chapter Globalization and international business

1. What factors are contributing to the growth of global business? discuss.

1. Increase in and Expansion of Technology
2. Liberalization of Cross-Border Trade and Resource Movement
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

2. What are the limitations of globalization?

A. Threats to National Sovereignty
Many citizens fear that a country's participation in multilateral agreements will diminish its
sovereignty and freedom from external control and curtail its ability to act in its own best interests. In
particular, people in small countries worry that dependence on larger countries for sales and/or
supplies, as well as the presence of large international firms, will make them vulnerable to the
demands of parties against which they are essentially powerless. In, addition, people the world over
are concerned that globalization will bring the homogenization of products and traditional ways of
life-including language and social structure.
B. Economic Growth and Environmental Stress
Clearly, economic growth can result in both positive and negative consequences, including damage to
society and the environment. While globalization can, in fact, support the sustenance of natural
resources and the maintenance of an environmentally sound planet unless the positive consequences of
globalization keep pace with the negative costs of economic growth, the sustainability of economic
improvement on a worldwide basis will, at best, be problematic.
C. Growing Income Inequality
Offshoring, the process of shifting domestic production to a foreign, country for the purpose of serving
the home market at a reduced cost, speeds up the process of altering the relative economic
discrepancies between the two countries involved.

3. Briefly discuss the various ways of doing global business.

A. Merchandise Exports and Imports
Merchandise exports consist of tangible (visible) products, i.e., goods that are sent to a foreign country
for use or resale. Merchandise imports consist of tangible products, i.e., goods, brought into a country
for use or resale.
B. Service Exports and Imports
Service exports and imports represent intangible (invisible), i.e., non-merchandise, products.
1. Tourism and Transportation. When an American flies to Paris on Air France and stays in a
French-owned hotel, payments made to the airline and the hotel represent service export earnings
(income) for France and service import payments (expenses) for the United States.
2. Service Performance. Some services, such as banking, insurance, rental, engineering,
turnkey operations (construction, performed under contract, of facilities that are transferred to the
owner when they are ready for operation), and management contracts (arrangements in which one firm
provides personnel to perform“ management functions for another), net companies export earnings in
the form of fees paid by foreign client.
3. Asset Use. Firms may receive export earnings," i.e., royalties, by allowing foreign clients to
use their assets (trademarks, patents, cop rights, and other expertise). Licensing agreements are
contracts that represent a transaction in which licensor sells the rights to the use of its intellectual
property to a licensee in exchange for a fee or royalty. Franchising is a special form of licensing in
which the franchisee is granted additional, control over the operation in exchange for the provision of,
additional support and services by the franchisor.
C. Investments
Foreign investment consists of the ownership of foreign property for the purpose of realizing a
financial gain via profits, growth, dividends, and/or interest.
 1. Direct Investment. Foreign direct investment (FDI)\occurs-when-.an investor gains a
controlling interest in a foreign operation. A joint venture represents a direct investment in which two
or more parties share ownership of an FDI.
2. Portfolio Investment. Portfolio investment is a non-controlling interest-in a venture made in
the form of either debt or equity. Often, firms use portfolio investment as part of their short-term
financial strategy.
D. Types of International Organizations
There are numerous forms of collaborative arrangements through which companies work together
internationally, such as minority ownership, licensing agreements, management contracts, or other
long-term contractual arrangements.

