Weeks 1-6 Global Business

Test/Content/Theory

Define global business

Defines business activities and exchange of goods, services and resources between two or more countries. These exchanges can include:

• research and development

• human resource management

• supply chain management

• importing/exporting

• foreign direct investment (FDI)

Who participates in global business?

• firms

• financial institutions

• governments

• trade associations

• intergovernmental organisations

• consumers

• employees

Who are key players in global business?

• Multinational Enterprises (MNEs)

• Small and Medium Enterprises (SMEs)

• Born Globals

• State-Owned Enterprises (SOEs)

Why do companies invest offshore?

Foreign countries may offer better access to:

• large markets

• low cost/skilled labour

• foreign government incentives

• natural resources/raw materials and key suppliers etc.

What is meant by institution based view?

• suggests that the success or failure of firms is limited by institutions

• laws regulations and rules that may or may not treat domestic foreign firms as equals and enhance the potential chances of foreign firms’ success

• cultures, ethics and norms play an important part in shaping the success and failure of firms around the globe

What is meant by resource based view?

• suggests that a firms success or failure is caused by at least in part by their internal resources and capabilities

• the liability of foreignness is the inherent disadvantage that foreign firms experience in host countries because of their non-native status

What are some complexities associated with global business?

• difference across borders: similar forces operate in different ways

• uncertainty and assessment: some forces are hard to read and change quickly

• forces act unpredictably: managers must interpret conflicting signals from multiple environments at once

What are the two key themes of globalising? Explain

1. Interconnectedness

   1. technology: internet, computing and social media link people globally

   2. transport & logistics: container shipping/jumbo jets enable globle flow

   3. financial systems: platform connect buyers and sellers worldwide

2. Interdependence

   1. economic: countries rely on each other for resources, markets, technology

   2. policy spillovers: trade wars, interest rates, pandemics affect all

   3. corporation needed: climate change, pandemics, financial stability

What are some drawbacks of interdependence?

• vaccine inequality: during coronavirus, 85% of vaccines went to high-income countries, as a result most deaths were in growing economies

• economic inequality: inter-country gap widened; within-country inequality amplified leading to nationalism, populism and anti-globalisation sentiment

What are the key drivers of globalisation?

• technological advancement: communication & transport technologies

• trade liberalisation: reductions in trade barriers (reduction of tariffs and quotas)

• rise of global governance system: global rules and regulations, WTO, IMF, World Bank, OECD

• global expansion of MNEs: Global production, global competition, global brands, global operation (network, capital, strategy etc)

What are the general public’s three views on globalisation?

1. a new force sweeping through the world in recent times

2. a long-run historical evolution since the dawn of human history

3. a pendulum that swings from one extreme to another from time to time

What are the threats to globalisation?

• growing support for politicians with nationalist & protectionist agendas (MAGA)

• anti-globalisation backlash (sense of economic loss, uncertainty and unfairness)

• increase in protective measures by national governments (restrictive trade, investment, immigration policies)

• declining trade and FDI

• Weakening multilateral institutions (WTO, Paris Agreement, etc)

What are some implications for MNEs

• risk management more vital for MNEs as they compete in fast-moving, constantly changing and wildly unpredictable environments

• need for flexible or parallel supply chains

• non-market / political strategies to mitigate political risk

• greater emphasis on social and environmental responsibilities of MNEs

Discuss the degree of formality in institutions

• formal institutions

  • laws, regulations, rules

• informal institutions

  • norms, cultures, ethics

What are the supportive pillars? (Scott)

• regulatory (coercive)

• normative (values, morals, obligations)

• cognitive (beliefs, habits, taken-for-granted frames that condition thinking)

What is the key role of institutions?

to reduce uncertainty by constraining the range of acceptable actions

List the types of political systems

• democracy

• authoritarianism

• totalitarianism

Explain democracy

political system in which citizens elect representatives to govern the country on their behalf

supports global business by preserving individual’s right to freedom of expression and organisation

Explain authoritarianism

a political system in which political plurality is undermined and concentrated government power is imposed

Explain totalitarianism

also known as dictatorship, its a system in which one person or party excercises absolute political control

can either be communist (China, Cuba, Vietnam, North Korea) or theocratic (Iran, Vatican, Saudi Arabia) where power is in the hands of one religious party or group

