1: Globalization and International Business

Globalization:
(1) the ongoing process that deepens and broadens the relationships and interdependence among
countries
(2) trend toward greater economic, cultural, political, and technological interdependence among

national institutions and economies

International business: a mechanism to bring about globalization

Globalization of markets: separate national markets → global market

Globalization of production: offshoring G&S to capitalize on national differences in the cost and
quality of factors of production

What does globalization mean for firms?

(1) lower trade barriers to trade and investment allow firms to:

(2) technical change means:

Drawbacks of globalization:

(1) threat to national sovereignty

(2) economic growth and environmental stress

(3) offshoring propels income inequality and personal stress

Global challenges:

(1) Managing security (physical/digital/reputational)

(2) jobs and wages

(3) labor, environment, and markets

(4) globalization impact on culture.

How is globalization affecting the world’s poor? The best way for the poor nations to improve their

situation is to
(1) reduce barriers to attract trade and investment

(2) implement economic policies based on free market economies

(3) receive debt forgiveness for debts incurred under totalitarian regimes

- if globalization was beneficial there should not be a divergence between rich and poor nations

Inequality within nations

+ poor people in developing nations seem to benefit from an open economy
- income disparity in rich nations is increasing as firms move factory jobs to poor nations

Inequality among nations

+ open nations are benefiting from trade while close ones are not

- it is widening the gap in average incomes between rich and poor nations

Q: what does the evidence suggest for each branch of the debate on globalization and income
inequality?
(Inequality within nations) developing nations can boost the incomes of their poorest members of
society by integrating them into the globaglobalization and income inequality debatel economy

(Inequality between nations) nations more open to trade and investment grow faster than wealthy

nations, while sheltered economies are worse off

(Global inequality) Inequality has fallen, but experts disagree on the extent of the decline

The index of global exports (1800 ~ 2014)

(1) low and flat for 150 years

(2) 1st acceleration of trade (1950s) almost exponentially (by 1980, it had grown about 10x)
(3) real boom (1980 ~ 2000) 35x

(4) it has not been growing much in the past years (2008 financial crisis)

Ralph Nader: under the new system, many decisions that affect billions of people are made by WTO
member nations. At risk is the very basis of democracy and accountable decision-making. WTO

members’ power rests on their ability to persuade member states to follow an action. If not, the
supranational organization will collapse

International business players

(1) multinational corporations
(2) small businesses and entrepreneurs
(3) born global firms

2: Comparative Business Environmental Framework—Cultural

(Handout) Globalization: when culture doesn’t translate how to expand abroad without losing your
company’s mojo – Erin Meyer’s 5 principles that can prevent disintegration
(1) identify the dimensions of difference between the corporate culture and local culture

(2) every cultural group has a voice

(3) protect the most creative units, letting communication and job descriptions remain more
ambiguous
(4) train everyone in key norms
(5) ensure diversity in every location

Culture: a system of values and norms that are shared among a group of people and that when

taken together constitute a design for living

Sub-culture: a unique way of life within a larger culture

Values: abstract ideas about what a group believes to be good, right, and desirable (ideas, beliefs,
and customs to which people are emotionally attached)

Norms: the social rules and guidelines that prescribe appropriate behavior in particular situations

Society: a group of people who share a common set of values and norms

Cultural literacy: detailed knowledge of a culture that enables a person to function effectively within
in <-> Ethnocentricity: belief that one’s own ethnic group is superior to that of others

Culture matters to create a global mindset, one needs:

(1) cultural adaptability

(2) bridging the gap
(3) building global mentality

(4) flexibility

National culture: museums and monuments to preserve the legacies of events and people

Components of culture:
(1) aesthetics
(2) values and attitudes (evaluations, feelings, and tendencies people hold toward objects or

concepts)
(3) manners (appropriate behavior, speech, and dressing in general) and customs (traditional ways
or behavior in specific circumstances)

(4) social structure (social group/social stratification/social mobility)

(5) religion

(6) personal communication

(7) education (cultures pass on traditions, customs, and values through schooling, parenting, and

group membership)
(8) physical environments (topography/climate/material culture)

Social stratification: all societies are stratified on a hierarchical basis into social categories
(1) the degree of social mobility (caste system, class system)
(2) the significance attached to social strata in business contacts (class consciousness)

Ethical systems: a set of moral principles, or values, that are used to guide and shape behavior

How does culture impact the workplace?