4. Why international business is different from local business?

A. Physical and Social Factors
1. Geographic Influences. The uneven distribution of resources results in different opportunities being
located in different parts of the world. In addition, geographic barriers affect transportation,
communications, and distribution channels within a country. Finally, the probability of natural
disasters and adverse climatic conditions make it riskier to invest and operate in some countries than
others.
2. Political Policies. Politics often determine where and how international business takes place because
of the influence of government leaders over the process.
3. Legal Policies.” While every nation" has its own body of business law, agreements
between/amongst-nations determine international law. Domestic business law may include regulations
on home-country firms in both home and host countries regarding such matters as taxation,
employment, and foreign-exchange transactions. International law may also determine how and
whether firms can ‘operate in certain locales.
4. Behavioral Factors. , By studying the disciplines of anthropology, psychology, and sociology,
managers can better understand the interpersonal norms of people in foreign countries and the reasons
why operating procedures may need to be adjusted in foreign locales.
5. Economic Forces. Among other things, economics explains why countries exchange goods and
services, why capital and people travel among countries in the course of business, and why one
country's currency has a certain value compared to another. It also provides the analytical tools to
determine the impact of foreign operations on home and host countries, as well as the effect of a
country's economic policies and conditions upon domestic and foreign firms.
B. The Competitive Environment
The global competitive environment varies both by industry and by country.’ Likewise, a company’s
competitive situation may differ in terms of its relative strength and in terms of which competitors it
faces from one country to another. Thus, a firm's competitive strategy directly influences how and
where it can operate most effectively. A firm’s competitive strategy for products will usually involve
competing on the basis of price or differentiation. Company resources and experience influence choice
of strategy, and competitors faced in each market may alter overall global strategy.

The cultural environments facing business

1. What issues are commonly use in satisfying a society?
Every culture in some way values some people more than others.
1. Ascribed and Acquired Membership
People fall into social stratification systems according to group memberships that, in turn, determine a
person’s degree of access to economic resources, prestige, employment, social relations, and power.
Ascribed group memberships are defined at birth and are based on characteristics such gender, family,
age, caste, and ethnic, racial, or national origin. Acquired group memberships are based on one’s
choice of affiliations, such as political party, religion, and professional organizations. Social
stratification affects both business strategy and operational practices.
2. Performance Orientation.
Some nations base a person’s eligibility for jobs and promotions primarily on competence, but in
others, competence is of secondary importance. In more egalitarian (open) societies, the less difference
ascribed group membership makes, but in more closed societies, group membership may dictate one’s
access to education and employment. Further, social obstacles and public opinion in a firm's home
country may also affect its practices abroad.
3. Open and Closed Societies
The more egalitarian, or “open," a society, the less importance of ascribed membership in determining
rewards. In some cases, ascribed group membership may deny certain group opportunities, while
promoting the interests of other groups. Opposition to certain group may come from other workers,
customers, local stockholders, or government officials.
4. Gender-Based Groups.
Strong country-specific differences exist in attitudes toward the roles of males and females in society
and the workplace, as well as the types of jobs regarded as ”male” or ”female." . However, in some
parts of the world, barriers employment based on gender are easing. in addition, as the composition of
jobs become less physical and more creative and/or technical, the relative demand for female
employee is also increasing.
5. Age-Based Groups.
Many cultures assume that age and wisdom are correlated; thus, they often have a seniority-based
system of advancement. In others, there is an emphasis on youth, particularly in the realm of
marketing. Often there is a mandatory retirement age in business, but not in politics.
6. Family-Based Groups
In some societies, family membership is more important than individual achievement. Where there is
low trust outside the family, such as in China and southern Italy, small family run companies are
generally quite successful, but they often have difficulty expanding beyond the family.
7. Occupation
In every society certain occupations are perceived as having greater economic value and social
prestige than others; although many such perceptions are universal, there are significant differences in
national and cultural attitudes about the desirability of specific occupations, as well as the willingness
to accept the risks of entrepreneurship, rather than work as an organizational employee.

