D080 - Managing in a Global Business Environment

Human Capital

Education & Skills of workers.

Gini Coefficient

Measures inequality among values of a frequency distribution such as levels of income.

Capitalism

Economic system in which the means of production is owned and controlled privately.

Planned (Economy)

Gov't/state directs & controls economy and decision-making for production.

Gross Domestic Product (GDP)

Total value of goods & services provided in a country annually.

Gross National product (GNP)

Total value of goods & services provided by a country, inside and outside borders, annually.

Balance of Payments

Difference in total value between payments into and out of the country over a period of time.

Flat World (Friedman)

Use of tech and internet has made it easier f/businesses to conduct global operation.

Fixed-Rate Currency Exchange System

International Monetary Fund (IMF) primary purpose; A country's currency value is fixed against the value of another currency or value

Triffin Paradox

Conflict of economic interests between the short-term goals of the country and long-term goals of the international community.

Special Drawing Right (SDR)

International monetary reserve asset. Value of the five of IMF's most important members' currencies. US $, British pound, Japanese Yen, Chinese Renminbi, and Euro. Renewed every 5 yrs

Privatization

Selling gov't holdings to private orgs.

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

First time an agreement covered services, intellectual property rights, and trade-related investment measures.

Free-Trade

International trade left to its natural course without tariffs, quotas, or restrictions.

Harmonized Tariff Schedule (HTS)

US Tariff schedule.

Quotas

• Absolute: Limits imports by volume

• Tariff-Rate: Stratified tariff rate based on import volume

Autarky

A political or economic system that becomes self-sufficient to survive.

Colonialism

Policy or practice of acquiring full or partial political control over another country to exploit it economically.

Foreign Direct Investment (FDI)

An investment in or the acquisition of foreign assets with the intent to control and manage them.

Portfolio Investment

An investment in another country is purely financial and does not involve any mgmt responsibility. Intent to diversify risk.

Dividend Repatriation

The returning of earnings from foreign subsidiaries to their parent companies back in the home country.

Market Capitalization

Total $ value of a company's outstanding shares of stock.

Special Duty-Free Processing Zone

Offer tax breaks for new investors.

Preferential Tariff

A tariff that is lower for some nations than others.

Foreign Exchange Market

The market in which people use one currency to buy another currency.

Exchange Rate Regime

The way in which an authority manages its currency in relation to other currencies and the foreign exchange market.

Managed Float Regimes

Flexible Exchange Rate where banks attempt to influence countries' exchange rates through buying & selling currencies.

Antitrust Laws (aka Competition/Antimonopoly Laws)

Consumer protection policy used to limit unfair business practices related to competition and control of prices. Force companies to operate efficiently, keep prices down, and keep quality up.

Collective Environment

Common understanding that the environment belongs to everyone and is shared responsibility.

Sweatshop

Factory that is guilty of some sort of labor abuse or violation such as unsafe working conditions, employment of children, mandatory overtime, payment of less than the minimum wage.

Vertical Structure of Law

Law structure where those at the top govern those at the bottom.

Horizontal Structure of Law

Law structure where neither party is in a legally dominant position over the other. Applicable to global business among nations.

UN Convention on Contracts for International sale of Goods (CISG)

UN treaty that applies to the international sales of commercial goods. Creates international uniform law akin to US' UCC. Provides gap-fillers, terms unstated in contract.

Choice of Law Clause

Specifies which law & jurisdiction will apply to disputes arising under the contract.

Open Government Info Regulations

Chinese regulation (2008) that establishes limited rules for gov't info disclosure and public participation.

Power Distance

Hofstede's six dimensions of national culture. Describes how formal and authority-focused a society is. Acceptance of unequal distribution of power and status.

Grease Payments

Business practice of paying small inducements in order to expedite decisions and transactions.

Discrepancies

Accounting errors that occur unintentionally.

Irregularities

Misrepresentations of accounting data with the intention to defraud.

Conglomerates

Large corpos made up of several combined companies through mergers or takeovers.

Subsidiaries

Companies owned or controlled by a parent company.

Flat vs Tall Structure

Flat has many employees per supervisor with fewer layers. Tall has fewer employees per supervisor and more layers.

