Global Business Environment

What Is International Business?

International business consists of business transactions between parties from more than one country. International Business versus Domestic Business–Boundaries–Currencies–Legal Systems–Cultures–Availability of Resources.

Why Study International Business?

Provides the knowledge and skills that are essential for your career in the twenty-first century. Helps you make better career assessments. Keep pace with future competitors, and Stay abreast of the latest business techniques and tools. Obtain cultural literacy.

International Business Activities

Exporting & Importing International investments International Licensing, International Franchising International Management Contract

Exporting

selling of products made in one’s own country for use or resale in other countries

Importing

buying of products made in other countries for use or resale in one’s own country.

Trade in goods

tangible products

Trade in services

intangible products

Foreign Direct Investments (FDI)

Build infrastructure in a foreign country

Foreign Portfolio Investments (FPI)

Purchase investment securities in firms in foreign countries

International licensing

Intellectual Property

International franchising

The Franchisor, The Franchisee

International management contract

Management Services

Multinational Corporation (MNC)

established in 2+ countries

Multinational Enterprise (MNE)

Non incorporated entities (partnerships).

Multinational Organization (MNO)

Not for profit & NGOs

What is Globalization?

Manifestation of globalization–Intensification of the role of international trade in the economies of the world–Growing importance of FDI (Foreign Direct Investments)

Causes of Globalization

1. Strategic Imperatives
2. Environmental Changes

Strategic Imperatives

To leverage core competencies, to acquire resources and supplies, to seek new markets, to better compete with rivals (e.g., reduce costs, keep up with competition)

Contemporary Causes of Globalization: Environmental Causes

Changes in the Political Environment–Reduction of trade and investment barriers. General Agreement on Tariffs and Trade (GATT). World Trade Organization (WTO). Regional accords, Changes in the Technological Environment–Advances in Transportation–Changes in Communications Technology–Improvement in Information Processing.

Contemporary Causes of Globalization: Globalization and Emerging Markets

Transformed global marketplace–The collapse of European Communism–The ideological and policy changes undertaken by China and India–The reduction of trade barriers

Emerging Markets?

BRIC Countries, Big Ten , Non-High-Income Countries

The Marketplaces of North America: \n The United States

World’s largest economy 24% of the world’s GDP in 2017 One-tenth of world exports of goods and services About one-eighth of world imports of goods and services Prime market for Lower-income countries. Higher-income countries U.S. Dollar Invoicing currency Foreign-currency reserve.

\n The Marketplaces of North America: \n The United States (2 of 2)

Political stability and military strength. Flight Capital Foreign Investments Important recipient of long-term foreign investment International Trade Increasingly more important. Relatively small component of the U.S. economy MNCs 27% of the world’s 500 largest corporations are headquartered in the United States

The Marketplaces of North America: \n Canada (1 of 2)

Exports: Vital to the Canadian economy: 31% of its 2017 GDP of $1.7 trillion Rich natural resources: Canada’s most important exports. The United States: The dominant market for Canadian goods US-Canada two-way trade is one of the largest bilateral trading relationships in the world.

The Marketplaces of North America: Canada (2 of 2)

Foreign Investments Proximity to the huge U.S. market Stable political and legal systems Excellent infrastructure and educational systems Lingering Risk: long-standing conflict between French- speaking Canadians and English-speaking Canadians

The Marketplaces of North America: Mexico

The world’s most populous Spanish-speaking nation Open-market system. Reversed economic nationalism policies. Opened its markets to foreign goods and investors. Reduced government’s role in its economy. Signed a series of free trade agreements.

The Marketplaces of North America: Central America and the Caribbean (1 of 2)

Divided geographically into two groups: Central America, The Island States of the Caribbean. Several islands states have achieved high income status. Vibrant offshore financing or tourism industries Costa Rica and Panama are classified as upper-middle income.

The Marketplaces of North America: Central America and the Caribbean (2 of 2)

Political instability Chronic U.S. military intervention, Inadequate educational systems. Weak middle class Poverty Import limitations.

The Marketplaces of Western Europe

Western Europe-Members of the EU–Other Western European Countries

The Marketplaces of Western Europe: The EU

Comprises 28 countries, 27 after Brexit. Seeks to promote European peace and prosperity. One of the world’s richest markets, Free-market-oriented members, Parliamentary democracies. 19 EU members adopted the euro (€)

The Marketplaces of Western Europe: Influential Members of the EU

Economically, Germany is the EU’s most important member, Germany’s strict anti-inflation policies. Politically, France exerts strong leadership within the EU. French protectionist tendencies, the United Kingdom has challenged France’s positions. British exiting the EU (Brexit).

