Post on 16-Apr-2015
IBM 2702 International Business Environment
Chapter 1 Globalization
Globalization refers to the shift toward a more integrated and interdependent
world economy.
Globalization of market: the merging of historically distinct and separate
national markets into one huge global marketplace.
o It has been argued for some that the taste and preference of
consumer in different nation are beginning to converge on some
global norm.
o It create global product.
Globalization of production: the sourcing of goods and services from
locations around the globe to take advantage of national differences in
the cost and quality of factor of production (such as labor, energy, land,
and capital).
Drivers of Globalization
Declining trade and investment barriers
o International trade occurs when firm exports goods or services to
consumers in another country.
o Foreign direct investment (FDI) occurs when a firm invests
resource in business activities outside its home country.
o Lower barriers to international trades then firm will increase
export and import so the market will be a single market.
The role of technological change
o Microprocessors and telecommunications
o Internet and world wide web
o Transportation technology
Globalization debate
Globalization , jobs and income
o Protest:
Globalization destroy manufacturing jobs in wealthy
develop nations.
Income inequality between skilled and unskilled labor in
develop nations.
o Support:
Countries specialize in production of goods that they can
produce efficiently.
Import goods that produce inefficiently cheaper.
Labor policies and the environment
o Protest :
Free trade leads to increase pollution and exploit the labor
of less developed nation.
o Support :
Growth rate and income of developing country is increasing
and tougher environment and labor law.
Globalization and nation sovereignty
o Protests:
Globalization limits nation’s ability to control its own
destiny
It shift economic power away from national government
and toward supranational organization
o Support:
WTO and UN exist to serve the collective interest of
members
If they fail to serve collectives, member-state will withdraw
support and thy will collapse.
Globalization and the world’s poor
o Protests:
Globalization is widening gap in income between rich and
poor nations.
o Supports:
Reason for economic stagnation of poor nation
Suffered from totalitarian government
Rapidly expanding population
Highly indebted poor countries
Chapter 2 National differences in political economy
Political system is the system of government in a nation.
Collectivism and individualism
o Collectivism
A political system that emphasizes collective goals over
individual goals.
Need of society as a whole are more important than
individual freedom.
Individual rights should be sacrificed for the good of
majority.
Property should be owned in common(No private property)
Socialism is a political philosophy advocating substantial
public involvement, through government ownership, in the
means of production and distribution.
1. Communist: socialism can be achieved only though
revolution and totalitarian dictatorship.
2. Social Democrats: those committed to achieving
socialism by democratic means.
o Individualism
Emphasis on the important of guaranteeing individual
freedom and self-expression
The welfare of society is best served by letting people
pursue their own economic interest
Interest individual should take precedence over the
interests of the state
Private property is more highly productive than communal
property
Democracy and totalitarianism
o Democracy is a political system in which government is by the
people, exercised either directly or through elected representative
Pure democracy: all citizens directly involve in political
decision making
Representative Democracy:
1. Citizens periodically elect individuals to present them
2. Elected representatives from a government, to make
a decisions on the behalf of electorate
An Ideal Representative Democracy in constitutional law
1. An individual’s right to freedom expression, opinion
and organization
2. A free media
3. Regular election
4. Universal adult suffrage
5. Limited terms for elected representatives
6. A fair court system that is independent from the
political system
7. A nonpolitical state bureaucracy
8. A nonpolitical police force and armed services
9. Free access to information
o Totalitarianism
Communist Totalitarianism: A version of collectivism
advocating that socialism can be achieved only though a
totalitarian dictatorship
Theocratic Totalitarianism: A political system in which
political power is monopolized by a party, group, or
individual that governs according to religious principles.
Tribal Totalitarianism: A political system in which a party,
group, or individual that represents the interests of a
particular tribe (ethnic group) monopolizes political power.
Right wing totalitarianism: A political system in which
political power is monopolized by a party, group, or
individual that generally permits individual economic
freedom but restricts individual political freedom, including
free speech, frequently on the ground that it would lead to
the rise of communism.
