iba 250 exam 1

International Business

Performance of trade and investment activities by firms across national borders

Globalization of Markets

Ongoing economic integration and growing interdependency of countries worldwide

International Trade

Exchange of products and services across national borders; typically, through exporting and importing

International Investment

Transfer of assets to another country or the acquisition of assets in that country

International Portfolio investment

passive ownership of foreign securities such as stocks and bonds, to generate financial returns

4 Risks of doing international business

Cross cultural, Country Risk, Currency (financial Risk), Commercial Risk

Types of cross cultural risks

cultural differences, negotiation patterns, decision making styles, ethical practices

Cross Cultural Risk

- cultural differences, negotiation patterns, decision making styles, ethical practices

- risk arising from differences in language, lifestyle, attitudes, customs, and religion, where a cultural miscommunication or misunderstanding puts some human value at stake

Negotiation patterns

Negotiations are required in many types of business transactions.

EX: where Mexicans are friendly and emphasize social relations, Americans are assertive and get down to business quickly

Decision-Making Styles

Managers make decisions continually on the operations and future direction of the firm. For example, Japanese take considerable time to make important decisions: Canadians tend to be decisive, and "shoot from the hip".

Ethical Practices

Standards of right and wrong vary considerably around the world. For example, bribery is relatively accepted in some countries in Africa, but is generally unacceptable in Sweden

Country Risk

harmful or unstable political system, laws, and regulations unfavorable to foreign firms, bad legal system, corruption, govnt intervention

country risk examples

1. The U.S. imposes tariffs on imports of sugar and other agricultural products.

2. Doing business in Russia often requires paying bribes to government officials.

3. Venezuela's government has interfered much with the operations of foreign firms.

4. Argentina has suffered high inflation and other economic turmoil

Currency or financial Risk

General risk of unfavorable exchange rate fluctuations

Commercial Risk

Firms potential loss or failure from poorly developed or executed business strategies, tactics, or procedures

Types of Firms that participate in International Business:

Multinational Enterprise (MNE), small and medium sized enterprise, born global firm, nongovernmental organization

-Multinational Enterprise: MNE

a large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries (Samsung and Disney)

Small and medium sized enterprise: SME

typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries. SMEs increasingly engage in international business

Born global firm:

a young, entrepreneurial SME that undertake substantial international business at or near its founding

Nongovernmental organizations:

many of these non-profit organizations conduct cross-border activities. They pursue special causes and serves as advocates for social issues, education, politics, and research

Why do firms internationalize? (9)

1. Seek opportunities for growth through market diversification

2. Earn higher margins and profits

3. Gain new ideas

4. Serve key customers that have relocated abroad

5. Be closer to supply sources

6. Gain access to lower cost

7. Develop economies of scale

8. Confront international competitors more effectively or thwart the growth of competition in the home market

9. Invest in a potentially rewarding relationship with a foreign partner

Driving forces of market globalization?

1. Worldwide reduction of barriers to trade and investment

2. Market liberalization and adoption of free trade (ex: China)

3. Industrialization, economic development, and modernization

4. Integration of world financial markets

5. Advances in technology

Why are there Worldwide reduction of barriers to trade and investment

to ensure that trade flows as smoothly, predictably, and freely as possible

why is Industrialization, economic development, and modernization a driving force in market globalization

These trends transformed many developing economies from producers of low-value to higher-value goods, such as electronics and computers

why is Integration of world financial markets a driving force in market globalization

Enables firms to raise capital, borrow funds, and engage in foreign currency transactions wherever they go, Banks now provide a range of services that facilitate global transactions

Dimensions of Market Globalization?

1. Integration and interdependence of national economies

2. Rise of regional economic integration blocs

3. Growth of global investment and financial flows

4. Convergence of buyer lifestyles and preferences

5. Globalization of production activities

6. Globalization of services

Firm-Level consequences of market globalization?