Geert Hofstede: 4 dimensions of culture:

(1) power distance: people are unequal in physical and intellectual capabilities
(2) uncertainty avoidance: the extent to which accepting and tolerating ambiguity
(3) individualism versus collectivism

(4) masculinity versus femininity: gender and social roles

What do cultural differences mean for managers?

(1) it is important to develop cross-cultural literacy (to succeed in that culture) and be aware of

ethnocentric behavior
(2) there is a connection between cultural and national competitive advantage (suggests which

countries are likely to produce the most viable competitors/has implications for the choice of
countries in which to locate production facilities)

4 scenarios in regard to national cultures

(1) new hybrid cultures will develop and personal horizons will broaden
(2) outward expressions of national culture will continue to become homogeneous while distinct
values will remain stable
(3) nationalism will continue to reinforce cultural identity

(4) existing national borders will shift to accommodate ethnic differences

3: Comparative Business Environmental Framework – Economic, Social, Political,

and Legal Environments Facing Business

Why should we understand comparative business environmental framework?

(1) to estimate how market trends and government policy influence the performance of their

companies
(2) economic policies are a leading indicator of government’s goals and its planned use of
economic tools and market reforms
(3) economic development directly impacts citizens, managers, companies, policy makers, and
institutions
What is an economic system?
(1) market economies: supply and demand (fair and free competition)

(2) command economy (centrally planned): government planning (businesses are state-owned and

often stagnant)
(3) mixed economy: (1) + (2) (firms that are considered important to national security are owned
by governments)

What is a legal system?

(1) common law: based on tradition, precedent, and custom
(2) civic law: based on a detailed set of laws organized into codes
(3) theocratic law: based on religious teachings

How are contracts enforced in different legal systems?

common law system: contracts are very detailed with all contingencies spelled out
civil law system: shorter and less specific (issues are already covered in the civil code)

United Nations Convention on Contracts for the International Sale of Goods – regulates the
making and performance of everyday commercial contacts

How are property rights and corruption related?

(1) private action: theft, piracy, blackmail

(2) public action: bribes

Foreign Corrupt Practices Act makes it illegal for US companies to bribe foreign government
officials to obtain or maintain business over which that foreign official has authority

How can intellectual property be protected?

(1) patents: exclusive rights for a defined period to the manufacture, use or sale of that invention
(2) copyrights: the exclusive legal rights of authors, composers, playwrights, artists, and publishers
to publish and disperse their work as they see fit
(3) trademarks: design and names by which merchants or manufacturers designate and

differentiate their products

Protection of intellectual property
(1) World Intellectual Property Organization
(2) Paris Convention for the Protection of Industrial Property

What is product safety and liability?

Product safety laws: standards to which a product must adhere
Product liability: holding a firm and its officers responsible when a product causes injury death, or
damage (the firm has to decide whether to adhere to home or host country standards)

What determines a country’s level of economic development?

(1) Gross National Income per person

(2) Purchasing Power Parity (adjusting GNI)

Amartya Sen: economic development should be seen as a process of expanding the real freedoms
that people experience -> Human Development Index based on life expectancy, education, and
average income to meet the basic needs of life

How does political economy influence economic progress?

Innovation and entrepreneurship are crucial to economic growth but require a market economy
and strong property rights. Thus, businesses are better off in democratic regimes

How do geography and education influence economic development?

favorable geography can engage in trade -> open to market-based economic systems
education promotes the workforce to be more productive

What is the nature of economic transformation? -> shift toward a market-based system involves:
(1) deregulation
(2) privatization: ownership to private investors

(3) creation of a legal system

What does the changing economy mean for managers?