Define legal systems and list the types

refers to the rules of the game on how a country’s laws are enacted and enforced

• common law (tradition, precedent, usage)

• civil law (codified rules and statutes)

• theocratic law (religious teachings form law)

Define intellectual property rights (IP)

the rights associated with the ownership of intellectual property, intanglible property that results from intellectual activity such as books, videos and websites

Define economic systems and describe the types

rules of the game on how a country is governed economically

• market economy

  • owned by private sectors

  • freedom to start business

  • supply and demand

• command economy

  • owned by the government

  • government regulation

  • price control

• mixed economy system

  • both

discuss private ownership (objective of firm, establishment of firm, financing of firm, liquidation of firm, appointment/dismissal of management, compensation of management)

objective

• maximises profits for private owners who are capitalists and maximise shareholder value for public shareholders if the firm is publicly listed

establishment

• entry is determined by entrepreneurs, owners and investors

financing

• from private sources and public shareholders if firm is publicly listed

liquidation

• exit is forced by competition

• a firm has to declare bankruptcy or be acquired if it becomes financially insolvent

appointment/dismissal

• management appointments are made by owners and investors, largely based on merit

compensation

• manager’s compensation is determined by competitive market forces

• managers tend to pay more under private ownership

discuss state ownership (objective of firm, establishment of firm, financing of firm, liquidation of firm, appointment/dismissal of management, compensation of management)

objective

• optimal balance for a “fair" deal for all stakeholders

• maximising profits is not the sole objective of the firm but rather protecting jobs and minimising social unrest

establishment

• entry is determined by government officials and bureaucrats

financing

• funded by state sources such as direct subsidiaries or banks owned/controlled by governments

• some hybrid SOEs are publicly listed

liquidation

• exit is determined by government officials and beareaucrats

• firms deemed “too big to fail” may be supported by taxpayer dollars indefinitely

appointment/dismissal

• management appointments are made by government officials and bureaucrats who may also use noneconomic criteria

compensation

• determined politically with some consideration given to a sense of fairness and legitimacy in the eyes of the public.

• managers tend to be paid less under state ownership

What is political economy?

• the interaction between political and economic systems

• understanding the impact of government decisions is business-critical for assessing opportunities and risks and for formulating strategies

What is ‘friend-shoring’?

• the idea for a group of countries with shared values to deploy policies encouraging companies to spread manufacturing within that group

Explain political economy decisions at global level includng examples (Frinkelstein)

Global governance is governing, without sovereign authority, relationships that transcended national frontiers

• examples are WTO, IMF, United Nations, World Bank, Kyoto Agreement etc.

• implies absence of central authority and the need for collaboration and cooperation against national governments

• backlash against political globalisation in recent years: as geopolitical landscape and political thinking change, so does the role and impact of multilateral/regional institutions

What key roles does the national government play in global business? (9)

• rule maker: sets laws, taxes, labour rules, standards, data privacy

• market shaper: regulatory management depending on state priorities

• protector/referee: enforces property rights, competition law and contracts

• customer: buys through public procurement, defence, infrastructure, health

• owner/competitor: competes through SOEs, and firms tied to national strategy

• deregulation: opening markets and intensifying competiton

• property rights: encouraging firms to commit capital for the long-term

• gatekeeping: determining who gets access and what terms

• protection: for companies against risk and providing stability

Describe the change in business (government relationships) 1930s-present

1930s-1970s: Interventionism

• era of big government

• keynesianism and welfare state in the post WWII period

1980s-mid 2000s: Liberalism

• ‘small and efficient’ government

• rise of neo-liberalism, NPM and global integration

2008-present: Back to interventionism

• ‘small and strong’ government vs ‘big and strong’ government

What is populism? Also give its causes and consequences

an idea which pits a virtuous and homogenous people against a set of elites and dangerous others who are together depicted as depriving (or attempring to deprive) the sovereign people of their rights, values, prosperity, identity and voice

• causes

  • economic crisis and social inequality

  • backlash against hyper-globalisation pluralism

• consequences

  • anti-trade & anti-immigration policies

  • uncertainty for business

What is culture?

