I.

GLOBAL ECONOMY

1. Global economy in which resource supplies, product markets, and business competit
ion are worldwide rather than local or national in scope.
2. Globalization is the growing interdependence among elements of the global
economy

 Globalisation is important because the flow affects jobs, salaries, income distribution
s, and so on.
3. World 3.0 is a world where nations cooperate in the global economy while still resp
ecting different national characters and interests.
4. The term used to describe management in businesses and organizations with interests
in more than one country is global management.
5. Global management will require global manager. The success of firms like these de
pends on being able to attract and hire truly global managers who have strong global
perspectives, are culturally aware, and always stay informed about international deve
lopments.
6. International businesses are businesses that conduct for-profit transactions of goods
and services across national boundaries, like Nike.

- Nike does no domestic manufacturing. All of its products are made from sources abroad

- New Balance makes use of global suppliers and licensing its products internationally, an
d produces at factories in the United States.

 Both are doing international businesses for these common reasons:

- Profits—Gain profits through expanded operations.
- Customers—Enter new markets to gain new customers.
- Suppliers—Get access to materials, products, and services.
- Labor—Get access to lower-cost talented workers.
- Capital—Tap a larger pool of financial resources.
- Risk—Spread assets among multiple countries.
7. There would be 2 approaches:
a. Market-entry strategies that involve the sale of goods or services to foreign markets
without expensive investments
b. Direct investment strategies require major capital commitments, create rights of own
ership and control over operations in the foreign country

Market entry strategies are the first steps in globalizing an organization:

- Global sourcing—the process of purchasing materials, manufacturing components,

or locating business services around the world.
- Exporting—selling locally made products in foreign markets.
- Importing—buying foreign-made products and selling them in domestic markets.
- Licensing agreement whereby foreign firms pay a fee for rights to make or sell anot
her company’s products in a specified region.
- Franchising is a form of licensing in which the foreign firm buys the rights to use an
other’s name and operating methods in its home country.

Direct investment strategies:

- Foreign direct investment, or FDI, involves setting up and buying all or part of a bu
siness in another country. And the ability to attract foreign business investors has bee
n a key to succeeding in the global economy -> insourcing is job creation through
DI.
- When foreign firms invest in a new country, a common way to start is with a joint ve
nture. This is a co-ownership arrangement in which the foreign and local partners ag
ree to pool resources, share risks, and jointly operate the new business. It can be a
part ownership of the local organization or both can join together to have a new
operation.
- International joint ventures are types of global strategic alliances in which foreign a
nd domestic firms work together for mutual benefit. Both gain their own benefits.
- A foreign subsidiary is a local operation completely owned and controlled by a fore
ign firm. Or a company operating overseas that is part of a larger corporation with
headquarters in another country, often known as a parent company or a holding
company.
o The difference between a foreign subsidiary and a joint venture is that subsidiary is o
perated as a completely foreign-owned enterprise while a joint-venture company is
owned by both foreign investors and at least one domestic investor.
- Greenfield ventures where it is built from constructing all facilities from start by
the foreign owner. You open a business in a new market without the help of another
business which is already present there. It has advantages of high level of control
over business operations and image, High level of quality control over the
manufacturing and sale of products, and be able to create jobs for the economy
where the greenfield investment is taking place. However, this is the riskiest form of
foreign direct investment with potentially high market entry cost, Government
regulations and high fixed cost.

II. GLOBAL BUSINESS ENVIRONMENT

1. Legal and Political Systems

Some of the biggest risk in international business comes from differences in legal and po
litical systems. Global firms are expected to abide by local laws, some of which may
be unfamiliar.
Political risk—the potential loss in value of an investment in or managerial control over
a foreign asset because of instability and political changes in the host country. The m
ajor threats of political risk today come from terrorism, civil wars, armed conflicts, a
nd new government systems and policies.

Most global firms use a planning technique called political-risk analysis to forecast the p
robability of disruptive events that can threaten the security of a foreign investment.