Economic system
1. Market economy
o All productivities activities are privately owned
o Demand and supply determines price and quantity produced
o Purchasing patterns of consumers determine what is produced
and in what quantity
o Supply must not be restricted(no monopoly exists)
o Role of government: encourage free and fair competition between
private producers.
o Free market system is more likely in individualism country
2. Command economy
o All productivities activities are state owned
o Government plans: what the goods and services that a country
produces, quantity and price
o Economy where collective goals are dominant
3. Mixed economy
o Some sectors of economy are private ownership while some
others have state ownership
o Number of mixed economies in the world today is falling due to
poor state-own enterprise management
o Government tend to take over troubled firms that are considered
to be vital to national interest
Legal system: Refer to the rules, or law, that regulate behavior
Processes by which the laws of a country are enacted &
enforced
Through which redress for grievances is obtained
Three types of legal system
1. Common law
Originated in England, it is used in U.S. legal system
Based on tradition precedent and usage
Common law system is flexible
Business contracts tend to be lengthy because they must consider
the many possible contingencies that can arise
2. Civil law
Civil law based on a detailed set of written rules and law that
organizes into a code
Less adversarial than common law
Less flexibility
Found in over 80 countries, including Germany, France, Japan, and
Russia
3. Theocratic law
Based on religious teachings
Three prominent theocratic legal system are Islamic, Hindu, and
Jewish law
Property right and corruption
Property: a resource that an individual or business owns
Property right: legal rights over the use and made of any income that may be
derived from that resource
Property rights can be violated in two ways
1. Private action
Theft, piracy, blackmail, and the like by private individuals or
groups
2. Public action
Public officials export income or resources from property holders
i. Excessive taxation
ii. Requiring expensive licenses or permits from property
holders
iii. Expropriation: taking assets into state ownership without
compensating the owners
iv. Corruption: demand bribes from businesses
Protection of intellectual property
Intellectual property
o Property that is the product of intellectual activity
Intellectual property rights
o Patent: Give in inventor of a product or process exclusive rights to
the manufacture, use, or sale of that invention for a define period
o Copy right: Exclusive legal right of authors composers,
playwrights, artists, and publisher to publish and dispose of their
work as they see fit
o Trademarks: designs and names, often officially registered, by
which merchants or manufacturers designate and differentiate
their products
Product safety and product liability
Product safety laws
o Set certain safety standards to which a product must adhere, ex.
Health
Product liability law
o Holding a firm and its officers responsible when a product causes
injury, death, or damage
o Liability laws are usually least extensive in less developed
countries
Determinants of economic development
Gross national income (GNI) per head of population
o Measures the total annual income received by a nation’s residents
o Yardstick for measuring economics growth
o GNI per person can be misleading because they don’t consider
differences in cost of living
A purchasing power parity(PPP)
o Adjustment GNI to reflect difference in cost of livings in different
country
o Not only GNI &PPP must consider growth rates also
Human development index (HDI)
o Measurement the quality of human life in a different countries
o UN creates HDI based on 3 factors
Life expectancy
Education attainment
Average income
Nature of economic transition
1. Deregulation
Removing legal restrictions on the free play of markets
Private enterprises are permitted
Removing price control
Removing barriers on foreign direct investment & international
trade
2. Privatization
Transfers the ownership of state property into the hands of
private investors
The sales of state assets through an auction
Private investor are motivated by potential profit to increase
productivity
For privatization to work, it must also be with deregulation and
opening economy
3. Legal system
Require law that protects property rights
Private mechanisms for contract enforcement
Chapter 3 differences in culture
What the culture?