- Countless new business opportunities for internationalizing firms

- New risks and intense rivalry from foreign competitors

- More demanding buyers who source from suppliers worldwide

- Greater emphasis on proactive internationalization

- Internationalization of firm's value chain

Societal level consequences of market globalization?

Contagion, Loss of national sovereignty, Offshoring and the flight of jobs, Effect on the poor, effect on natural culture and environment

What does Offshoring and the flight of jobs mean?

Jobs are lost as firms shift production of goods and services abroad, in order to cut costs and obtain other advantages

contagion

rapid spread of financial or monetary crises from one country to another

What culture is

the values, beliefs, customs, arts, and other products of human thought and work that characterize the people of a given society.

Socialization

the process of learning the rules and behavioral patterns appropriate to one's society

Acculturation

the process of adjusting and adapting to a culture other than one's own; commonly experienced by expatriate workers

Culture is NOT...

1. Right or wrong; it is relative

2. Not about individual behavior; but a collective phenomenon of shared values and meanings

3. Not inherited; but derives from a social environment; we acquire as we grow up

Dimensions of culture

Values, Attitudes, Perception of space, Perception of time

Value

Represent a person's judgement about what is good or bad, acceptable, or unacceptable, important, or unimportant, and normal or abnormal

Ex: Japan, NE: hard work, punctuality, and wealth

attitudes

Developed based on values, and are like opinion, except that attitude are often unconsciously held and may not have a rational basis

Perception of space

reflects each cultures orientation about personal space and conversational distance

Perception of time

dictates expectations about planning, scheduling, profit streams, and what constitutes tardiness in arriving to work and meetings

Monochronic:

a rigid orientation to time in which the individual is focused on schedules, punctuality, time as a resource, time is linear, time is money; EX: US

Polychronic:

a flexible nonlinear orientation to time in which the individual takes a long-term perspective; time is elastic, long delays are tolerated before taking action. Punctuality is unimportant relationships are valued; EX: Africa, Asia, LA

How culture affects international business

1. Managing employees

2. Communicating and dealing with distributors and other business partners

3. Negotiating and structuring business ventures

4. Developing products and services

5. Preparing advertising and promotional materials

6. Preparing for international trade fairs

7. Interacting with current and potential customers

Low context culture:

- rely on explicit explanations, with emphasizes on spoken words

- Emphasize clear, efficient, logical delivery of verbal messages

- Communication is direct

- Agreements are concluded with specific legal contracts

- EX: European and US

High context: nonverbal or indirect language

- Communication aims to promote smooth, harmonious relationships

- Prefer a polite, face-saving style that emphasizes a mutual sense of care and respect for others

- Care is taken not to embarrass or offend others

- EX: Chinese and Japanese

Managerial orientations toward culture

1. Ethnocentric orientation

2. Polycentric orientation

3. Geocentric orientation

Ethnocentric orientation:

using your own culture as the standard for judging other cultures

Polycentric orientation:

a mindset in which the manager develops a greater affinity for the country in which he or she works than for the home country

Geocentric orientation:

a global mindset in which the manager can understand a business or market without regard to national boundaries.

Managers should strive for a________

geocentric orientation

Guidelines FOR CULTURE

1. Acquire factual and interpretive knowledge about the other culture; try to speak their language

2. avoid cultural bias

3. Develop cross-cultural skills, such as perceptiveness, interpersonal skills, and adaptability

4. Self-reference criterion

5. critical incident analysis

Self-reference criterion:

the tendency to view other cultures through the lens of one's own culture

critical incident analysis

a method for analyzing awkward situations in cross cultural interactions by developing empathy for other points of view

Personality Traits for cross-cultural proficiency

- tolerance for ambiguity

- perceptiveness

- value personal relationships

- flexibility and adaptability

Relativism

the belief that ethical truths are not absolute but differ from group-to-group; according to this perspective, a good rule is, "When in Rome, do as the Romans do."

Normativism

is a belief that ethical behavioral standards are universal, and firms and individuals should seek to uphold them consistently around the world.