The Marketplaces of Western Europe: Newest EU Members

Were either part of the Soviet Union or allied with the Soviet Union. Restructured their economies from centrally planned communist systems to decentralized market systems. Implemented political, legal, and institutional reforms. Some are achieving high-income status.

The Marketplaces of Western Europe: Other Western European Countries

High-Income Countries: Iceland, Norway, and Switzerland Several small, “postage stamp” countries such as Andorra, Monaco, and Liechtenstein. Account for 2 percent of the world’s GDP, Middle-Income Countries: The Balkan countries of Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia Post–Cold War economic progress was slowed by chaos and conflicts.

The Marketplaces of Eastern Europe and Central Asia

Soviet Union’s collapse in 1991 Newly Independent States (NIS). Commonwealth of Independent States (CIS)

The Marketplaces of Eastern Europe and Central Asia: Russia

Difficult transformation from communism to a free-market system. The world’s second largest oil producer and exporter. Collapse of oil price in the 2010s: Slow GDP growth.

The Marketplaces of Eastern Europe & Central Asia: The 5 Central Asian Republics

Kazakhstan, Uzbekistan, Tajikistan, Turkmenistan, and Kyrgyzstan. Common characteristics, Russian Influence Religion: Dominantly Islam language: Turkic/Persian roots. Scarce Arable Land, Low Per capita Income, Fossil Fuel Reserves.

The Marketplaces of Asia (1 of 2)

Source of both high-quality and low-quality products. Source of both skilled and unskilled labor. Major destination for foreign investments by MNCs. Major supplier of capital to non-Asian countries, Aggressive and efficient entrepreneurs.

The Marketplaces of Asia: Japan

One of the world’s economic superpower • Japan’s economic success–Partnership between MITI and Keiretsu-Sogo shosha. Japan’s challenges–Slow economic growth in the 1990s–Adjustments to changes in the world economy–Trade practices–Growing demographic crisis.

The Marketplaces of Asia (2 of 2)

Australia- Rich in natural resources, relatively small workforce, merchandise exports, 17% of its 2017 GDP, Natural resource industries, Land-intensive agricultural goods. New Zealand-Greater reliance on market- based policies. Exports, 18% of its 2017 GDP, and Extensive pasture lands.

The Marketplaces of Asia: The Four Tigers

Pacific Asia is one of the world’s most rapidly industrializing regions. South Korea, Taiwan, Singapore, and Hong Kong. The “Four Tigers” The newly industrialized countries (NICs). The newly industrialized economies (NIEs) “Emerging Markets”.

The Marketplaces of Asia: The Four Tigers: South Korea

One of the world’s fastest-growing economies. Merchandise exports accounted for 37% of its 2017 GDP. Tight cooperation between the government and large conglomerates, Chaebol: Samsung, Hyundai, Daewoo Group, and LG.

The Marketplaces of Asia: The Four Tigers: Taiwan

One of the world’s fastest-growing economies. Reliance on family-owned private businesses. Reliance on export-oriented trade policies. Exports accounted for 63% of its 2017 GDP.

The Marketplaces of Asia: The Four Tigers: Singapore

Thrives on reexporting Exports accounted for 166% of its 2017 GDP. Excellent port facilities center for oil refining, Sophisticated communications and financial services. High-technology center.

The Marketplaces of Asia: The Four Tigers: Hong Kong

Enjoys a fair degree of autonomy, attractive to international businesses, Deep, sheltered harbor. Entry point to mainland China's highly educated, highly productive labor. Banking and financial services. Reexporter Exports accounted for 161% of its 2017 GDP.

The Marketplaces of Asia: China

Mixed system–Communist Party-led state–Market-oriented economic policies. Vibrant economy–Grew 10.9% a year from 2000 to 2009–FDI in China has exploded since 1992–Urbanization–China’s outbound FDI has skyrocketed since 2005.

The Marketplaces of Asia: India

One of the poorest countries, British Influence 1991 market-opening reforms. Reduced trade barriers, opened the doors to increased FDI. Modernized the country’s financial sector challenges. Corruption is widespread Infrastructure is overburdened Red Tape.