Value Chain

Process by which a company adds value to a product, such as production, marketing, and service.

Cultural Agility

Ability to understand multiple local contexts and work within them to obtain consistent business results.

Primary vs Secondary Sources

Primary is a source of information while secondary is used to derive interpretations or context.

Balance Sheet Approach

Employees on home country salary structure. Allocate separate allowances based on country assigned to.

Supply Chain Networks

Complex, evolved form of a SC that includes secondary support and multiple interrelated supply and distribution lines.

Country-of-Origin Effect

Effect the consumer's perception or opinion of the country where a product is made has on consumer's perception or opinion of the product itself.

Globalization

Worldwide interconnections in virtually every sphere of activity including spread of products, tech, information, and job opportunities.

International Monetary Fund (IMF)

Major UN financial agency and international financial institution with HQ in DC.

• Created: 4 fundamental aspects of globalization

  • Trade and transactions, capital and investment movements, migration of people, dissemination of knowledge

• Impacted: by environmental challenges

Investment Movements

Migration of people & dissemination of knowledge.

Cultural Globalization

Transmission of ideas, meanings, and values around the world in a way that intensifies social relations.

Political Globalization

Process of increasing the political interrelations and integration of different nations, or individuals across the globe.

• Nongovernmental organizations: Influence public policy across national boundaries, including humanitarian aid and developmental efforts.

Economic Globalization

Widespread, international movement of goods, capital, services, and technology, and information.

General Agreement on Tariffs and Trade (GATT)

International agreement to promote international trade by reducing or eliminating trade barriers such as tarrifs or quotas.

International Bank for Reconstruction and Development (World Bank)

International org that provides financing, advice, and research to developing nations to help advance their economies.

International Business

Full range of cross-border exchanges of goods, services, or resources across two or more nations.

Five Stages of Going Global

• Stage 1 - Market Entry -: Enter new countries using existing business models in home markets.

• Stage 2 - Product Specialization -: Full production process to a single low-cost location and export goods to markets.

• Stage 3 - Value Chain Disaggregation -: Production process is disaggregated and each activity is completed in the most advantageous location.

• Stage 4 - Value Chain Reengineering -: Reengineering processes to suit local market conditions towards lower cost labor for capital.

• Stage 5 - Creation of New Markets -: Market expansion through lowered prices to attract demand and expand.

Market Drivers

Create potential for an industry to become global, increasing viability.

• Market: Market demand for standardized offerings.

• Cost Globalization: Economies of scale & scope.

• Competitive: Industry characteristics.

• Gov't: Trade policies, standards, regulations, subsidization.

Globalizaiton Benefits

Increased sales volume, growth in GDP, and empowerment (individual & govt). Higher levels of revenue or lower cost structure.

Globalization Barriers

• Ethical Business Practices: Labor, product safety, environmental stewardship, corruption, regulatory compliance. Inequality in countries & lobbying by foreign large organizations.

• Org Structure: Capital cost + strategic business units.

• PR: Localizing message and determining expenditures.

• Leadership: Each area requires unique skills.

• Legal & Regulatory Structure

• Infrastructure: Roads, bridges, water supply, sewage, electrical grids, telecomms.

• Tech: Training workers, transportation systems, lack of reliable internet.

CAGE Analysis

Study barriers to cross-border economic activity.

• Culture: Differences can reduce economic exchanges.

• Admin: Administrative similarities conducive to trade.

• Geography: Inverse relationship with trading.

• Economics: Differences in demographic & socioeconomic conditions. Country size differences.

Political System Effects on Globalization

Countries can regulate/enforce that companies abide by their rules and regs.

Economic System Effects on Globalization

Divided in three categories:

• Industrialized Nations: Healthy climate for private businesses and customer orientation. High literacy rates, modern tech, higher per capita incomes.

• Less-developed Nations (LDCs): Extensive poverty, low per capita income and standards of living, low literacy rates and minimal tech. Weak gov't and financial systems. Focus on agriculture & production of raw materials.

• Developing Nations: Transitioning from agricultural to industrialized economies. Rising education levels, tech, and per capita incomes.

