MODULE 4 LEARNING OBJECTIVES:

By the end of this module, the students will be able to:
1. List and explain the political motivations behind government actions that promote or
restrict international marketing. Identify pressure groups that affect international
marketing.
2. Discuss specific government actions salient to international marketing, such as
boycotts and takeovers.
3. List and compare the four basic legal traditions that marketers encounter worldwide.
4. Cite examples illustrating how national laws can vary and change.

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5. Differentiate between the steps involved in managing political risk and those
involved in planning for regulatory change.

COURSE CONTENT FOR MODULE 4: POLITICAL AND REGULATORY

CLIMATE
ACTI DESCRIPTION TIME
VITY TO
COMP
LETE
Lectu
30
re Host country political
minute
discu climate
s
ssion
Lectu
30
re Home country political
minute
discu forces
s
ssion
15
Activi Group Research Task
minute
ty Instruction
s
Grou
p
Pres Legal Environments 1 hour
entati
on
Grou
p 30
National Regulatory
Pres minute
Environments
entati s
on
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Movi
Political Risk, Peace Corps,
e Repatriation,
Pres Global Marketing and 2 hour
entati Terrorism
on
30
Summative quiz for
Quiz minute
module 4
s
Deadli
Reaction Paper (With ne:
Guide Questions in Septe
Task
Relation to the Movie mber
Presentation) 7,
2020

LECTURE DISCUSSIONS

POLITICAL AND REGULATORY CLIMATE

4.1 Host country political climate

A host country is any country that contains an operational unit (marketing, sales,
manufacturing, R&D) of an international company.

So let us look at a more technical definition of an MNC. A multinational corporation is a

company incorporated in its home country (country of origin) but it carries out
business operations beyond that country in many other foreign countries, we call
the host countries. Its head office will be in the home country.
(https://www.toppr.com/guides/business-environment/scales-of-business/multinational-
corporations-mnc/)

Political Motivations of Host Countries

• Self-preservation
• Security

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• Prosperity
• Prestige
• Ideology
• Cultural identity

Host Country Pressure Groups

• Labor unions
• Political parties
• Environmental groups
• Local business community

4.2 Home country political forces

Host Country Actions

• Government subsidies
• Ownership restrictions
• Operating conditions
– Work permits
– Local content requirements

Operating Conditions
• Operating conditions can also be affected by what governments fail to do
– Kidnappings!

Boycott - an act of voluntary and intentional abstention from using, buying, or dealing
with a person, organization, or country as an expression of protest, usually for moral,
social, political, or environmental reasons.
• Government boycotts (Arab Boycott of Israel Products)
• Ad-hoc consumer boycotts (The new Arab Boycott of USA Products)

Takeovers - Host-government actions that result in a firm’s loss of ownership or direct

control
• An expropriation is a formal seizure of an operation
• A confiscation is an expropriation without compensation

Example of Expropriation
In January 2010, Hugo Chavez expropriated 6 hypermarkets and 35 supermarkets
owned by French Casino, because they raised prices after the Venezuelan currency
devaluated. Later Chavez said he would consider a partnership with Casino.

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The Venezuelan government forced Banco Santander to sell their its stake in
Banco de Venezuela for $1.05 billion in mid 2009.

4.3 Legal Environments (International Legal Traditions)

There are generally considered to be five legal systems in the world today: civil law,
common law, customary law, religious law, and mixed legal systems.
1. Civil law systems have their origin in the Roman legal tradition.  Civil systems
vary widely, both in procedure and substantive law, so conducting research on a
particular nation's civil law system should include looking at that nation's specific
system of law, but they do have some trademark characteristics.  Nations with
civil law systems have comprehensive, frequently updated legal codes.  Most
importantly, case law is a secondary source in these jurisdictions.  France and
Germany are two examples of countries with a civil law system.
2. Common law systems, while they often have statutes, rely more on precedent,
judicial decisions that have already been made.  Common law systems are
adversarial, rather than investigatory, with the judge moderating between two
opposing parties.  The legal system in the United States is a common law system
(with the exception of Louisiana, which has a mix of civil and common law).
3. Customary law systems are based on patterns of behavior (or customs) that
have come to be accepted as legal requirements or rules of conduct within a
particular country.  The laws of customary legal systems are usually unwritten
and are often dispensed by elders, passed down through generations.  As such,
customary law research depends greatly on the use of secondary sources. 
Oftentimes, customary law practices can be found in mixed legal system
jurisdictions, where they've combined with civil or common law.
4. Religious legal systems are systems where the law emanates from texts or
traditions within a given religious tradition.  Many Islamic nations have legal
systems based in whole or in part on the Quran.
5. Mixed legal systems refer to legal systems where two or more of the above
legal systems work together. https://guides.law.sc.edu/c.php?
g=315476&p=2108388