Culture is a system of values and norms that are shared among a group
of people and that when taken together constitute a design for living
Collective programming of the mind which distinguishes the member of
one group to another
Society is a group of people who share a common set of values and
norms.
o Value
Abstract idea about what a group believes to be good,
right, and desirable
Values from the bedrock of culture
Values can affect attitudes toward political and economic
system
Value provide the context to establish a society’s norms
o Norms
The social rules and guidelines that prescribe appropriate
behavior in particular situations
Folkways: Routine conventions of everyday life like
dress codes, social banner, and neighborly behavior.
: Violation of folkways are not to a serious matter,
but can have a negative effect on business
Mores
o Norms that is central to functioning of a society
and its social life.
o Much greater significant than folkways
o Violating mores can bring serious retribution
ex. Indictment against theft, adultery
o In many societies, mores may be enacted to
become laws
The determination of culture
Political
Economic philosophy
Social structure
Religion
Language
Education
Social structure
1. Individual and group
a. Individual
i. western countries emphasize the individual achievement
ii. benefit: high level of entrepreneurship innovation
iii. harmful: lack of loyalty and commitment, difficult to build
work team group, no cooperation
b. Group
i. An association of two or more individuals who have a share
sense of identify
ii. Interact with each other on the basis of a common set of
expectations about each other’s behavior
iii. Group-oriented is common in many Asian societies, such as
japan
iv. Benefit: high level of cooperation & teamwork
2. Social stratification
: Social strata is hierarchy social categories based on family background,
occupation and income
Two dimension of society
Degree of social mobility
o The extent to which individuals can move out the strata into
which they are born
o Castes system: closed and most rigid system stratification.
Social position is determined by the family into which a
person is born. Can’t change in that position.
o Class system: open and less rigid system. The position a
person has by birth can be changed through achievement or
luck. Social mobility is possible.
Significance of social stratification for business
o Depend on class consciousness: a condition where people
tend to perceive themselves in term of their class
background
o Highly class conscious : less mobility, greater class conflict,
high antagonism between labor and management
o lower class conscious: encourage mobility, less conflict
3. Religion & ethical system
a. Religion
i. A system of shared beliefs and rituals that are concerned
with the realm of the sacred
b. Ethical systems
i. A set of moral principles, or value that are used to guide
and shape behavior
ii. Ethical practices are often closely intertwined with religion
4. Language
a. Spoken language
i. Include both spoken and written vocabulary.
ii. Language shapes the way people perceive the world
b. Unspoken language
i. Hand gestures
ii. Facial expressions
iii. Physical greetings
5. Education
a. Medium through which individuals learn many of language,
conceptual, and mathematical skills
b. Benefit of high education: high skilled workers, higher
productivity, higher economic growth
Hofetede framework
1. Power distance
a. How society deal with the fact that people are unequal in physical
and intellectual capabilities
b. High: inequality in power and wealth, High distance between
supervisor and subordinates
c. Low: greater equality
2. Individualism versus collectivism
a. Focus on relationship between the individual and his or her
follows
b. Individual
i. Ties between people are loose
ii. Individual achievement and freedom
iii. Hard work, faster innovation
c. Collectivism
i. Ties between people are tight
ii. Work toward collective goal
iii. Feel strong association to group
3. Uncertainty avoidance
a. The extent to which the members can accept ambiguous situation
and tolerate uncertainty
b. High: value job security, retirement benefits and strong need for
rules and regulations, lower employee turnover
c. Low: great readiness to take risk and change, innovation &
entrepreneurship
4. Masculinity versus femininity
a. Masculinity: sex roles are sharped differentiated
b. Femininity: little differentiation between men and women in same
job, relax lifestyles
5. Long-term orientation
a. Confucian teaching affect attitude toward time and persistence
b. High: strong long –term business relationship
c. Low: think about present status only
i. Protection of face
ii. Respect for tradition
iii. Reciprocation of gifts
Implication for international business
Cross cultural literacy
o An understanding of how cultural differences across and within
nations can affect the way in which business practiced
o Should be developed
o Doing business in different cultures require adaptation to conform
with value & norm of that culture
o Company may employ local managers
Ethnocentricity
o Belief that one’s own culture is superior to that of others
o Often result in disregard or contempt for the culture of other
countries
o Should be avoid
Chapter 4 ethics in international business
Ethical issues in international business
1. Employment practice
a. Wage, working hours, and working environment
b. Ethical question: when working conditions in a host nation are
poorer to those in a multinational’s home nation, what standard
should be applied?