(1) markets that were off-limits to Western business are now open
(2) firms may gain ‘first mover advantages’ (accrue to early entrants into a market)

(3) but potential risks are large: could be more costly, different product, workplace, pollution
standards, poor legal protection or property rights

Thus managers should consider:

(1) political risk: political forces might shape a business environment

(2) economic risk

(3) legal risk

Managing political risk ->

adaptation: incorporate risk into business strategies through
(1) partnerships

(2) localization
(3) development assistance
(4) insurance
information gathering: predict and manage risk

(1) current employees with relevant information

(2) agencies specializing in political-risk services

influence local politics
(1) lobbying
(2) corruption

How can managers determine a market’s overall attractiveness?

by balancing the
(1) benefits: economic scale, growth potential
(2) costs: corruption, infrastructure, legal cost

(3) risks: political, economic, legal

but mostly favor politically stable developed/developing countries that have free market systems

and no dramatic upsurge in inflation or private sector debt

4: Ethics in International Business

Ethics: accepted principles of right or wrong that govern the conduct of a person, members of a

profession, actions of an organization

Business ethics: “ of business people

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

The most common ethical issues in business:

(1) employment practices

(2) human rights

(3) environmental regulations
(4) corruption

(5) the moral obligation of multinational companies

How are ethics relevant to employment practices? -> degree of work condition standards

How are ethics relevant to human rights? -> basic human rights (association, speech, assembly,
movement) taken for granted in developed countries

How are ethics relevant to environmental regulations? -> are multinationals permitted to pollute
in developing countries because there are no regulations against it? What about the ‘tragedy of
the commons’?
How are ethics relevant to corruption?
Foreign Corrupt Practices Act – prohibited bribes

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

adopted by OECD (makes it a criminal offense)

But what if multinationals pay officials facilitating payments if doing so creates local income and
jobs?

How are ethics relevant to moral obligations?

Social responsibility: the idea that managers should consider the social consequences of economic
actions when making business decisions, and that there should be a presumption in favor of
decisions that have both good economic and good social consequences
Noblesse oblige: honorable and benevolent behavior that is the responsibility of successful

companies. But, are multinationals required to do so?

What are ethical dilemmas?

Ethical dilemmas: situations in which none of the available alternatives seems ethically acceptable
ethical dilemmas of multinationals are toward employment conditions, human rights, corruption,
environmental pollution, and the use of power are not always clear cut

Why do managers behave unethically?

(1) personal ethics: the generally accepted principles of right and wrong governing the conduct of

individuals (expatriates may violate because they are far away from their social context)
(2) decision-making processes: the values and norms that are shared among employees of an

organization (organization should emphasize business culture for ethical behavior)

(3) organizational culture: reinforce the need for ethical behavior

(4) unrealistic performance expectations: encourage managers to cut corners

(5) leadership: establish the culture of an organization (and set an example)

What are the philosophical approaches to ethics?

(1) Straw men approaches deny the value of business ethics or apply the concept in an
unsatisfactory way
(2) others approaches are favored by moral philosophers and are the basis for current models of
ethical behavior

What are the Straw men approaches to business ethics?

(1) Friedman doctrine: increase profits as long as the company stays within the rules of law
(2) Cultural relativism: ethics are culturally determined (When in Rome, do as the Romans do)
(3) Righteous moralist: home country standards of ethics should be followed everywhere
(4) Naïve immoralist: if a manager sees that firms from other nations aren’t complying with ethical

norms in a host nation, it shouldn’t neither

What are utilitarian and Kantian approaches to ethics?

Utilitarian ethics: the moral worth of actions or practices is determined by their consequences
(actions are desirable if they lead to the best possible balance of good consequences over bad)

Kantian ethics: people should be treated as ends and never purely as means to the ends of others

What are Rights theories?

Rights theories: human beings have fundamental rights and privileges which transcend national

boundaries and cultures (minimum level of morality shall exist -> Universal Declaration of Human
Rights)

What are justice theories?

they focus on the attainment of a just distribution of economic G&S

John Rawls argued that all economic G&S should be distributed equally except when an unequal
distribution would work to everyone’s advantage (impartiality is guaranteed by the veil of

ignorance-everyone is imagined to be ignorant of all his or her particular characteristics)

How can managers make ethical decision?