2. Trade Agreements and Trade Barriers

When international businesses believe they are being mistreated in foreign countries, or
when local companies believe foreign competitors are disadvantaging them, their res
pective governments might take the cases to the World Trade Organization.

Yet trade barriers are still common. They include

- Tariffs, which are taxes that governments impose on imports.

- Nontariff barriers that discourage imports in nontax ways such as quotas, import re
strictions.
- Protectionism that give favorable treatment to domestic businesses.
 The purpose for tariffs and protectionism is to protect local firms from foreign comp
etition and save jobs for local workers.
3. Regional Economic Alliances: nations agree to work together for economic gains.
4. Global Businesses
a. Host-Country Issues

- Potential host-country costs are: complaints that global corporations extract excessiv
e profits, dominate the local economy, interfere with the local government, do not res
pect local customs and laws, fail to help domestic firms develop, hire the most talent
ed of local personnel, and fail to transfer their most advanced technologies.

b. Home-Country Issues
- Global corporations can also get into trouble at home in the countries where they wer
e founded and where their headquarters are located.
- Even as many global firms try to operate as transnationals, home-country governmen
ts and citizens still tend to identify them with local and national interests.
- Whenever a global business cuts back home-country jobs, or closes a domestic opera
tion in order to shift work to lower-cost international destinations, the loss is controv
ersial.
- Corporate decision makers are likely to be called upon by government and communit
y leaders to reconsider and give priority to domestic social responsibilities.
5. Ethics Challenges for Global Businesses
- Corruption: occurs when people engage in illlegal practices to further their personal
business interests.
- Child Labor and Sweatshops:
o Child labor—the employment of children to perform work otherwise done by adults,
a major ethics issue for global businesses as they follow the world’s low-cost manuf
acturing from country to country
o Sweatshops—business operations that employ workers at low wages for long hours i
n poor working conditions

III. CULTURE AND GLOBAL DIVERSITY

- Culture is the shared set of beliefs, values, and patterns of behavior common to a gr
oup of people.
- Culture shock is the confusion and discomfort a person experiences when in an unfa
miliar culture.
- Ethnocentrism, a tendency to view one’s culture as su- perior to that of others.
- Cultural intelligence, the ability to adapt and adjust to new cultures.
1. The silent language of culture:
a. Context: cultures differ in their use of language in communication.

Most communication in low-context cultures takes place via the written or spoken word:
say or write what they mean and mean what they say.

In high-context cultures what is said or written may convey only part of the real messag
e. The rest must be interpreted from the situation, body language, physical setting, an
d even past relationships.

b. Time

People in monochronic cultures often do one thing at a time. It is common in the United
States, for example, to schedule meetings with specific people and focus on a specifi
c agenda

Members of polychronic cultures are more flexible toward time. They often try to work
on many different things at once, perhaps not in any particular order, and give in to d
istractions and interruptions

c. Space

Proxemics, the study of how people use space to communicate.

2. Tight and Loose Cultures

The concept of cultural tightness-looseness:

(1) the strength of norms that govern social behavior, and

(2) the tolerance that exists for any deviations from the norms.

3. Values and National Cultures

5 cultural dimensions: power distance, uncertainty avoidance, individualism–collectivism,

and masculinity

1. Power Distance is the extent to which power inequality is accepted by society. Even
though unequal distribution of power happens in many countries, cultures are not
harmonious in terms of public acceptance.
2. Individualism – Collectivism is whether an individual value is perceived with a
social system or their achievements. Individualism is individuals taking personal
interest over the purpose of the group.
3. Uncertainty Avoidance describes the tolerance of uncertain events. Culture with high
uncertainty avoidance dimension tends to minimize the unknowns with formal
regulations and principles.
4. Masculinity – Femininity refers to society's dominant value. Masculinity underlines
achievements, assertiveness and valuable materials while Femininity stresses the
importance of equality and relationships between individuals.
5. Long-term Orientation and Short-term Orientation how every society has to maintain
some links with its own past while dealing with the challenges of the present and
future.