Home (b) host (c)something in between
It depends on your ethic
2. Human right
a. Basic human rights still are not respected in many countries
b. Human rights such as freedom of speech, freedom of assembly,
freedom of movement, and so on
c. Those are taken for granted in developed countries, but are not
universally accepted
d. Ethical question: Is it ethical for MNE to do business in nation that
violates human right?
e. MNE can be a force of political and social progress that ultimately
improves the right of people in regressive regime.
3. Environmental pollution
a. Arise when environmental regulations in host nations are far
inferior to those in the home nation.
b. Ethical question: should MNE feel free to pollute in a developing
nation to have cost advantage?
4. Corruption
a. Ethical question: Is it ethical to make payments to foreign
government officials to gain economic advantage?
b. Foreign corrupt practices act
Outlawed the payment of bribes to foreign government
officials in order to gain business
But allow for facilitating payment=grease payment=speed
money
It is not payments to receive contracts or to obtain
preferential treatment
They are payments to ensure receiving the standard
treatment
c. Convention on combating bribery of foreign public officials in
international business transactions
Adopted by the organization for economic cooperation
and development
Obliges member states to make the bribery of foreign
public officials a criminal offense
Exclude facilitating payments made a expedite routine
government action are allowed
5. Moral obligation
a. Ethic question: should MNE have a responsibility to give
something back to the societies that made them grow and
prosper
b. Social responsibility
Idea that business people should take the social
consequences of economic actions into account when
making business decisions
Successful business need to know noblesse oblige and give
something back to society
Focus on managerial implications
What then is the best way for managers in a multinational firm to make sure
that ethical considerations figure into international business decisions?
1. Hiring and promotion
a. Favor hiring and promoting people with well-grounded sense of
personal ethics
b. Hire people who have a strong sense of personal ethics
c. Should not promote those who have displayed poor ethic
d. Prospective employee should find out as much as they can about
the ethical climate in an organization
2. Organization: build an organizational culture that places a high value on
ethical behavior by
a. Business must explicitly articulate values that place a string
emphasis on ethical behavior
i. Code of ethics: a formal statement of the ethical priorities a
business adheres to
b. Leader should give life and meaning to the code of ethics
c. Business should put in place a system of incentives
3. Leadership
a. Make sure that leaders within the business not only articulate the
rhetoric of ethical behavior
b. But also act in manner that is consistent with that rhetoric
4. Decision making process
a. Require people to consider the ethical dimension of business
decisions
Five step manager need to
1. Identify which stakeholder a decision would affect and in what
way
a. Internal stakeholders: people who work own the
business include all employees, the board of directors,
and stockholder
b. External stakeholders: the individuals or group who have
some claim on firm include customer, suppliers, lender,
government, union and general public
c. Moral imagination: stand in shoes of a stakeholder and
ask how a proposed decision might impact the
stakeholder
2. Determine whether a proposed would violate the fundamental
rights of any stakeholders
3. Establish moral intent: business must resolves to place moral
concerns ahead of other concerns
4. Company should engage in ethical behavior
5. Audit decision: business should review decision to ensure that
they were consistent with ethical principle
5. Develop moral courage
Employees in an international business may need
significant moral courage
Manager need to be able to walk away from decisions that
are profitable, but unethical
Employees need to be able to say no action that are
unethical
Chapter5 international trade theory
Free trade
A situation where a government does not attempt to influence
international trade
No tariffs & quotas
Citizens can guy from another country sell to another country freely
International trade theory
I. Mercantilism
a. An economic philosophy advocating that countries should
simultaneously encourage exports and discourage imports
b. Government intervention to achieve a surplus in the balance of
trade.