• a collective phenomenon that is shared with people who live or lived within the same social environment

• it is a collective programming of the mind which distinguishes the members of one group or category of people from another

• culture is both a divisive and unifying force

Describe the iceberg model of culture (what? + why?)

the what

• behaviours and artefacts accessible to the senses

• observable

• explicit

• taught

• conscious

the why

• attitudes, beliefs, expectations, values, assumptions

• intangible

• not directly observable

• implicit

• caught

• subconscious

define ethnocentrism

• to perceive one’s own culture, ethics and norms as ‘natural, rational and morally right’

define religion

• a major manifestation of culture

• knowledge about religion is crucial even for non-religious managers

define culture context (low, high)

low

• a culture in which communication is usually taken at face value without much reliance on unspoken context

high

• a culture in which communication relies on underlying unspoken context, which is as important as the words used

Differentiate Hofstede power distance (low, high) give examples

low

• minimal power differences

• possibility of going forward to a superior status in the society

• flatter organisational pyramids

• little difference in valuing the work of white-collar and blue-collar workers

• e.g. US, Canada, Australia, Denmark

high

• inequality is accepted within a hierarchical order

• tall organisational pyramids

• greater difference in value of white-collar/blue-collar

• e.g. Malaysia, Japan, Mexico, France, India

individualism - collectivism give examples

collectivism

• group’s views, needs, goals most important

• organisation as “family”

• practices based on loyalty, sense of duty and group participation

• e.g. Korea, Columbia, Greece

individualism

• believe individual is most important

• organisation is more personal

• employees defend their own self-interest

• practices encourage individual initiative

• e.g. US, Great Britain

uncertainty avoidance (low/high) give examples

low

• people feel comfortable with ambiguity

• fewer written rules

• variability

• greater willingness to take risks

• e.g. Denmark, Sweden, US, India

high

• tend to avoid uncertainty and have preference to under-control situations

• more written rules

• standardisation

• less willingness to take tisks

• e.g. Portugal, Japan, France

masculinity/femininity give examples

femininity (tender)

• sex roles are minimised

• preferences for cooperation, modesty and quality of life

• organisations dont interfere with people’s private lives

• e.g. Sweden, Thailand, Finland

masculinity (tough)

• sex roles are clearly defined

• preferences in society for achievement and heroism

• material reward for success

• work is valued as central life interest

• e.g. Japan, Italy, US, Germany, Mexico

short vs long term orientation give examples

short term

• shorter planning horizon

• most important events occurred in the part or take place now

• immediate gratification and less willing to sacrifice for future

• e.g. US, Phillippines, Spain, Canada

long term

• longer planning horizon

• most important events will occur in the future

• forward thinking values, more likely to plan and invest for future

• e.g. China, South Korea, Belgium

indulgence vs restraint

indulgence

• high importance of leisure

• less moral discipline

• loose gender roles

• high importance of having friends

• smiling as a norm

• freedom of speech is important

restraint

• a perception of helplessness

• low importance of leisure

• low importance of having friends

• freedom of speech is important

• moral discipline

describe ethics

• what is good or right for human beings

• aims to discover “what ought to be” rather than “what is”

• important part of informal institutions but also reflected in formal laws and regulations, organisational codes of ethical conduct

describe ethical relativism and imperialism

relativism

• when in rome do as the romans do

ethical

• one set of univeral ethics

taken to extremes, ethical relativism would accept any local practice and ethical imperialism could cause resentment among locals

describe bribery and corruption

• the abuse of public power for private benefits usually in the form of bribery

• in some countries, bribery and kickbacks are normal and expected as a way of doing business

• paying bribes to secure a profitable contract: standard business practice in some while illegal in another

define creative destruction

• new products, methods, and organisations continuously revolutionise the economy from within

define resource-based view

• digital capabilities (big data, AI) become company’s valuable resources and capabilities

define knowledge economy

• production driven by knowledge

• intensive activities

• firms compete through innovation networks not just cost

differentiate automation and augmentation

automation

• technology replaces human workers

• higher productivity and efficiency

• lower labour cost and human error

• risk of job displacement

• not always efficient

augmentation

• technology assists human workers

• enhanced decision-making

• streamlined tasks, not replacement

• preserves creativity and judgement

• e.g. AI assisted medical diagnoses

list and describe the impacts of information and communications technology (ICT) on firms expanding into new markets