The Marketplaces of Asia: Southeast Asia Countries

Promising records of economic development Thailand, Malaysia, and Indonesia. Low labor costs Recipients of significant FDI Vietnam Becoming important to MNCs Inexpensive, young, and trainable workforce.

The Marketplaces of Africa & the Middle East: Africa

European Colonial influence Commodities, Agriculture, South Africa: The continent’s growth engine

The Marketplaces of Africa & the Middle East: Middle East (1 of 2)

“Cradle of Civilization” History of conflict and political unrest Home to many oil-rich countries Diversification: “Life After Oil”

The Marketplaces of South America

Common political, social, and economic history. Huge income disparities Widespread poverty, and Political instability. Destructive import substitution policies. Reversed import substitution policies in the late 1980s economic boom during the 1990s.

The Legal Environment: Differences in Legal Systems (1 of 2)

Rule of law, Role of lawyers, Burden of proof, Right to judicial review, and Laws

The Legal Environment: Differences in Legal Systems (2 of 2)

Common Law–precedents influencing the outcome of lawsuits. Civil Law–Criminal legal system. Religious Law–laws based on faith and practices, Bureaucratic Law–Whatever the bureaucracies say it is, is the law (communism, oligarchies, dictatorships)

The Legal Environment: Domestically Oriented Laws

Impact Firm’s domestic operations & costs International competitiveness of domestic firms. Business practices of foreign firms operating outside the country’s borders. Impacts. Workforce, Finance and banking, Marketing, Intellectual property, Research and development.

The Legal Environment: Laws Directly Affecting International Business Transactions

Sanctions-restraints against commerce with a country. Embargos- blocking all commerce with a country. Export control of dual-use products- protections for products that can be used for both consumer and military purposes. Extraterritoriality- U.S. trade law reaches beyond its borders to prevent harm against its businesses, and unnatural monopolies.

The Legal Environment: Laws Directed against Foreign Firms

Nationalization,Expropriation, Confiscation–taking property from owner and not compensating them. Privatization–transfer of property from public to private ownership. Repatriation–returning property to the original nation.

Nationalization

transfer of ownership to public sector (e.g., hospitals)

The Legal Environment: Impacts of MNCs on Host Countries

Impact: Multinational Corporations, Economic, Political, and Cultural The entry of Western retailers like Carrefour into the Chinese market has increased the selection and quality of goods available to the country’s consumers. But competition from foreign MNCs makes it harder for mom-and- pop vendors in China’s open-air markets to stay in business.

The Legal Environment: Dispute Resolution in IB

4 Questions


1. Which country’s law applies?
2. In which country should the issue be resolved?
3. Which technique should be used to resolve the
conflict: litigation, arbitration, mediation, or
negotiation?
4. How will the settlement be enforced?

The Technological Environment

Foundation & Determinants, Resource base, Investments in infrastructure and human capital, Technology transfer. Protection of intellectual property rights

The Technological Environment Protection of IPRs

International Convention for the Protection of Industrial Property Rights (Paris Convention), Berne Convention for the Protection of Literary and Artistic Works, Universal Copyright Convention, Trade-Related Intellectual Property Rights agreement.

The Political Environment: Political Risk

Political Risks


1. Ownership Risk- Expropriation, confiscation...
2. Operating Risk- safety risks due to wars, terrorism, weather, protest.
3. Transfer Risk- If the government interferes with a company transferring assets out of the country.

The Political Environment: Political Risk part 2

• Political risks–Macro-political–Micro-political Disneyland Paris is vulnerable to micro-political risk, given its status as an icon of America. These French farmers have chosen to voice their displeasure with U.S. agricultural trade policies by blocking the entrance to the park with their tractors.

The Political Environment: Political Risk Insurance

Overseas Private Investment Corporation (OPIC). Agency insures U.S. overseas investment. The Multilateral Investment Guarantee Agency (MIGA) Subsidiary of World Bank, insures assets overseas. Private insurance firms, such as Lloyd’s of London and Export Development Canada (EDC). EDC insures your receivables.

Culture

is the collection of values, beliefs, behaviors, customs, and attitudes that distinguish one society from another.

Characteristics Of Culture

Learned behavior, Interrelated, Adaptive, Shared

Individuals, Families, and Groups

Defining family, individual’s role within groups, importance of the individual relative to the group

Social Stratification

Attributes, Highly stratified societies, Less stratified societies

Social mobility

Low social mobility, Socially mobile societies

Language

Delineates cultural groups. Shapes one’s perceptions of the world. Filters observations and perceptions. Provides important clues about the cultural values of the society and offers indications about the diversity of a country’s population.