(1) hire and promote people with a well grounded sense of personal ethics (to refrain from acting

unethically, prior to taking their position)

(2) build an organizational culture that places a high value on ethical behavior (strong emphasis
on ethical behavior – code of ethics)
(3) leaders within the business articulate the rhetoric of ethical behavior and act in a manner that
is consistent with that rhetoric
(4) develop moral courage (to walk away from an unethical decision)
(5) put decision making processes in place that require people to consider the ethical dimension

of business decisions (decision can be communicated and accepted)

To adopt that, managers can use a 5 step process to think through ethical problems:

(1) identify which stakeholders decision would affect internal (who work for) and external
(someone who have claim) stakeholders
(2) determine whether a proposed decision would violate the fundamental rights of any
stakeholders
(3) establish moral intent: place moral concerns ahead of other concerns in cases where either the
fundamental rights of stakeholders or key moral principles have been violated
(4) engage in ethical behavior

(5) audit decisions and review them to make sure that they are consistent with ethical principles

What is an ethics officer?

(1) employees are trained in ethics
(2) ethics is considered in the decision-making process

(3) code of conduct is followed

5: Economies of ‘Established and Emerging Markets’

In a centrally planned economy, the government owns most land, factories, and other economic
resources and plans all economic activity where:
(1) welfare of the group is paramount

(2) economic and social equality is the goal

(3) communist system is needed

Decline of central planning

(1) failed to create economic value

(2) to provide incentives

(3) achieve rapid growth

(4) satisfy consumers’ needs

In market economy: private parties own most land, factories, and other economic resources and
exist on the supply (producers) and demand (buyers) principle

+ Laissez-faire economics: less government interference in business:

(1) free choice: alternative purchase options

(2) free enterprise: firms choose products and markets

(3) price flexibility: supply and demand

Government’s role in the market economy:

(1) enforce anti-trust laws

(2) preserve property rights
(3) provide fiscal and monetary stability

(4) preserver political stability

Talking about (4), it encourages businesses to engage in activities without fear or disrupted future
operations to
(1) promote economic growth
(2) reduce worries of political risk

(3) improve chances for business survival

8 dimensions and measures for Market Potential Index:

(1) market size (25%)
(2) market intensity (15%)

(3) market growth rate (12.5%)

(4) market consumption capacity (12.5%)
(5) commercial infrastructure (10%)
(6) market receptivity (10%)
(7) economic freedom (7.5%)

(8) country risk (7.5%)

(economic freedom and wealth have a positive correlation)

Economic development: economic well-being of one nation’s people relative to another nation’s
people on 3 criteria:

(1) economic output of agricultural, industrial, and service

(2) infrastructure (communications, transportation, and power)

(3) people (physical health and education level)

Productivity = ratio of ( outputs / inputs )

National production: GDP is the value of G&S that a nation produces during a one-year period

(GNP = GDP = international), but it has problems:

(1) overlook certain transaction
(2) ignore economic growth rates
(3) averages can disguise regions
(4) may ignore purchasing power

Classifying countries
(1) developed country: highly industrialized, highly efficient, and whose people enjoy a high

quality of life
(2) emerging market: newly industrialized countries + those with potential to be newly
industrialized
(3) newly industrialized country: recently greater national production and exports form industrial
operations
(4) developing country: poor infrastructure and extremely low personal income

Economic transition: fundamental reorganization of an economy and the creation of new free-

market institution, which include:

(1) reduce budget deficits and expand credit
(2) allow the price mechanism to determine prices and economic activity

(3) legalize private firms and privatize state-owned assets within a property rights framework
(4) remove barriers to trade and investment and eliminate currency controls

Obstacles to transition:

(1) lack of managerial expertise

(2) capital shortage
(3) environmental degradation =
(4) cultural changes

6: The Strategy of International Business

Strategy: the actions that managers take to attain the goals of the firm

Firms need to pursue strategies that increase profitability and profit growth
- profitability: the rate of return the firm makes on its invested capital
- profit growth: the percentage increase in net profits over time
(1) add value
(2) lower costs
(3) sell more in existing markets
(4) expand internationally

How is value created?