c. Recommended policies to maximize exports and minimize
imports.
d. Imports were limited by tariffs and quotas, while exports were
subsidized.
e. The flaw with mercantilism was that it viewed trade as a zero-sum
game.
f. A zero sum game is one in which a gain by one country results in a
loss by another
II. Absolute advantage
a. A country has an absolute advantage in the production of a
product when it is more efficient than any other country in
producing it.
b. This trade is a zero-sum game
c. Countries should specialize in the production of goods for which
they have an absolute advantage and then trade these for goods
produced by other countries
III. Comparative advantage
a. Occur when a country can produce a good with lower opportunity
cost than other
b. Comparative advantage arises from differences in labor
productivity
c. Comparative advantage is also positive sum game
d. Even a country does not have absolute advantage in any product,
both countries can benefit from trade.
Qualifications and assumptions
1. We have assumed a simple world in which there are only two countries
and two goods. In the real word, there are many countries and many
goods.
2. We have assumed away transportation costs between countries.
3. We have assumed away differences in the prices of resources in
different countries.
4. We have assumed that resources can move freely from the production
of one good to another within a country. In reality, this is not always the
case.
5. We have assumed constant return to scale; units of resources required
to produce a good are assumed to remain constant.
6. We have assumed that each country has a fixed amount of resource,
resources can’t move between countries.
7. We have assumed away the effects to trade on income distribution
within a country.
Heckscher-Ohlin theory
They argued that comparative advantage arises from differences in
national factor endowment
By factor endowments they meant the extent to which country is
endowed with such resource as land, labor, and capital.
The more abundant a factor, the lower cost
They predicts that countries will export those goods that make
intensive use of factors that are locally abundant, while importing
goods that make intensive use of factors that are locally scarce.
The Leontief Paradox
The United States was relatively abundant in capital compared to
other nations; the United States would be an exporter of a capital-
intensive goods and importer of labor-intensive goods.
He found that U.S. exports were less capital intensive than U.S.
imports
One possible explanation in that the United States has a special
advantage in producing new products or goods made with innovative
technologies.
The product life-cycle theory
A country will begin by exporting its product and later undertake
foreign direct investment as the product moves through its life cycle
and eventually become its import.
Raymond Vernon initially proposed the product life-cycle theory.
Vernon argued that wealth and size of the U.S. market gave U.S. firm
a strong incentive to develop new consumer products.
Over time, demand for the new product start to grow in other
advanced countries.
As it does, it becomes worthwhile for foreign producers to begin
producing for their home markets.
U.S. firms might set up production facilities for those advanced
countries where demand is growing.
As the market in the United States and other advanced nations
matures, the product becomes more standardized, and price
becomes the main competitive weapon.
The cycle by which the United States lost its advantage to other
advanced countries might be repeated once more, as developing
countries.
New trade theory
1. Increasing product variety and reducing cost
Economies of scale: unit cost reductions associated with a large
scale of output.
Ability to spread fixed cost over a large volume
Volume of production is higher :specialization is increase : cost per
unit will be decrease
2. Economies of scale (EOS) and first mover advantage
Economic and strategic advantages accruing to the first(early) to
enter the market
Ability to capture EOS ahead of later entrant
First movers can create a barrier to entry
Country can dominate in the export of certain goods because
I. EOS are important
II. World market is not large enough to support many firms
III. Firms located in countries where the first to capture EOS
Implications of new trade theory
I. Nation may benefit from trade even when they do not differ
in resource endowments or technology.
II. A country may predominate in the export of good simply
because it was lucky enough to have one or more firms
among the first to produce that good.
