GLOBAL BUSSINESS

Ch. 1-6

multinational enterprise (MNE)

firm that engages in foreign direct investments

foreign direct investment (FDI)

investments in, controlling, and managing value-added
activities in other countrie

Emerging economies (emerging markets)

A term that has gradually replaced the term “developing
countries” since the 1990s

gross national product (GNP)

measured as the sum of value added by resident firms, households, and
government operating in an economy. (It has to be made nationally, Ex: USA)

gross domestic product (GDP)

Total market value of all final goods and services produced within a
country in a given period of time usually a calendar year (Everything made within these shores)

gross national income (GNI)

GDP plus income from nonresident sources abroad – the term used by the
World Bank and other international organizations to supersede the GNP term

purchasing power parity (ppp)

adjustment made to the GDP to reflect differences in the cost of living (between countries)

Purchasing Power Parity

Where the same amount of money can purchase much more in another location:
Because the cost of living is lower in Cd. Juarez

Triad

North America, Western Europe and Japan

BRIC

Acronym for the emerging economies of Brazil, Russia, India, and China

Group of 20

leaders of 19 major countries + EU who meet on biannual basis to discuss global economic
issues

base of the pyramid

vast majority of humanity, about four billion people, live at the base of the pyramid
and make less than $2,000 a year

The “Bottom Billion”

Concentrated in Africa and Central Asia – 58 small countries, stuck at the
bottom in terms of growth, incomes, and human
development

Formal rules include

• Laws

• Government regulations

• Trade policies

• Contracts

Informal rule

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

Resource-based view

Considers the firm as a bundle of resources and suggests that the
success and failure of firms are determined by
their environments

liability of foreignness

inherent disadvantage that foreign firms experience in host countries
because of their nonnative status.

The institution-based view

supports the ideology of total globalization

A pendulum swinging between extremes

Trade moves in cycles, from open access to markets to
protectionism, then back again.

Globalization involves both expansion and regression of international trade.

Which of the following is true of globalization according to the
“pendulum view” perspective?

Deglobalization

The process of weakening economic interdependence
among countries.

4 manifestations of culture

Language, Religion, Social structure, Education

Culture

The collective programming of the mind which distinguishes the members of one group or category of people from another.

Religion

A set of beliefs about the cause of events, both human and natural, which cannot be empirically proven.

Social stratification

The hierarchical arrangement of individuals into social categories (strata) such as classes castes, or divisions within a society

Social mobility

The degree to which members from a lower social category can rise to a higher status.

Education

Can be used to maintain social stratification, or to break down social barriers.

Three ways to understand cultures

Context, Cluster, and Dimension

Context

The underlying background upon which social interaction takes place

Low-context cultures

Communication is usually taken at face value without much reliance on unspoken context

High-context cultures

Communication relies a lot on the underlying unspoken context, which is as important as the words used

Power distance

Extent to which less powerful members within a country expect and accept that power is distributed unequally.

Individualism

Idea that an individual’s identity is fundamentally his or her own.

Collectivism

Idea that an individual’s identity is fundamentally tied to the identity of his or her collective group.

Achievement

Motivation Towards Achievement and Success (Masculinity)

Femininity

Nurturing

Uncertainty avoidance

Extent to which members in a culture accept or avoid ambiguous situations and uncertainty.

Long-term orientation

How much emphasis is placed on perseverance and savings for future betterment.

Indulgence

Level at which society allows gratification related to enjoying life and having fun

Institutions

“rules of the game”

Institutional transitions

Fundamental and comprehensive changes introduced to formal and informal rules of the game that affect firms as players

Institutional framework

Formal and informal institutions governing individual and firm behavior

Formal institutions

Laws, regulations, and rules - may be imposed by home countries and host countries

Norms

Actions based on values, beliefs

Regulatory pillar (have to) (Formal)

Coercive power of governments

Normative pillar (ought to)* (Informal)

How values, beliefs, and actions of other relevant players influence behavior of focal individuals and firms

Cognitive pillar (want to) (Informal)

Internalized, or taken for-granted, values and beliefs that guide individual and firm, or group, behavior

Opportunism

One of the two important assumptions of transaction costs

Bounded rationality

One of the two important assumptions of transaction costs

Opportunism means

Business partners are expected to use the incompleteness of contracts (due to higher uncertainty) for their own self interest: cheating or misleading, confusing others in transactions which will then increase their cost.

Bounded rationality

Managers seek to act rationally but are constrained because they have incomplete information and limited processing capability – a decision made with greater risk may be more costly.

Political risk

Risk associated with political changes that may negatively impact domestic and foreign firms

Democracy

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

Totalitarianism (dictatorship)

System in which one person or party exercises absolute political control over the population

Totalitarian Structures

Communist, Right-wing, Theocratic, Tribal

Authoritarianism

Concentrates power in a single leader, a small elite, or a ruling party, severely restricting individual freedoms, civil liberties, and political opposition.

Civil law

Comprehensive statutes and codes as a primary means to form legal judgments

Common law

English origin, shaped by precedents and traditions from previous judicial decisions

Theocratic law

Based on religious teachings

Based on religious teachings

Rules of the game on how a country is governed economically

Market economy

Characterized by the “invisible hand” of market forces; government takes a hands-off, or laissez faire, approach

Command economy

Government taking the “commanding height” in the economy; all factors of production are government- or state owned and controlled, and all supply, demand, and pricing are planned by the government

Mixed economy

Elements of both market economy and command economies

Moral hazard

Recklessness when people and organizations (including firms and governments) do not have to face the full consequences of their actions.

Ethics

The principles, standards, and norms of conduct that govern Individual and firm behavior

Code of conduct

A set of guidelines for making ethical decision

Ethical relativism

Follows the cliché, “When in Rome, do as the Romans.”

Ethical imperialism

Refers to the absolute belief that “there is only one set of Ethics (with a capital E), and we have it.”

Foreign Corrupt Practices Act (FCPA)

A US law enacted in 1977 that bans bribery of foreign officials

Utilitarianism

maximizing the greatest utility (“happiness”) – cost/benefit approach

reputation, culture, talent

Which resource is intangible?

sensing, seizing, reconfiguring

Which is a dynamic capability?

Resource-Based View (RBV)

Firms succeed because of unique resources and capabilities competitors do not have.

Firms are heterogeneous

Firms are DIFFERENT, and they do NOT all possess the same resources

Industrial Organization Approach (IOA)

assumes firms within an industry are
◦ similar in terms of strategically relevant resources
◦ any uniqueness or diversity is short-lived because
resources are highly mobile or tradable