Corruption and its effects

- the practice of obtaining power, personal gain, or influence through illegitimate means, usually at others' expense

- bribery;

Benefits of good corporate governance

1. the system of procedures and processes by which corporations are managed, directed, and controlled

2. provides the means through which firms undertake ethical behaviors, CSR, and sustainability

3. implementing appropriate conduct is challenging for MNEs especially when operating in countries

4. a complicating factor is the use of third-party suppliers and contractors, some of whom may behave badly

5. more forms incorporate ethics and CSR into their mission, planning, strategy and everyday operations

5-step framework for ethical decision making

1. identify the problem

2. examine the facts

3. create alternatives

4. implement course of action

5. evaluate results

International Trade:

- the flow of goods and services between countries (imports and exports)

Free trade:

- the absence of restrictions to the flow of goods and services among nations

Trade theories:

- explanations for patterns of international trade

Comparative Advantage:

- superiors feature of a nation that provide unique benefits in global competition

Competitive advantage:

- assets and capabilities of a company that are difficult for competitors to imitate

- Example: Switzerland has a national competitive advantage in the manufacturing of watches

mercantilism:

a belief popular in the century that national prosperity results from maximizing exports and minimizing imports (EXPORTS>IMPORTS)

absolute advantage principle:

export what you can produce most efficiently with the fewest resources

comparative advantage principle:

relatively better or more efficient

BRAND AND ANGELINA EXAMPLE

factor productions theory:

each country should produce and export products that intensively use relatively abundant factors or production, and import goods that intensively use relatively scarce factors of production... the more abundant a factor, the lower its cost:

- Leonfix paradox challenges this

international product life cycle theory:

each product and its associated manufacturing technologies go through three stages evolution: introduction, maturity, and standardization

introduction:

- the inventor country enjoys a monopoly both in manufacturing and exports

- EX: the television set invented in the US

maturity:

the products manufacturing becomes relatively standardized, and mass produced, other countries start producing alternative versions and exporting the product

standardization:

manufacturing ceases in the original innovator country, and it becomes a new importer of the product

new trade theory

Argues that economies of scale are an important factor in some industries for superior international performance, even in the absence superior comparative advantages, some industries succeed best as their volume of production increases

Internationalization process model

1. Domestic Focus:

2. Pre-export stage:

3. Experimental involvement:

4. Active involvement:

5. Committed involvement:

Domestic Focus:

firms concern itself with home market; management may not be ready or willing to expand internationally

Pre-export stage:

partly due to international demand, management starts to consider the feasibility of expanding into international markets

experimental involvement:

firms begin limited release in international markets to rest success, usually through basic exporting

Active involvement:

as foreign expansion becomes more favorable, production expands; more commitment of resources and managerial time to achieve international success

Committed involvement:

commitment of resources in international markets becomes a key part of the firm's profits

Companies who internationalized over time

McDonald, Ikea, Coke, Samsung

Internalization theory

Explains how the MNE chooses to acquire and retain one or more value-chain activities inside itself (instead of outsourcing to external suppliers).

Which of the following is TURE with regard to competitive advantage?

A) Competitive advantages are typically derived from deliberate national policies.

B) A competitive advantage is difficult for competitors to imitate.

C) A competitive advantage is also known as a country-specific advantage.

D) Competitive advantage includes inherited resources, such as arable land.

B) A competitive advantage is difficult for competitors to imitate.

d) comparative advantage

When a country is not able to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good, it is said to have a(n) ________.

a) absolute advantage

b) resource advantage

c) first-mover advantage

d) comparative advantage

_____ is the belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports

a) Positivism

b) Imperialism

c) Communism

d) Mercantilism

d) Mercantilism

According to the ________, a country benefits by producing only those products in which it has complete advantage or that it can produce using fewer resources than another country.

a) absolute advantage principle

b) comparative advantage principle

c) factor proportions theory

d) international product cycle theory

a) absolute advantage principle