International Business MidTerm 1

International Business

Refers to firm’s performance of trade and investment activities across national borders

6 elements of international Business

1. globalization of markets

2. international trade

3. international investment

4. international business risks

5. participants

6. foreign market entry strategies

globalization of markets

ongoing economic integration and growing interdependency worldwide

internationalization

the tendency of companies to deepen their international business activities systematically

international trade

describes the exchange of products (merchandise) and services (intangibles) across national borders

exporting

the sale of products or services to customers located abroad from a base in the home country or a third country

importing or global sourcing

the procurement of products or services from suppliers abroad for consumption in the home country or third country

international investment

refers to the transfer of assets to another country or the acquisition of assets in that country

international portfolio management

refers to the passive ownership of foreign securities such as stocks and bonds to gain financial returns

foreign direct investment

is an internationalization strategy in which the firm establishes a physical presence abroad through the acquisition of productive assets

The four risks of international business

1. commercial risk

2. country risk

3. cross-cultural risk

4. currency risk

commercial risk

the firms potential loss or failure from poorly conceived or executed business strategies, tactics, or procedures

country risk (political risk)

the potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country

cross-cultural risk

when a cultural misunderstanding puts some human values at stake

currency risk (financial risk)

refers to the risk of adverse fluctuations in exchange rates

focal firm

The initiator of the international business transaction. it conceives, designs, and produces offerings for consumption by customers worldwide

distribution channel intermediary

a specialist firm that provides various logistics and marketing services for focal firms as part of international supply chains, both in the focal firm’s country or abroad

facilitator

a firm or individual with special expertise in banking, legal advice, customs clearing, or related support services that help focal firms perform international business transactions

freight forwarder

a specialized logistics service provider that arranges international shipping on behalf of exporting firms, like a travel agent for cargo

state owned enterprises

active in international business as suppliers, buyers, and regulators

multinational enterprise (MNE)

a large company with substantial resources that performs various business activities through a network of subsidiaries affiliated and located in multiple countries

small and medium sized enterprises (SMEs)

manufacturers or service providers with fewer than 500 employees

Born global firm

a young entrepreneurial company that initiates international business activity very early in its evolution, moving rapidly into foreign markets

value chain

the sequence of value-adding activities the firm performs in the course of developing, producing, marketing, and servicing a product

world trade organization

aims to regulate fairness and ensure fairness and efficiency in global trade and investment

driving forces in globalization

• worldwide reduction in barriers to trade and investment

• market liberalization and adoption of free markets

• industrialization, economic development, and modernization

• integration of world financial markets

• advances in technology

digitalization

refers to enabling or transforming business functions, operations, and activities by leveraging digital technologies and digitalized data

culture

refers to the values, beliefs, customs, arts, and other products of human though and world that characterize the people of a given society

socialization

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

acculturation

the process of adjusting or adapting to a culture other than one’s own

monochronic

a rigid orientation in which people are focused on schedules, punctuality, and time as a resource

polychronic

instead of performing single tasks serially, people are inclined to do many things at once

idiom

an expression whose symbolic meaning is different from its actual or literal meaning

cultural metaphor

a distinctive tradition or institution that is strongly associated with a particular society

low context cultures

rely heavily on spoken worlds and detailed verbal explanations

high context cultures

emphasize non-verbal and view communication as a means to promote smooth harmonious relationships

individualism vs collectivism

refers to whether a person functions primarily as an individual or as part of a group

power distance

describes how a society deals with inequalities in power that exist among people

uncertainty avoidance

refers to the extent to which individuals can tolerate risk and uncertainty in their lives

masculinity vs feminity

a society’s orientation based on traditional gender norms and expectations

long term vs short term orientation

reflects the degree to which people and organizations defer pleasure or gratification to achieve long term success

indulgence vs restraint

the extent to which people try to control their desires and impulses

ethnocentric orientation

using our own culture as the standard for judging other cultures

polycentric orientation

refers to a host country mindset in which the manager develops a strong attachment to the country in which he or she conducts business

geocentric orientation

refers to a global mindset through which the manager can understand a business or market without regard to country boundaries

self-reference criterion

the tendency to view other cultures through the lens of our own culture

critical incident analysis

a useful technique that managers use to analyze awkward situations in cross-cultural encounters

ethics

moral principles and values that govern the behavior of people, firms, and governments regarding right and wrong

corporate social responsibility (CSR)

refers to operating a business in a manner that meets or exceeds the ethical, legal, and commercial expectations of customers, shareholders, employees, and the communities where the firm does business

sustainability

meeting humanity’s needs today without harming the ability of future generations to meet their needs

corporate goverance

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

ethical dilemma

a problem that involves two or more possible solutions, none of which resolves the situation in a morally satisfactory manner

relativism

the belief that ethical truths are not absolute, but differ from group to group

normativism

the belief that ethical behavior standards are universal and that firms and individuals should seek to uphold them consistently around the world

corruption

the practice of obtaining power, personal gain, or influence through illegitimate means and usually occurs at others’ expense

intellectual property

refers to ideas or works that individuals or firms create and includes a variety of proprietary, intangible assets: discoveries and inventions; artistic, music, and literary works; and words, symbols, phrases and designs

intellectual property rights

the legal claim through which proprietary assets are protected from unauthorized use by other parties

code of ethics

a document that describes the values and expectation that guide decision making by all employees in the firm

code of conduct

translates the code of ethics into specific rules regarding behaviors and practices that are prohibited or required

a framework tool for making ethical decisions

1. Identify a problem

2. Examine the facts

3. Create alternatives

4. Implement the course of action

5. Evaluate the results

values

represent a person’s judgments about what is good or bad, acceptable or unacceptable, important or unimportant, and normal or abnormal. are the basis for our motivation and behavior

attitudes

similar to opinions, but are often unconsciously held and may not be based on logical facts. Prejudices are rigidly held attitudes, and usually unfavorable

deal oriented cultures

managers focus on the task and hand and prefer getting down to business

relationship oriented cultures

Managers put more value on relationships with people. It is important to build trust and understanding, and get to know the other party in business interactions

Utilitarian approach

most good for the least harm

the rights approach

the approach that respects and protects the moral and human rights of everyone

fairness approach

everyone should be treated equally and fairly

the virtue approach

the ideal that virtues provide for the full development of our humanity

the common good approach

welfare for the entire community and nation. respect for and compassion for all

going deep

means institutionalizing appropriate behavior in the organization’s culture so it becomes part and parcel of the strategy

going wide

 implies a continuous effort to understand how CSR and sustainability affect every aspect of the firm’s operations worldwide

going local

goes hand in hand with globalization. It requires the firm to examine its global operations to identify and improve specific local issues that affect stakeholders