IMS 3310 Exam 1 UT Dallas

International Business

Business that is carried out across national borders

Foreign Business

The operations of a company outside its home or domestic market

International Company (IC)

A company with operations in multiple nations

Environment

All the forces influencing the life and development of the firm

Uncontrollable forces

The External forces that management has no direct control over

What are the 11 Uncontrollable Forces?

-competitive

-Distributive

-Economic

-Socioeconomic

-Financial

-Legal

-Physical

-Political

-Sociocultural

-Labor

-Technological

Controllable Forces

Internal forces that management administers to adapt to changes in the uncontrollable forces

1. Human Resources

2. Finance

3. Production

4. Marketing

Domestic Environment

All the uncontrollable forces originating in the home country that surround and influence the life and development of the firm

Foreign Environment

All the uncontrollable forces originating outside the home country that surround and influence the firm

-values often differ widely

-difficult to asses, especially legal and political forces

-forces interrelated

International Environment

Interactions between domestic and foreign environmental forces, as well as interactions between the foreign environmental forces of two countries

-Decision making is more complex

-Managers in home office overseeing subsidiaries in 10 different nations must consider not only domestic forces but also the influence of 10 foreign national environments, both individually and collectively since there may be some interaction

Self Reference Orientation

Unconscious references to your own cultural values when judging behaviors of others in environment

-Time Vs Money

Foreign Direct Investment (FDI)

Direct investments in equipment, structures, and organizations in a foreign country at a level sufficient to obtain significant management control;

Note: does not include mere foreign investment in stocks

Exporting

The transportation of any domestic good or service to a destination outside a country or region

Importing

The transportation of any good or service into a country or region, from a foreign origination point

economic globalization

The tendency toward an international integration and interdependency of good, technology, info, labor, and capital, or the process of making this integration happen

Trade Defecit

The amount by which by which the value of imports into a nation exceeds the value of trade exports

Imports > Exports

Trade Surplus

Exports > Imports

Mercantilism

An economic philosophy based on the beleif that

1. a nation's wealth depends on accumulated treasure, usually precious metals such as gold or silver

2. To increase wealth, government policies should promote exports and discourage imports

Absolute Advantage

a nation's ability to produce more of a good or service than another country for the same or lower cost of inputs

Strategic behavior theory

suggests that strategic rivalry between firms in an oligopolistic industry will result in firms closely following and imitating each other's international investments in order to keep a competitor from gaining an advantage

Perfect Competition

a market situation in which there is a sufficiently large number of well-informed buyers and sellers of a homogeneous product, such that no individual participant has enough power to determine the price of the product, resulting in a marketplace that is efficient in production and allocation of products (aka example of absolute adv)

Comparative Advantage

When one nation is less efficient than another nation in the production of each of two goods, the less efficient nation has a comparative advantage in the production of that good for which its absolute disadvantage is less

Internalization Theory

Theory that to obtain a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary that it controls, rather than sell it in the open market

Dynamic capability theory

Theory that for a firm to successfully invest overseas, it must have not only ownership of unique knowledge or resources, but also the ability to dynamically create, sustain, and exploit these capabilities over time

Eclectic Theory of International Production

Theory proposing that for a firm to invest in facilities overseas, it must have three kinds of advantages:

1. Ownership specific

2. Location specific

3. Internalization

Exchange Rate

the price of one currency stated in terms of another

Currency Devaluation

A reduction in the value of a country's currency relative to other currencies

How do exchange rates change the direction of trade?

1. Traders must know a price in domestic currency to determine if its better to produce locally or import

2. Countries can regain a competitive position through currency devaluation

Why undervalue currency?

1. A weaker exchange rate makes exports more competitive and increases demand for Chinese exports

2. Chinese economic growth is dependent on exports, so the value of the currency plays key role in boosting growth

note: China needs high growth

Resource Endowment

The land, labor, capital, and related production factors a nation possesses

Overlapping Demand

The existence of similar preferences and demand for products and services among nations with similar levels of per capita income

Product Differentiation

Unique differences producers build into their products with the intent of positively influencing demand

International Product Life Cycle (IPLC)

A theory explaining why a product that begins as a nation's export eventually becomes its import

1. U.S. Exports

2. Foreign Production

3. Foreign Competition in export markets

4.Import competition in U.S. market

Transnational Corporation (cht. 1)

An enterprise made up of entities in more than one nation, operating under a decision-making system that allows a common strategy and coherent policies

What is driving the internationalization of business? (cht. 1)

