I BUS Lecture Material Review Concept Check 3

international business ethics

moral principles that define right & wrong behavior in conducting business in a global environment

most common ethical issues in business involve

• employment practices

• human rights

• environmental regulations

• the moral obligation of multinational companies

• corruption

cultural relativism

host country standards

• person’s beliefs, values, and customs should be understood within the context of their own culture rather than judged by the standards of another culture

How firms should prevent ethical issues

• establish minimal acceptable standards that safeguard basic rights and dignity of employees

• audit foreign subsidiaries and subcontractors regularly to ensure they are meeting standards

• take corrective action as necessary

How are ethics relevant to human rights?

basic human rights are taken for granted in developed countries

• freedom of speech

• freedom of assembly

• freedom of movement

How are ethics relevant to environmental regulations?

• tragedy of commons: some parts of the environment are a public good that no one owns, but anyone can spoil

how are ethics relevant to moral obligations?

social responsibility

• refers to the idea that managers should consider the social consequences of economic actions when making business decisions

advocates argue that businesses need to recognize that honorable and benevolent behavior is the responsibility of successful companies

• give something back to the societies that have made their success possible

• or not: Friedman Doctrine

Friedman Doctrine

the primary responsibility of a business is to increase its profits for its shareholders, while obeying the law and engaging in fair competition

• main goal to increase profits for shareholders

• up to the company’s shareholders to spend the money any way they see fit, not the company

• “uncle Milty”

corporate social responsibility

idea that a company should operate in a way that is ethical, socially responsible, and environmentally sustainable, while still pursuing profits

• if the company is using some resources in a country, they should give back

Foreign corrupt practices act

• outlawed the practice of paying bribes to foreign government officials in order to gain business

• law also pertains to foreign nationals that work for a U.S. firm

• amended to allow for facilitating payments

• two parts of the law: making bribes directly, bribes paid intermediaries

why do managers behave unethically?

• leadership → trickle down effect to employees if leaders aren’t acting ethically

• societal culture

• being profit driven

• personal ethics

• unrealistic performance goals → main reason why people act unethically; if you’re in another country and you get pressure on your work, people start to cut corners on their work

• organization culture

• decision making process

gatekeepers to critical services

• gatekeepers to licenses and registration (permission to operate)

• cost of operations

• inability to operate

How can managers make ethical decisions?

• hire and promote people with a well-grounded sense of personal ethics

• build an organizational culture that places a high value on ethical behavior (e.g. leaders act ethically)

• put decision making processes in place that require people to consider the ethical dimensions of business

• develop moral courage

country of origin effect

influence that a product’s country of origin has on consumers’ perceptions and purchasing decisions

• Positive: Belgium chocolate, french wine, Canadian maple syrup

• negative: US chocolate

The Stages Model: Expansion as a process of organizational learning

1. home market only

2. indirect export → when using some sort of middle man to get a product from your country to another country

3. direct export

4. foreign production

Born global

• if you wait too long to get into a country, you miss the window of opportunity

• want to jump in when timing is right

• for new companies that aren’t already in a different country

• other end of the stages model (opposite)

Assessment factors for candidate countries

• size and growth rate

• market intensity (customers’ buying power)

• country’s receptivity to imports

• infrastructure for doing business

• economic freedom & country risk

non-equity mode

exports and contractual agreements

• less costly

• potential for gradual organizational learning

equity mode

Joint ventures and wholly owned subsidiaries

• demonstrate strategic commitment to certain markets, local customers and suppliers

• deters potential entrants

indirect export

using some sort of middle person to get your product from your country to another country

direct export

bypassing the middle man and going directly from your country to another in exporting

Advantages of exporting

• relatively low cost

• firms may achieve experience curve economies by increasing the company’s total production volume, which speeds up learning and cost reduction

when is exporting not attractive?

• lower-cost manufacturing locations exist

• transportation costs are high

• tariff barriers are high

• foreign agents fail to work in the exporter’s best interest

non-equity modes of entry - contractual agreement & alliances

• R&D contract

• turnkey project

• build-operate-transfer (BOT)

• Licensing/franchising

R&D contract

outsourcing agreements in R&D between firms

Turnkey project

• foreign firm is paid to design and construct new facilities and train personnel

• most popular projects are extensions and upgrades to metro systems; other include airports, oil refineries, hospitals

• the work is ready to go and start the business → think of turning the key on a car and it starts going

build-operate-transfer (BOT)

like turnkey but foreign firm operates for a set period

licensing

• producing/marketing on the licensor’s behalf

• licensor grants the rights to intangible property to the licensee for a royalty fee

franchising

marketing on the franchisor’s behalf

• complete package

• ex: McDonalds, IKEA

advantages of licensing/franchising

• lower cost (vs. FDI)