Traditional Economy (Haiti, Bhutan)

Oldest form; Use of passed-on methods; Very little evolution/growth.

• Centered around family/tribe; Tradition.

• Hunter-gatherer societies or nomads.

• Relies on bartering.

• Members produce what they need with no surplus.

• Economy evolves to some form of currency.

• Pros: Little/no friction, hierarchical positions, sustainable.

• Cons: Mercy of climate, low standards of living, vulnerable to more efficient market.

Command Economy (Venezuela, Cuba, NK)

Resources & businesses owned by the gov't. Access to a valuable natural resource raises likelihood.

• Collective/state ownership of capital. Little to not private ownership.

• State determines inputs/outputs.

• Labor (jobs) allocated (to people) according to state plans.

• Private ownership impossible.

• Prices regulated by state without regarding costs of production.

• Pros: Orgs can mobilize large amounts of resources without legal repercussions or regulations. Economy transformed based on leader's vision.

• Cons: Neglect of needs, production unrelated to demand, innovation is stifled, black markets/shadow economies, inflexible to change.

Market Economy (US)

Goods & services distributed acc. to supply & demand. Influenced by customers; Decentralized.

• Privately owned goods with rights

• Freedom to create, sell, purchase

• Private profits

• Competition regulates prices

• Efficient market dictates economy

• Minimum government interference

• Pros: Production based on demand; Efficiency drives productivity & profits; Innovation; Investments.

• Cons: Demographics may be at disadvantage; Educational barriers; Divide between classes.

Mixed Economy (Sweden, Norway)

• Borrows characteristics from other economies.

• Pros: Distribution based on demand; Innovation; Gov't intervention.

• Cons: Restricted competition due to Gov't; Debt; too much/little freedom.

Legal System Effects on Globalization

Country's enforcement agencies and scope of operations.

Main Legal Systems

• Civil Law: Rooted in Roman legal tradition, based on set of laws that constitute a code and focus on application to the facts. Rarely uses jury.

• Common Law: Based on traditions and precedence, traceable to English monarchy. Found in 80% of countries including US. Judge decides applicable law in concordance with jury. Louisiana follows a Mixed Law system while the US follows a Common Law system.

• Religious/Theocratic Law: Islamic Law (Sharia), Jewish Halacha, Talmudic law, Christian Canon system, Customary

Bretton Woods Institutions

The International Monetary Fund and World Bank

International Monetary Fund (IMF)

Stability of international monetary system. "Surveillance" - oversees the international monetary & financial system and monitors economic & financial policies of member countries. Helps solve debt issues/trade deficits through short-term loans.

World Bank

Help w/post-WWII Euro reconstruction. Promote economic and social progress in developing countries by raising productivity. Provides low-interest rate long-term loans.

Similarities Between IMF and World Bank

• Owned and directed by the governments of member nations

• Almost every country on earth is a member of both institutions

• Both concern themselves with economic issues

• Both focus on broadening and strengthening the economies of their member nations

• Hold joint annual meetings

• Headquartered in Washing DC, USA

• Share joint task forces, sessinos and research efforts

World Bank Traits

• Encourages developing countries to borrow for development projects

• Developmental institution

• Finances reconstruction after wars in the 1940s. It is now focused on supporting developing coutnries

• Large: 40 offices, over 10,000 staff

• Investment bank owned by the government of the 180 member nations

• Borrows and loans

• Borrowers must meet requirements to qualify for loans

IMF Traits

• Oversees the international monetary system

• Cooperative institution

• In phase one, prior to 1973, regulated international exchange rates

• In phase two, post-1973, provides a means for effective international currency exchange, supervises economic policies, and provides financial assistance to members

• Small: 2,300 staff members

• Resources come from quota subscriptions or membership fees

• Acts more like a credit union

• Loans to all member nations

IMF Conditionality

Alternative to collateral, loans are conditional on country correcting its financial practices.

• Prior actions verify country has a stable financial foundation.

• Quantitative performance criteria are specific and measurable conditions a country must complete.

• Indicative targets are quantitative targets used to measure a country's progress in meeting IMF's requirements.

• Structural benchmarks are non-quantitative measures such as social safety nets.