Political, technological, market, cost, competitive

Political Drivers

-Trends toward the unification and socialization of the global community

-Preferential trading arrangements that group several nations into a single market

-Potential protectionism by host country markets

Technological Drivers

-Advances in computers and communications technology permit an increased flow of ideas and information across borders

-Smaller companies may find barriers reduced for being able to communicate and serve customers abroad

-Computer-based communication may enhance virtual integration

Market Drivers

-As firms internationalize, they also become global customers

-Firms may go abroad to protect business in their home market, so that foreign suppliers do not replace them with customers

-Mature home country markets may encourage companies to consider nations with rising GDP/Capita, population growth, and higher rates of GDP growth

Cost Drivers

Improved economies of scale, shared costs of research and development, investment incentives and so forth

Competitive Drivers

New competitors from developing nations, entry of foreign firms into a company's home market, access to suppliers, and entry into downstream activities to preserve markets for product.

Regionalization of Trade

Roughly half of exports from one country usually go to countries that are near the host country

Economies of Scale

The predictable decline in the average cost of producing each unit of output as a production facility gets larger and output increases

Experience Curve

The rising scale on which efficiency improves as a result of cumulative experience and learning

National Competitiveness

A nation's relative ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources

Porter's Diamond Model

-Demand Conditions

-Factor Conditions

-Related and Supporting industry Conditions

-Firm Strategy, structure, and rivalry

Demand Conditions (Porter's)

-The nature, rather than size, of domestic demand

-If firm's customers are sophisticated and demanding, it will strive to produce high-quality and innovative products

Factor Conditions (Porter)

-Level of composition of factors of production

-Basic and advanced factors (infrastructure, telecomm, transportation, universities)

-Created Factors (investments made by individuals, companies, gov't

-Inherited Factors (natural resources and location)

-Lack of natural endowments has cause nations to create advanced factors

Related and Supporting Industries (Porter's)

-Suppliers and industry support services

-Industry, suppliers and suppliers' suppliers cluster in a given location and serve as a foundation for competitive network

Firm Strategy, structure, and rivalry (Porter's)

-The extent of domestic competition, existence of barriers to entry, firm's mgmt style and orgaization

-COmpanies subject to heavy competion in domestic competition are constantly trying to improve their efficiency and innovativeness which makes them more competitive internationally

-Toyota, Nissan, Honda, and Mitsubishi competed in their domestic marketplace constantly pressuring each other to improve quality

International Trade Theory

this theory shows that nations will attain a higher level of living by specializing in goods for which they possess a comparative advantage and importing those for which they have a comparative disadvantage

Portfolio Investment

The purchase of stocks and bonds to obtain a return on the funds invested

-Not directly concerned with the control of a firm but to gain ROI

Direct Investment

The purchase of sufficient stock in a firm to obtain significant mgmt control

Greenfield Investment

The establishment of new facilities from the ground up

Cross Border Acquisition

The purchase of an existing business in another nation

Monopolistic Advantage Theory

Theory that foreign direct investment (FDI) is made by firms in industries with relatively few competitors, due to their possession of technical and other advantages over indigenous firms

Strategic Behavior Theory

Theory suggesting that strategic rivalry between firms in an oligopolistic industry will result in firms closely following and imitating each other's international investments in order to keep a competitor form gaining an advantage

Culture

The sum total of the beliefs, rules, techniques, institutions, and artifacts that characterize human populations

Characteristics of Culture

1. is learned

2. Its various aspects are interrelated

3. is shared

4. defines the boundaries of different groups

Ethnocentricity

The belief that your own culture is superior to other cultures

Aesthetics (culture expression)

-A culture's sense of beauty and good taste

-Expressed in many areas (art, drama, music, folklore, and dance)

-Applies to bodies as well (weight, tattoos, etc.)

How Culture Shows Itself

-Aesthetics

-Folklore

-Material Artifacts

-Language

-Nonverbal Communication

-Societal Organization

-Kinship

-Free Association

Material Culture or Artifacts (culture expression)

all the human-made objects of a culture

Societal Organization (culture expression)

The institutionalized structures or social relationships

Kinship (culture expression)

-The Family

-Definition and closeness varies by culture, with the extended family important in some cultures, less so in others

Free Association (culture expression)

may be formed by other commonalities-- such as age, gender, or shared interests

High Context Culture (Hall's)

-Much communication is conveyed by the context

-Japan, China, many other Asian, Latin American, and African Cultures

-Social Ties are long-standing and close, communication tends to be IMPLICIT and INDIRECT

Low Context Culture (Hall's)

-Most communication is carried in words

-U.S., Canada, other Anglo cultures, Germany, and Scandinavian cultures

-Social ties are of shorter duration, communication is EXPLICIT

Monochronic (Hall's)

Having to do with linear time, sequential activities

Polychronic (Hall)

Having to do with simultaneous activities and multitasking

Personal Space (United States)

-like more open space (~4 feet)

- roughly 2 to 3 feet Europe

-Greeting rituals tend to be the same in these regions and in the U.S., consisting of minimal body contact which often remains confined to a simple handshake

-Germany, Benelux, Scandinavia, and U.K.