Legal Evolution
• Product liability
• Bankruptcy

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• Regulating cyberspace

Heavy Regulation in Japan

• Steps to Qualify as an Official University
– Own your own building
– Have your own sports field and gym
– Operate on <25% debt-equity ratio
– Get government approval for new programs

Human Nature Orientation (HNO)

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• Positive HNO – assume people can be trusted to obey the rules
• Negative HNO – assume people cannot be trusted to obey the rules

(https://www.researchgate.net/figure/Cultural-value-orientations-and-examples-
of-their-specii-c-features_fig1_233337573)

Attitudes toward rules are affected by two criteria:

1. Level of power distance
2. Type of human nature orientation

Power distance refers to the way in which power is distributed and the extent to which
the less powerful accept that power is distributed unequally. Put simply, people in some
cultures accept a higher degree of unequally distributed power than do people in other
cultures.

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(Show Video)

https://www.researchgate.net/figure/Countries-
according-to-the-Power-Distance-
Index_tbl1_282924794

Another Perspective on Attitudes Toward Rules

• Tight cultures – many rules, norms and standards for correct behavior.
– Criticize and punish rule breakers severely.
– More isolated and less influenced by other cultures
– Examples of countries with tight cultures include China, France, India,
Japan and Singapore.
• Loose cultures – few rules, norms and standards for correct behavior
– Countries with loose cultures include Australia, Belgium, Israel, New
Zealand and the United States

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4.4 Political Risk
It is the possibility that an unexpected and drastic change due to political forces
will result in adverse circumstance for business operations.
• Regulatory Change
– More moderate and predictable changes in the business environment
• Political risk
– More unexpected and drastic changes

Managing Political Risk

• Fighting the battle on two fronts:
1. Perfect intelligence systems to avoid being caught unaware when
changes disrupt operations
2. Develop risk-reducing strategies that help limit their exposure, or the
losses they would sustain, should a sudden change occur
• Political Risk Index
1. Measures (Examples)
• Internal Causes of Political Risk
• Fractionalization of political spectrum and power of factions
• Mentality, including xenophobia, nationalism, corruption,
nepotism, willingness to compromise
• Fractionalization of language, ethnic, or religious groups
• Social conditions, e.g., population density and wealth
distribution
• Restrictive (coercive) measures required to retain power
• Organization and strength of forces for a radical government
• External Causes of Political Risk
• Dependence on and/or importance to a major hostile power
• Negative influence of regional political forces
• Symptoms of Political Risk
• Societal conflict involving demonstrations, strikes and street
violence
• Instability as perceived by non-constitutional changes,
assassinations, and guerilla wars
2. Method
• 100 experts rate 0-7; sum to 70
• Prohibitive risk (0-39 points), high risk (40-54 points), moderate risk
(55-60 points), low risk (70-100 points)

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Risk Reduction Strategies
• Sharing Risks
– Joint ventures, alliances, licensing, franchising, management contracts,
countertrade
– Project finance
• Minimizing Assets at Risk
• Insuring Against Risks
– Governments (e.g., OPIC)
– Private firms

Sources:
 Kate Gillespie and H. David Hennessey. Global Marketing, 3rd (2013) ed.
Singapore: Cengage Learning
 https://www.toppr.com/guides/business-environment/scales-of-business/
multinational-corporations-mnc/
 https://guides.law.sc.edu/c.php?g=315476&p=2108388
 https://www.researchgate.net/figure/Cultural-value-orientations-and-examples-of-
their-specii-c-features_fig1_233337573
 https://www.researchgate.net/figure/Countries-according-to-the-Power-Distance-
Index_tbl1_282924794

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