IMF Criticism

Over-loaning funds to countries with human rights violations; Rich countries determining IMF policies are influenced by corporations; Country's loss to govern its economy; Inconsistent policy decision-making; Environmental exploitation; Reduces funding for social programs through privatization or deregulation.

World Bank Group

• International Finance Corporation (IFC)

• Multilateral Investment Guarantee Agency (MIGA)

• International Centre f/Settlement of Investment Disputes (ICSID)

• International Bank f/Reconstruction and Development (IBRD)

• International Development Association (IDA)

World Bank Criticism

• Hegemony/Power Imbalance; US citizen must be a leader of IMF (sensitive issue).

• Enforced conditionality causing harm.

• Hurt the poor & help corporations.

• Funding projects' impact on environment.

World Trade Organization (WTO)

Evolved from GATT in 1995, created after WWII to encourage international trade by creating mechanism to negotiate agreements.

• Purpose: International trade moderator, enforcing rules and reviewing gov't trade policies for fairness & transparency. Decrease tariff rates and protect trade of goods, services, and intellectual property. Can also provide Antitrust Law support for nations. Enforces TRIPS between members.

World Trade Organization (WTO) Functions

• Oversee Agreements: Implementation & admin of trade agreements for covered nations. Covers goods, services, and intellectual property.

• Transparency: WTO members must publish, undergo review, and notify changes of trade regs.

• Provide Outreach: Aid in transparency by maintaining open dialogue with nongov't agencies, media, public.

• Settle Disputes: Provide forum f/negotiations.

• Ensure Non-discrimination: Most-favored-nation (MFN) requires that a WTO member apply the same terms & conditions to all other WTO members.

Uruguay Agreement (Round) of 1994

Signed by 148 nations, largest global trade agreement ever. Reduced worldwide tariffs from 22 to 5%. Created TRIPS

WTO Criticism

• Compromise of national sovereignty due to regulation review by WTO.

• Prohibition of tariff protections supports developed countries to the detriment of developing nations.

• MFN can trade domestically with subsidiaries and avoid tariffs.

• Labor rights protections may inhibit nations' advantages of cheap labor.

• Accused of ignoring environmental concerns.

• Inability to restrict trade w/countries with weak labor standards and weak green laws degrades overall standards.

Mercantilism

Earliest economic theories, stating a country's wealth is determined by the amount of gold and silver in possession. Encouraged exports and discouraged imports to create trade surplus. May utilize gov't subsidies.

Protectionism

Theory/practice of protecting a country's domestic industriest from foreign competition by taxing imports. Can protect jobs in an industry using tariffs and quotas.

Neo-Mercantilism

Countries promote combination of protectionist policies and restrictions and domestic industry subsidies.

Absolute Advantage

A country has an absolute advantage if it can create a good using fewer resources. No gov't regulation or restriction. Determines Specialization.

Comparative Advantage

The ability to produce a good/service at the lowest opportunity cost. Comparative advantage & Specialization increase total world production. Specialization will lead to lower production time and cost due to decrease in defects.

Free-Trade

International trade left to its natural course without tariffs, quotas, or restrictions. Eliminates tariffs, increasing efficiency. Creates more competition, leading to lower prices f/consumer.

Heckscher-Ohlin (Factor Endowment)

Countries export abundant goods and import scarce resources that are in demand.

Country Similarity

Emerged post-WWII. Consumers in countries of similar development have similar preferences. Companies seek markets resembling home markets to match demand/taste. Intra-industry trade will be standard.

Global Strategic Rivarly

1980s; Companies compete w/each other. New entrants face "barriers to entry". Barriers include R&D, IP rights ownership, economies of scale, unique processes/experience, control of resource or materials.

Trade Agreements

Treaties require Senate approval, otherwise they're executive agreements. Free-trade agreements require approval from both Congress houses.

Tariffs

Taxes imposed by a gov't to limit trade.

Import Tariffs

Taxes on goods brought into the country. Most common.

Export Tariffs

Taxes on goods leaving the country to raise revenue or restrict world supply

Protective Tariffs

Levied to reduce imports of a product and protect domestic industries.

Revenue Tariffs

Levied to raise $ for gov't.

Specific Tariffs

A flat rate on an item.