Hofstede's Dimensions

1. Individualism vs Collectivism

2. Power Distance

3. Uncertainty Avoidance

4. Masculinity-Femininity

5. Indulgence vs Restraint

6. Pragmatic vs. Normative

Individualism vs Collectivism (Hofstede)

- measures the degree to which people in the culture are integrated into groups

-Highly Collectivistic cultures belong to strong, cohesive in-groups that look after them in exchange for loyalty

-Highly Individualistic cultures are more loosely connected and look after themselves and their immediate family

Power Distance (Hofstede)

- Extent to which members of a society expect power to be distributed unequally and accept that it is.

-Similar to inequality, but defined from below, not from above, and suggests that a society's level of inequality is endorsed by followers as well as by leaders

High Power Distance

Seniority, age, rank, and title are important.

-People will want directions, and formality is emphasized

Low Power Distance

- A consultative style of leadership predominates, informality tends to be the norm, and there is equal distance among people

Uncertainty Avoidance

- describes a society's level of comfort with uncertainty

High Uncertainty Avoidance

resist change including career change and organizational change

-expect clear procedures and preserve the status quo

Low Uncertainty Avoidance

-See conflict as having positive aspects

-Expect innovation

-encourage risk taking

-reward career change

Individualism Vs Collectivism (Hofstede)

-Measures the degreee to which people in the culture are integrated into groups

-People in Highly collective societies belong to strong, cohesive in-groups that look after them in exchange for loyalty

-Highly individualistic cultures are more loosely connected and look after themselves and their immediate family

Masculinity vs Femininity (Hofstede)

describes the distribution of roles between the sexes

Indulgent vs Restraint

describes a culture's tendency either to allow relatively free gratification of human desires or suppress human drives through strict social norms

Indulgent cultures

people believe they have personal control over their lives

Restraining Cultures

much more energy is dedicated to establishing order and structure and individuals are not indulged

Pragmatic vs Normative

measure of how people deal with the unexplainable in their lives

Normative Cultures

-there is a strong desire to explain and to know the absolute Truth

-There is respect for tradition, a low propensity to save, and a focus on quick results

Pragmatic Cultures

-suggests a people who are not concerned with understanding so much because life as a complex process is given

Trompenaar's Seven Dimensions

1. Individualism vs Collectivism

2. Universalism vs Particualrism

3. Neutral vs Affective

4. Specific vs Diffuse

5. Achievement vs Ascription

6. Monchronic vs Polychronic (time)

7. Internal vs External (nature)

Individualism vs collectivism

-has to do with whether people plan their actions with reference to individual or group benefits

Universalism vs Particularism

-Rules vs Relationships

-Addresses whether rules or relationships regulate behavior

-Universalist: apply rules evenly across the board

-Particularist: considers the context before applying the rule

Neutral vs Affective

withholding emotion contrasted with its expression

Specific vs Diffuse

distinguishes among cultures based on their differentiation between private and work life

-Specific: separated

-Diffuse: connected

Achievement vs Ascription

Ascription: considers who a person is in terms of his or her family lineage, age, or other attributes

Achievement: reward what you do

Internal cultures (Trompenaar)

people believe they can control nature

External Cultures (Trompenaar)

People believe nature controls them

Global Mindset

Involves an openness too diversity along with an ability to synthesize across diversity

Cultural Paradox

Contradictions in a culture's value

Environmental Stability

State in which the demands placed upon the environment by people and commerce can be met without reducing the capacity of the environment to provide for future generations

Sustainable development

Meets the needs of the present without compromising the ability of future generations to meet their needs

Life Cycle Assessment (LCA)

-An evaluation of the environmental aspects of a product or service throughout its life cycle

-Involves the cumulative impact of product, can lead to reductions and savings of environmental footprint, costs structure and potential carcinogens ini puts, processes and wastes

Cradle to Cradle (C2C)

Suggest that products and services should be designed to completely close the production loop, so that all resources needed to produce them are recycled and rested rather than discarded or left to pollute