Value creation: the difference between the price the firm can charge for that product given
competitive pressures (V) - the costs of producing that product (C) , price per unit (P)
V-P=consumer surplus per unit / P-C=profit per unit sold / V-C=value created per unit

Profits can be increased by

(1) a differentiation strategy: adding value to a product so that customers are willing to pay more
for it
(2) a low cost strategy

Strategic positioning
Michael Porter: firms need to choose either differentiation or low cost, and then configure internal
operations to support the choice. To maximize profitability, firms should
(1) pick a viable position on the efficiency frontier
(2) configure internal operations to support that position
(3) have the right organizational structure in place to execute the strategy

How is a firm’s operations configured?

operation: a value chain composed of a series of distinct value-creation activities
value creation activities:
(1) primary activities: R&D, production, marketing and sales, customer service
(2) support activities: information system, logistics, HR

How can firms increase profits through internal expansion?

(1) expand their market
(2) realize location economies: locate where they can perform most efficiently and effectively
(3) realize greater cost economics from experience effects: serve an expanded global market from
a central location
(4) earn a greater return: leverage skills developed in foreign operations and transfer them
elsewhere in the firm

How do firms leverage their products and competencies?

firms can increase growth by selling G&S developed at home internationally, which depends on
(1) the G&S they sell
(2) their core competencies-skills within the firm that competitors cannot easily match

Why are location economies important?

: economies that arise from performing a value creation activity in the optimal location, which
results in a low cost position or differentiation. If successful, it creates a global web of value
creation activities

Why are experience effects important?

The experience curve: systematic reductions in production costs that occur over the life of a
product
Learning effects: cost savings that come from learning by doing
Economies of scale: the reductions in unit cost achieved by producing a large volume of a
product, including
(1) spreading fixed costs over a large volume
(2) utilizing production facilities more intensively
(3) increasing bargaining power
How can managers leverage subsidiary skills?
(1) recognized that valuable skills that could be applied elsewhere in the firm can arise anywhere
within the firm’s global network
(2) establish an incentive system that encourages local employees to acquire new skills
(3) have a process for identifying when valuable new skills have been created in a subsidiary
(4) act as a facilitator to help transfer skills within the firm

Types of competitive pressures that exist in the global marketplace

(1) pressures for cost reduction: to lower unit costs
(2) pressures to be locally responsive: to adapt its product to meet local demands – a strategy
that raises costs

When are pressures for cost reductions greatest? (1)

(1) industry producing universal needs where price is the main competitive weapon
(2) when major competitors are based in low-cost locations
(3) where there is persistent excess capacity
(4) where consumers are powerful and face low switching costs

When are pressures for local responsiveness greatest? (2)

(1) differences in consumer tastes and preferences
(2) differences in traditional practices and infrastructure
(3) differences in distribution channels
(4) differences in government demands

Great integration versus local responsiveness

pressures for global integration:
(1) globalization of markets for cost reduction
(2) efficiency gains of standardization
pressures for local responsiveness
(1) consumer divergence
(2) host government policy

Thus, the integration responsiveness grid: (x,y)

Y-axis: industry pressure for global integration
- low: standardized and central control are useful but not necessary cross international
operations
- high: standardization and central control are imperative across international operation
X-axis: industry pressure for local responsiveness
- low: adaptation and decentralization are unnecessary to sell generic products to similar
 markets
- high: adaptation and decentralization are needed to sell customized products to differing
markets

(low, low) = international: uses existing core competence to exploit opportunities in foreign
markets

(high, low) = multidomestic: relies on foreign subsidiaries operation as autonomous units to

customize products and processes for local markets

(low, high) = global: views the world as a single market. Tightly controls global operation from HQ
to preserve focus on standardization

(high, high) = trans-national: prefers a flexible value chain to facilitate local responsiveness.
Adopts complex coordination mechanism to facilitate global integration