2. Why does individual level of motivation varies from culture to culture?

1. Materialism and Motivation.
Countries differ in their degree of materialism. In some societies, such as Japan and the United States,
people desire less leisure time than others, such as much of Europe. Sociologist Max Weber claimed
that predominantly Protestant Western economies were the most economically developed because of
their emphasis on hard work land investment.
2. Expectation of Success and Reward.
Although the- same tasks performed in different countries will have different probabilities of success,
different rewards for success, and different consequences for failure, people will usually work harder
at any task when the reward for success is greater than the consequence of failure. The greatest
enthusiasm for work exists when high uncertainty of success is combined with the likelihood of a very
positive reward for success and little or none for failure.
3. Assertiveness: The Masculinity-Femininity Index.
Hoftsede’s, study of managers from more than fifty countries defines a person who ranks high on the
masculinity-feminity index as someone who admires the successful achiever, has little sympathy for
the unfortunate, and prefers to be better than others. Such a person believes that that it is better ”to live
to work" than ”to work to live.”
4. Hierarchies of Needs.
Maslow’s hierarchy of needs states that people will try to fulfill lower-order physiological needs
before satisfying (in order) their security, affiliation, esteem, and self-actualization needs.
3. Why do individual level of risk taking behavior varies from culture to culture?
Nationalities differ in their attitudes toward risk-taking, i.e., how willingly people accept things the
way they are and how great their need for control of their destinies.
1. Uncertainty Avoidance.
Hofstede’s study describes uncertainty avoidance as one's tolerance of risk. When the score is high,
workers need precise directions and the prospect of long-term employment, while consumers are wary
about trying new products. When the score is low, workers are willing to be creative and to move to
new jobs, while consumers accept the risk of being the first to try new products.
2. Trust.
Trust represents one’s belief in the reliability and honesty of another. Where trust is high, there tends
to be a lower cost of doing business because managers devote less time to investigation and oversight
and more to innovation and investment.
3. Future Orientation.
Individuals who tend to live for the present as opposed for the future see risks in delaying gratification
and investing for the future. Where future orientation is higher, workers will more likely be motivated
by types of delayed compensation, such as retirement programs.
4. Fatalism.
Fatalism represents the belief that life is predestined, that every event is inevitable, that occurrences
represent ”the will of God.” unlike those who believe strongly in self-determination and basic case-
and-effect relationships.

4. Why do individual level of information and task processing behavior varies from culture to
culture?
People from different cultures obtain, perceive, and process information in different ways; thus, they
may also reach different conclusions.
1. Perception of Cues
People perceive cues selectively. They identify things by means of their senses (sight, smell, touch,
taste, sound) and in various ways within each sense. The particular cues used will vary both for
physiological and cultural reasons (e.g., differences in eye pigmentation enable some to distinguish
colors better than others; the richer and more precise a language, the better one's ability to express
subtleties).
2. Obtaining Information: Low-Context versus High-Context Cultures.
Language represents a culture’s primary means of communication. In a low-context culture, people
rely on explicit, first-hand information that bears directly on a decision or situation; people say what
they mean and mean what they say. In a high-context culture, people rely on implicit, peripheral
information and infer meaning from things communicated indirectly; relationships are very important.
3. Information Processing.
All cultures categorize, plan, and. quantify, but the ordering and classification systems ‘used often
vary. In monochronic cultures (e.g., northern Europeans)-people prefer to work sequentially, but in
polychronic cultures (e.g., southern Europeans) people are more comfortable working on multiple
tasks at one time. Likewise, in some cultures people focus first on the whole and then on the parts;
similarly, some cultures will determine principles before they try to resolve small issues (idealism),
whereas other cultures will focus more on details rather than principles (pragmatism).