National competitive advantage
Explain why a nation achieves international success in particular industry
Attributes of a nation shape the environment in which local firm
compete
These attributes promote or impede competitive advantage
Porter’s diamonds
o Factor endowments: a nation’s position in factor of production
such as skilled labor or the infrastructure necessary to compete in
a given industry.
o Demand condition: the nature of home demand for the industry’s
product or service.
o Relating and supporting industries: the presence or absence of
supplier industries and related industries that is internationally
competitive.
o Firm strategy, structure, and rivalry: the conditions governing how
companies are created, organized, and managed and the nature
of domestic rivalry
Focus on managerial implications
I. Location
a. Difference countries have advantages in different productive
activities
b. Influence a firm’s decision about where to locate productive
activities
c. A firm should disperse its productive activities to those countries
where they can be performed most efficiently
II. First mover advantage
a. Firm that establish a first-mover advantage in the production of a
new product may later dominate global trade in that product
b. A firm can invest resources in trying to build first mover advantage
c. Even if it means losses for a few years before a venture becomes
profitable
III. Government policy
a. Business can exert a string influence on government policy
b. Lobbying to promote free trade or trade restriction
c. Business should urge government to
i. Increase investment in education, infrastructure, and basic
research
ii. Adopt policies that promote strong competition within
domestic market.
Chapter 6 The Political Economy of International Trade
Instruments of trade policy
I. Tariffs is a tax levied on imports
a. Specific tariff: a tariff levied as a fixed charge for each unit of good
imported.
b. Ad valorem tariff: a tariff levied as a proportion of the value of an
imported good.
II. Subsidy is a government payment to a domestic producer.
a. Cash grants, low-interest loan, tax break, and government equity
participation in domestic firm.
b. Help domestic producer in two ways
i. Competing against foreign imports
ii. Gaining export markets
Import quotas and voluntary export restraints
Import quota is a direct restriction on the quantity of some good that
may be imported into a country.
Tariff rate quota is the process of applying a lower tariff rate to imports
within the quota than those over the quota.
Voluntary export restriction is a quota on trade imposed by the
exporting country, typically at the request of the importing country’s
government.
Quota rent is the extra profit producers make when supply is artificially
limited by an import quota.
Local content requirements
A requirement that some specific traction of a good be produced
domestically.
Administrative policy
Bureaucratic rules designed to make it difficult for import to enter a
country.
Antidumping policy
Dumping is selling goods in a foreign market at below their costs of
production or below their fair market value.
Antidumping policy is designed to punish foreign firms that engage in
dumping and thus protect domestic producers from unfair foreign
competition.
The case for government intervention
Political arguments for intervention
o Protecting job & industry from unfair foreign competition.
o National security
It is necessary to protect certain industries because they are
important for national security.
It is dangerous to rely primarily on foreign producers.
Limit export to other nations
o Retaliation
Argue that government should use the threat to intervene
in trade policy as a bargaining tool to help open foreign
markets.
And force trading partners to play by the rule of the game.
o Protecting consumers
Argue that government use trade policy to protect
consumers from unsafe products.
Government should limit or ban import of unsafe product
o Furthering foreign policy objective
Government used trade policy to support their foreign
policy objective.
Government may grant preferential trade terms to a
country which it wants to build strong relations
Trade policy also is used to pressure or punish rouge states
that do not abide by international law.
o Protecting human rights
Government used trade policies to improve human rights
for trading partners.
o Protect environment
Suggests the relationship between income levels and
pollution is not a linear one.
It is argued that government should place tariff on import
goods from countries where environmental regulation are
lax.
Economic arguments for intervention
o Infant industry argument
New industries in developing countries must be temporarily
protected from international competition to help them
reach a position where they can compete on world markets
with the firms of developed nations.
o Strategic trade policy
Government policy aimed at improving the competitive
position of a domestic industry or domestic firm in the
world market.
The revised case for free trade
Retaliation and trade war
o Strategic trade policies are beggar-thy-neighbor policy
o That boosts national income at the expense of other countries.
o Using trade policies may provoke retaliation
o Result a trade war: all countries will worse off than if a hands off
approach.
Domestic policy
o Government do not always use trade policies for national interest
o They can be influenced by special interest groups.