• ecommerce: internet used as a transaction medium

• frequently refers to B2C but also includes B2B and C2C

• overcomes problems of distance and costs

• delivery of e-commerce services in foreign markets may be affected by IT infrastructure, logistics, cyber security and online payment services

describe sharing economy in the global information economy

• often referred to as ‘peer to peer’ market

• an economic arrangement allowing people to collaboratively make use of underutilised assets (e.g. vehicles, bikes, houses, tools etc) through fee-based sharing using a digital platform

• intrinsically an international phenomenon

describe how social media is used in the global information economy (6)

• social media has become a critical part of MNE’s strategy

• solicit opinions on new product development

• build relationshups with both existing and potential customers

• create brand and product awareness

• customer support and education

• monitor and respond to consumer feedback

what are the challenges of cybersecurity, IP and ethics?

• data privacy and regulation

  • cross-border data transfer restrictions

• cybersecurity issues

  • cross-border data flows, connectivity related risk

• intellectual property

  • developing countries disadvantaged

  • patent law challenged by AI generated inventions, compulsory licensing debates and COVID

define innovation cluster

• foster innovation and knowledge creation by bringing together educational and research institutions

• knowledge spill-over driving innovation

define and describe agglomeration

• clustering of economic activities, often in the same industry, in certain areas

• created a skilled labour force whose members may work for different firms without having to move out of the region

• industry demand that facilitates a pool of specialised suppliers and buyers also located in the region

define knowledge spillover

• diffusion of knowledge from one firm to others among closely located firms that attempt to hire individuals from competitors

what does sustainability and csr help shape?

• where firms can operate

• how they organise global value chains

• what products and technologies they invest in

• how they differentiate themselves in global competition

• whether they gain or lose legitimacy in host countries

list some social responsibility issues (6)

• child labour and forced labour

• poor working conditions

• DEI and workplace fairness

• bribery and corruption

• community displacement

• misleading marketing and greenwashing

what are some sustainability/environmental issues? (6)

• emissions and climate transition

• water use and scarcity

• waste and circularity

• pollution and toxic materials

• biodiversity and land degradation

• resource dependency in supply chains

define shareholder

• can be a person, company or organisation that holds stock(s) in a given company

• a shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner

define stakeholder

• any group or individual who can affect or is affected by the achievement of the organisation’s objectives

unabbreviate and define ESG

• environment, social and governance

• a reporting and evaluating system used by investors and stakeholders

what is the traditional view of firms participating in CSR

• tradeoff between social/environmental benefits and industry’s private costs

• realisation that sustainability is the right thing to do, and can also drive revenue, savings and give a competitive edge

• CSR can be more than just a cost, constraint or charitable deed

describe circular economy

• alternative to a take, make, use and dispose model with as much re-use and recycling as possible

• extending the life of products and materials to prevent over-generation of waste

• the longer materials and resources are in use, the more value extracted from them

list and describe the paths to develop sustainable products with examples

• acquire

  • buying other company’s green brand when there is no obvious candidates for accentuation - high profile green acquisitions

  • e.g. loreal (body shop) unilever (ben and jerry’s)

• architect

  • building new offerings from scratch

  • can be slower and more costly than other options but may allow the company to build valuable competencies

what are the steps to developing a corporate strategy for sustainability (6)

• map material risks and opportunities across the value chain

• adopt risk-based due diligence not just supplier policing

• set global principles but adapt locally

• build sustainability into product design, sourcing, logistics and investment

• engage stakeholders and foster collaboration

• treat sustainability as part of competitive strategy

unethical practice in firms, list 6 features/facts

• can be unintentional - failure to recognise the nature of their actions

• ethical blind spots rather than intentional misconduct

• honest people don’t always live up to their values

• less about doing the right thing, more about getting the job done

• misjudgement in leadership decisions is often used as an excuse for unethical behaviour

• greater awareness of ethical blind spots is key to prevent corporate scandals