• less transportation costs

• share resources from licensee/franchisee

• lower production costs (vs. export)

Disadvantages of licensing/franchising

• may lose control of IP

• May lose control of product/service quality

• may create potential competitor

• not realizing full benefit of sales (vs FDI)

Equity modes of entry

• greenfield

• joint venture

• acquisition

greenfield

company builds a new operation from scratch in another country rather than buying or partnering with an existing local company

joint venture

a foreign company and a local company share ownership, resources, risks, and profits by creating a new business together or jointly operating an existing one

• you enter into a foreign market, and you partner w/ another company that is willing to share/help overcome the liability of foreignness → some countries require a JV when you are entering their country

acquisition

a company enters a foreign market by purchasing an existing company in that country

• when multiple companies become one (e.g.: meta, facebook, instagram)

• you have to do your due diligence to decide if it’s a good investment

globalization

the broadening and deepening of interactions and interdependence among peoples and countries of the world

localization

the segmentation and contraction of the interaction and interdependencies among people and countries of the world

functions of institutions

• rules, both formal (regulatory environment) and informal (norms and culture)

• provide incentive structures: rewards for compliance and sanctions for violations

• reduce uncertainty and opportunism, keeping transaction costs low

GDP (gross domestic product)

total value of all final goods and services produced within a country’s borders during a specific period of time, usually a year

• measures size & health of a country’s economy

GNI (Gross National Income)

total income earned by your country’s residents and businesses, regardless of where the income is generated

MNE (Multinational Enterprise)

• a firm that uses foreign direct investment (FDI) to establish or purchase income-generating assets abroad

• Any business that has productive activities in two or more countries

liability of foreigness

when you enter a new environment, there’s risks and higher transaction costs of not knowing the rules

FDI: Foreign Direct Investment

occurs when a firm invests resources in business activities outside its home country

voice

when businesses speak against certain policies (lobbying, trying to effect rules of the game)

exit

leaving or threatening to leave the country due to disagreement

• gov wants their firms to stay, and so does the firm since they have already invested a lot of time, energy, and capital

low context

• a culture in which communication is usually taken at face value

• emphasis on verbal cues that should NOT be subject to multiple interpretations

• more open to outsiders, direct initial contact, deal first in meetings, less frequent face-to-face contact, smaller status differences, more familiar forms of address, simpler protocol rituals, punctuality important, rigid schedules/deadlines, seldom meetings interrupted, close physical distance, louder voice volume, less silence, conversational overlap is acceptable, frequent touch behavior, intense gaze behavior, frequent gestures

• Switzerland is the lowest context

high context

• more nonverbal cues, context is very important, you have to have relationships/context to understand

• Japan is a good example

• less open to outsiders, indirect initial contact, relationship first meeting, more frequent face to face contact

• large status differences, more formal addressing, more elaborate protocol/rituals

• less important punctuality, flexible deadlines, frequent meetings interrupted

• far apart physical distance, softer voice volume, frequent silence, rude if conversations overlap, less frequent touch behavior, softer gaze behavior, infrequent gestures

Hofstede’s Dimensions

• power distance

• Individualism vs Collectivism

• Uncertainty Avoidance

• Masculinity vs. Femininity

• long-term vs. short-term orientation (added later)

• indulgence vs. restraint

Power Distance

weaker members acceptance of inequality

• if a superior tells you what to do, it’s the level of willingness to obey that order

• high in countries that let inequalities grow over time into inequalities of power and wealth

• low in societies that try to play down such inequalities as much as possible

Uncertainty Avoidance

• extent to which people will accept ambiguity or tolerate uncertainty → mapped out or “coloring outside the lines”

• higher when: you feel nervous or tense at work and have emotional need for rules

• lower when: you have a dislike of rules and want a less formalized and standardized work environment

Individualism

• whether you’re focusing on your needs as a collective group vs. as yourself

• high when: ties between individuals are loose, individual achievement highly valued

• low (collectivist) when: ties between individuals are tighter, everyone is supposed to look after the interests of the collective

Masculinity

• theory of relationship between gender and work roles

• high when: there is a distribution of roles between the sexes (assertive, competitive, decisive)

• low when: there is a sense of modesty and caring for others (relationships, compromise, and negotiation)

long-term orientation

• saving for the future, or living for today?

• captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, reciprocation of gifts and favors

indulgence vs. restraint

• extent to which a society allows people to freely satisfy their desires and enjoy life; being at will to enjoy what you’ve reaped from your work

• high when: culture encourages the relatively free gratification of basic human desires related to enjoying life and having fun

• low when: cultures regulate gratification of desires through social norms and expectations

absolute advantage

• when you’re most efficient at producing a certain thing, therefore trade is beneficial

• the capability of one country to produce more of a product w/ the same amount of input as another country; more efficient than any other country at doing it

• theory says: produce only goods where you are the MOST efficient, trade for those where you are NOT efficient → thus, trade between countries is beneficial

comparative advantage

• when you’re relatively good at something, so you still trade → lower costs vs. another country

• think in terms of opportunity cost

• theory says (Ricardo): countries should produce and export goods and services that it is relatively more productive at than other countries, and import goods/services for which other countries are relatively more productive

theories of trade vs. reality

• protectionism is to protect domestic industries, political platforms can’t be separated, but they cause us to miss the bigger picture

• trade is beneficial, yet we see other things happening → affecting a lot of different countries

foreign exchange

• companies can lose a lot or gain a lot just by doing currency exchange, you have to stay on top of it

• a commodity that consists of currencies issued by countries other than one’s own

• a strong dollar buys more foreign currency

• a weak dollar buys less foreign currency

multilateral institutions

organizations formed by three or more nations to coordinate policies, manage shared interests, and solve global challenges through collective action

various terrains:

• security (UN, NATO)

• Labor (ILO)

• Development (FAO, UNDP)

• Financial stability (IMF, World Bank, BIS)

• Trade (GATT/WTO)

GATT

• general agreement on tariffs and trade

• aimed to address isolation/protectionism, which were seen as causes of WWII

• first round (1948) among 23 original members led to 45000 concessions affecting 20% of world trade

3 rounds of GATT

• Kennedy round

• Tokyo round

• Uruguay round

Kennedy round

• focused on anti-dumping

• dumping = excess inventory, that country produces the price of the product

Tokyo round

• limited; tariff reduction but general economic crisis precipitated new protectionism, especially in agriculture

Uruguay round

aimed at transforming GATT to the WTO

IMF

international monetary fund to ensure economic stability

• they help provide loans to countries in economic crises

• controversial b/c the requirements to receive the loans are usually harsh, austerity measures also make it controversial too

World Bank

• focus on long term economic development, funds infrastructure, education, poverty reduction

• provides loans, grants, research and technical assistance to help countries reduce poverty and promote economic development

WTO

• international organization that oversees and promotes the rules of global trade between countries

main purposes

• Promote free and predictable trade between countries

• Reduce trade barriers such as tariffs and quotas

• Provide a forum for trade negotiations

• Resolve trade disputes between member countries

• Monitor national trade policies

USMCA

formally NAFTA (north American free trade agreement)

• United States Mexico Canada Trade Agreement, but we aren’t currently adhering to them…

• the agreement allows many goods to move between the three countries with reduced or zero tariffs making trade easier and less expensive

Brexit

• when the UK exited from the European Union

• impact = if you were in the UK it became a lot harder for people to travel, loss of education b/c a lot of people didn’t qualify for study abroad

• consequences involved reduced trade efficiency, less labor mobility, and less economic growth

EU

• political and economic union of European countries that work together on trade, laws, economic policy, and other shared issues

• promotes economic integration through a single market, reduced trade barriers, and the free movement of goods, services, people, and capital

global marketing

a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging value with others in a global environment

ethnocentric approach

adopt the domestic marketing mix for global markets; standardizes → company that’s already established that is going to go global

• really hard to do, but the advantage is that it saves a ton of money

• Apple is an example

• established company that is trying to go global

polycentric approach

customize the firm’s marketing mix for each market

• advantage: you can target specific customers

• disadvantage: will be more costly

geocentric approach

standardize a global marketing mix for global market

• for “born global” companies

• created to be a global system

• like ethnocentric but difference is the company is born global → make the marketing mix standardized but considering that it can be global

Standardized advantages

• reduces marketing costs

• facilitates centralized control of marketing

• promotes efficiency in R&D

• results in economies of scale - production

• reflects globalization trends; country of origin effect

customized advantages

• reflects different conditions of product use

• acknowledges local legal differences

• accounts for differences in buyer-behavior patterns

• accounts for other differences in markets

Price

the amount customers pay for the product

Product

the good or service being offerred to customers

Promotion

how the company communicates with customers

• how you are going to promote it

• Includes things like: advertising/digital, personal selling, sales promotion

• In advertising, need to consider things like message and medium

Place

how and where customers obtain the product

• where you’re selling it but also distribution channels

product design considerations

• infrastructure needs

• culture

• legal requirements

• religious customs

• economic development level

Pricing policies

• standardized pricing

• differential pricing

standardized pricing

international pricing strategy in which a company sets the same or very similar prices for a product across multiple countries, rather than adjusting prices to local market conditions

differential pricing

international pricing strategy where a company charges different prices for the same product across countries, markets, or customer groups based on local economic conditions and demand

principle of cumulative attraction

competing or completing stores located next to each other draws more customers collectively than they would if located far apart

• car dealerships, gas stations, malls/outlet stores