IBA 250 - Midterm

Dimensions of international business

- international trade

- international investment

- international business risks

- participants

- foreign market entry strategies

- globalization of markets

performance of trade and investment activities by firms across national borders

international business

ongoing economic integration and growing interdependency of countries worldwide

globalization of markets

exchange of products and services across national borders (exporting and importing)

International trade

sale of products / services to customers located abroad from a base in the home country or 3rd country

exporting

procurement of products / services from suppliers located abroad for consumption in the home country or the 3rd country

importing / global sourcing

Transfer of assets to another country or the acquisition of assets in that country

international investment

passive ownership of foreign securities, such as stocks and bonds, in order to generate financial returns

International portfolio investment

what helps a greater collaboration among nations?

multilateral regulatory agencies (WTO and IMF)

international business ....

1. conducted across national borders

2. use distinctive business methods

3. is in contact with countries that differ

4 risks of international business

1. cross-cultural risk

2. country risk

3. currency risk

4. commercial risk

- cultural differences

- differences in negotiation patterns

- decision-making styles

- ethical procedures

cross-cultural risks

risk arising from differences in language, lifestyle, attitudes, customs, and religion, where a cultural miscommunication jeopardizes a culturally-valued mindset or behavior

cultural differences

standards of right and wrong vary considerably around the world

ethical practices

- government intervention, protectionism, and barriers to trade and investment

- bureaucracy, red tape, administrative delays, corruption

- lack of legal safeguards

- legislation unfavorable to foreign firms

- economic failures and mismanagement

- social and political unrest and instability

country risks (political)

- currency exposure

- asset valuation

- foreign taxation

- inflation

currency risks

risk of unfavorable exchange rate fluctuations

currency exposure

exchange rate fluctuations will adversely affect the value of firm's assets and liabilities

asset valuation

- weak partner

- operational problems

- timing of entry

- competitive intensity

- poor execution of strategy

commercial risks

risks are

always present but manageable

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

Multinational enterprise (MNE)

who participates in international business?

1. multinational enterprise (NMEs)

2. small and medium-sized enterprise (SMEs)

3. born global firm

4. non-governmental organizations

companies with 500 or fewer employees, comprising over 90% of all firms in most countries

small and medium-sized enterprise (SME)

young, entrepreneurial SME that undertakes substantial international business at or near its founding

born global firm

many non-profit organizations conduct cross-border activities

non-governmental organizations

Why do firms internationalize?

New market, cheaper labor, etc.

why study international business?

- facilitator of global economy and interconnectedness

- contributor to national economic well-being

- competitive advantage for the firm and you

- opportunity to support ethics, sustainability. and corporate citizenship

what has altered the International business landscape more than any other trends?

globalization and technological advances

interconnectedness of national economies and the growing interdependence of buyers, producers, suppliers, and governments around the world

globalization

- intro of railroads and ocean transport

- rise of manufacturing

- cross border trade

first phase (1830 - late 1800s)

- rise of electricity and steel production

- emergence of MNEs

second phase (1900 - 1930)

- formation of general agreement on tariffs and trade

- industrializing western countries to reduce trade barriers

- global capital markets

third phase (1948 - 1970s)

- privatization of state enterprises

- growth of emerging markets

fourth phase (1980s - 2006)

- rise of digital technologies

- leveraging tech to facilitate trade and local production

fifth phase (2007 - present)

Driving forces of market globalization

- worldwide reduction of barriers to trade and investment

- market liberalization and adoption of free trade

- industrialization, economic development, and modernization

- integration of world financial markets

- advances in technology

Dimensions of market globalization

• Integration and interdependence of national economies

• Rise of regional economic integration blocs

• Growth of global investment and financial flows

• Convergence of buyer lifestyles and preferences

• Globalization of production activities

• Globalization of services

Consequences of market globalization

- new business opportunities

- new risks and intense rivalry from foreign competitors

- more demanding buyers

- greater emphasis on proactive internationalism

- internationalism of firm's value chain

rapid spread of financial or monetary crises from 1. country to another

contagion

social consequences

- loss of national sovereignty

- offshoring and flight of jobs

- effect on poor

- effect on natural environment

- effect on national culture

Economic integration blocs

EU, NAFTA, MERCOSUR

to cut costs, firms manufacture in

low-cost locations

organization of some 150 member nations

world trade organization (WTO)

rising living standards have made countries

more attractive as target markets for sales and investments

advances in technology reduce the cost of doing business internationally, by allowing firms to

interact cheaply with suppliers, distributors, and customers worldwide

Digital technologies opened the global marketplace to firms that

historically lack the resources to internationalize

cost of international transportation has

declined

A purely domestic focus is

no longer viable

sequence of value-adding activities performed by the firm in the process of developing, producing, and marketing a product or service

value chain

stages in value chain

1. research and development

2. procurement (sourcing)