5. What are the difference strategies to deal with cultural difference?

Once a company identifies cultural differences in the foreign countries in which it operates, must it
alter its customary practices? Can individuals overcome adjustment problems when working abroad?
A. Accommodation
If products and operations do not run counter to deep-seated attitudes, or if the host country is willing
to accept foreign customs as a trade-off for other advantages, significant adjustments may not be
required.
B. Cultural Distance: Usefulness and Limitations
Cultural distance represents the degree of similarity between two Societies. Countries may be
relatively similar to one another because they share the same language, religion, geographical location,
ethnicity, and/or; level of economic development.
C. Culture Shock:
Culture shock represents the trauma one experiences in a new and different culture because of having
to learn to cope with a vast array of new cues and expectations. Reverse culture shock occurs when
people return home, having accepted the culture encountered abroad and discovering that things at
home have changed during their absence.
D. Company and Management Orientations
Whether and to what extent a firm and its managers adapt to foreign cultures depends not only on the
conditions within those cultures but also on the policies of the-company and the attitudes of its
managers.
1. Polycentrism. Polycentrism represents a managerial approach in which foreign operations
are granted a significant degree of autonomy, in order to be responsive to the uniqueness of local
cultures and other conditions.
2. Ethnocentrism. Ethnocentrism represents a belief that one’s own culture is superior to
others, and that what works at home should work abroad. Excessive ethnocentrism may lead to costly
business failures.
3. Geocentrism. Geocentrism represents a managerial approach in which foreign operations are
based on an informed knowledge of both home and host country needs, capabilities, and constraints.

6. What are the ways of instituting of cultural change in an organization?

1. Value systems. The more that change upsets important values, the more resistance it will encounter.
Accommodation is much more likely when changes do not interfere with deep- seated customs.
2. Cost Benefit of Change. Some adjustments to foreign cultures are "costly to undertake, but their
benefits are only marginal. The expected cost-benefit of any change must be carefully considered.
3. Resistance to Too Much Change. Resistance to change may be reduced if only a few demands are
made at one time; others may be phased in incrementally.
4. Participation. A proposed change should be discussed with stakeholders in advance in order to ease
their fears of adverse consequences-and perhaps gain their support.
5. Reward Sharing. A company may choose to provide benefits for all the stakeholders affected by a
proposed change in Ohio gain support for it.
6. Opinion Leaders. Characteristics of opinion leaders often vary by country. By discovering the local
channels of influence, an international firm may seek the support of opinion leaders to help speed the
acceptance of change.
7. Timing. Many good business changes fail because they are ill-timed. Attitudes and needs change
slowly, but a crisis may stimulate the acceptance of change.
8. Learning Abroad. The essence for undertaking transnational practices is to capitalize on diverse
capabilities by transferring learning among all the countries in which a firm operates.

1. What is supply chain? 5 steps in supply chain. Flow and objectives of supply chain.
Supply chain of a product consist of all the parties who are directly or indirectly involved in
satisfying the need of the customer.
5 steps in supply chain
Supplier, Manufacturer, Distributor, Retailer, Consumer.
Flow of supply chain:
Product flow, fund flow, information flow.
The objective of every supply chain is to maximize the overall value generated. The value a
supply chain generates is the difference between what the final product is worth to the customer and
the effort the supply chain expends in filling the customer’s request. For example: a customer
purchasing a computer from Dell pays $ 2000, which represents the revenue the supply chain receives.
Supply chain profitability is the total profit to be shared across all supply chain stages. The higher the
supply chain profitability, the more successful the supply chain. Supply chain success should be
measured in terms of supply chain profitability and not focus on profitability at individual stage.
2. Distinction between effective supply chain and responsive supply chain?
Efficient Responsive
Primary goal Lowest cost Service max
Product design strategy Use those design that ensure Use those design that ensure
lower cost maximum utility
Pricing strategy Lower profit margins Higher profit margins

Manufacturing strategy Full capacity using for Use flexible capacity to ensure
minimum cost higher service
Inventory strategy Only cycle Buffer + cycle
Lead time strategy Try to reduce but not at expense Aggressively reduce even if
of cost costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Rely on efficient modes Rely on fast modes

3. Characteristics of high implied demand uncertainty product.

Attribute High implied Uncertainty Low implied Uncertainty
Product margin High Low
Average forecast error High 40% to 100% Low 10%
Average stock out rate High 10% to 40% Low 1% to 2%
Average markdown rate High 10% to 25% Low 0%