3. manufacturing

4. marketing

5. distribution

6. sales and service

reasons for internationalizing your value chain

- cost savings

- increases efficiency, productivity, and flexibility

- access customers, inputs, labor, and tech

- benefit from foreign partner capabilities

MNE activities can interfere with government's ability to

control their own economies and social political systems

what is lost as firms shift production abroad?

jobs are lost

In poor countries, globalization

creates jobs and raises wages, but also disrupts local job markets

Does globalization harm the environment?

yes

values, beliefs, customs, arts, and other products of human thought and work that characterize the people of a given society

culture

a situation or event where a cultural miscommunication puts some human value at stake

cross-cultural risk

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

socialization

process of adjusting and adapting to a culture other than one's own

acculturation

Culture is not....

- right or wrong

- not about individual behavior

- not inherited

elements of culture

- cross cultural risk

- dimensions

- language

- religion

- model and explanations

- managerial implications

person's judgments about what is good or bad, acceptable or unacceptable, important or unimportant, and normal or abnormal

values

developed based on values and are similar to opinions, except that they are often unconsciously held and may not have a rational basis

attitudes and preferences

ways of behaving and conducting oneself in public or business situations

manners / customs

reflects each culture's orientation about personal space and conversational distance

perceptions of space

rigid orientation to time in which the individual is focused on schedules punctuality time as a resource, time is linear, "time is money"

monochronic

a flexible, non-linear orientation to time in which the individual takes a long-term perspective; time is elastic; long delays are tolerated

- relationships matter more

polychronic

letters, figures, colors, or other characters that communicate a meaning

symbols

flags, anthems, seals, monuments, and historical myth

symbol

artifacts, objects, and technological systems that place construct to function their environments

material productions

the pattern of social arrangements and organized relationships that characterize a society

social structure

individuals, family, reference groups, social stratification, social mobility

social structure

the mirror or expression of culture, essential for communications, provides insights to culture (both verbal and nonverbal)

language

an expression whose symbolic meaning differs from its literal meaning, you can't understand it simply by knowing what the individual words mean

idioms

ways of talking, sounds, closeness, body contact, posture/stance, head movements, eye movements, facial expressions, hand movements, and appearance

nonverbal communciations

system of common beliefs or attitudes regarding a being or system of thought that people consider sacred, divine, or highest truth

religion

religion influences culture and therefore influences

business and consumer behavior

In business, culture affects:

- managing employees

- communicating and dealing with distributors and other business partners

- negotiating and structuring business ventures

- developing products and services

- preparing advertising and promotional materials

- preparing for international trade fairs

- interacting with current and potential customers

a distinctive tradition or institution strongly associated with a society

cultural metaphors

a guide to deciphering attitudes, values, and behavior

cultural metaphors

explicit explanations with emphasis on spoken words

- clear, efficient, logical delivery of verbal messages

- direct communication

low-context cultures

emphasizes nonverbal or indirect language

- promote harmonious relationships

- care is taken not to embarrass or offend others

high-context culture

ethical values vary by

culture

each person emphasizes their own self-interest, competition for resources is the norm, individual who compete best are rewarded

individualistic societies

ties among individuals are important business is conducted into a group context, cooperative experience, conformity and compromise help maintain harmony

collectivist societies

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

power distance

big gaps between the weak and powerful

high power distance societies

small gaps between the weak and powerful

low power distance societies

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

uncertainty avoidance

create institutions to minimize risk and ensure security

- stable careers and regulate worker actions

high uncertainty avoidance societies

managers are relatively entrepreneurial and comfortable with risk

- firms make decisions quickly

- people are comfortable changing jobs

low uncertainty avoidance societies

a society's orientation based on traditional male and female values

masculinity vs. femininity

values competitiveness, ambition, assertiveness and accumulation of wealth

- men and women are assertive

masculine culture

emphasizes nurturing roles, interdependence among people, and caring for less fortunate people for men and women

feminine culture

the degree to which people and organizations defer gratification to achieve long-term success

long-term vs. short-term orientation

long view in planning and living, focusing on years and decades

long-term orientation

typical in the US and most other western countries

short-term orientation

the degree to which people in a society attempt to control their impulses and desires

indulgence vs. restraint

allow relatively free gratification of their basic human desires related to having fun and enjoying life

indulgent societies

such gratification should be curbed and regulated by strict norms

restrained societies

managers focus on the task at hand, are impersonal, typically use contracts and want to get down to business

deal-oriented culture