Language as a Competitive Weapon

Linguistic ties, Linguistic legacy of colonialism

Nonverbal Communication

Facial Expressions, Hand Gestures, Intonation, Eye Contact, Body Positioning, Body Posture

Gift-Giving and Hospitality

Important means of communication, Different gift giving etiquettes, hospitality customs also differ, Communicating bad news

Religion

Shapes attitudes of adherents, Constraints on the roles of individuals in society, and affecting consumer buying behavior. Affects seasonal patterns of consumption, Impact on international businesses, Legal system, Homogeneity of religious beliefs, and Tolerance.

Values and Attitudes

Time, Age, Education, and Status

what is the difference between Low context culture versus High context culture?

Words, Context, Cultural clues, Business behaviors

Examples of Low Context Culture

Low-Context Cultures German, Swiss, Austrian, Scandinavian, U.S./Canadian, British, and Australian.

Examples of High Context Culture

High-Context Cultures Chinese, Korean, Japanese, Vietnamese, Arab, Greek, and Spanish.

The Cultural Cluster Approach

Internationalization strategies, Foreign Market Entry Methods

Individualism

Is the focus of decisions; I do what is best for myself. Individuals are responsible for themselves, and success is a result of the individual’s actions. Primary loyalty to my career, my goals, and my close family, not to the organization. If a setback occurs, the goal is to return to self sufficiency.

Collectivism

We are the focus of decisions: do what is best for the group. The group is responsible for its members. An individual’s success is due to the group’s assistance. Primary loyalty to the organization or the group. If a setback occurs, the group provides continuing assistance.

Power Tolerance

Children are adults-in-training, taught to think for themselves,Teachers are guides who facilitate learnings, Superiors consult with subordinates, Everyone should have the same rights, Hierarchies are a necessary evil, and Inequality is bad, should be minimized.

Power Respect

Children taught to obey, Teachers are the source of all knowledge and wisdom, Superiors tell subordinates what to do, Rights and privileges are tied to rank, Hierarchies are desirable; everyone knows their place, inequality is good, and a way of demonstrating superiority.

Power Orientation Extremes

Power Respect, Power Tolerance

Uncertainty Acceptance

Uncertainty and ambiguity create opportunities, weak hierarchies and bureaucracies. Change jobs if new opportunities arise. Decentralized decision-making encourages flexibility. Subordinates encouraged to think for themselves, innovate, and Social norms are weak; unorthodox behavior tolerated.

Uncertainty Avoidance

Uncertainty and ambiguity create threats and challenges, Strong hierarchies and bureaucracies, changing jobs risky—why take the chance?. Centralized decision-making ensures uniformity, subordinates expected to do what they are told, and Social norms are strict and to be obeyed.

Passive Goal Behavior

Quality of life is more important than material rewards, work life and family life are integrated, desire low level of work-related stress, cooperation more important than competition, and success: “a well-lived life”.

Aggressive Goal Behavior

Material rewards are more important than quality of life, work life and family life separate and distinct, Work-related stress expected, a badge of honor, competition is more important than cooperation, and Success: “he who dies with the most toys wins”.

Short-term Orientation

Tradition is important, Truth is an absolute, Luck affects success and failure, Saving for the future is unimportant, and decisions focus on immediate financial success.

Long-term Orientation

Pragmatism dominates tradition. Truth is situational and contextual. Effort affects success; lack of effort causes failure. Thrift and perseverance are virtues, lead to future rewards, and decisions focus on growth and long term \n success.

Indulgence

Enjoy life, have fun, optimism prevails, leisure time is highly valued, “If it feels good, do it”, and weak allegiance to social norms.

Restraint

Self-control is important, Cynicism prevails, Leisure time is unimportant, Seeking instant gratification is looked down on, and strong allegiance to social norm.

Understanding New Cultures

Self-reference criterion, Acculturation, and Cross-cultural literacy.

Ethics

an individual’s personal beliefs about whether a decision, behavior, or action is right or wrong

Ethical behavior

behavior that conforms to generally accepted social norms

Unethical behavior

behavior that does not conform to generally accepted social norms

Generalizations

Individuals have their own personal belief system about what constitutes ethical and unethical behavior. People from the same cultural contexts are likely to hold similar beliefs as to what constitutes ethical and unethical behavior. Individuals may be able to rationalize behaviors based on circumstances. Individuals may deviate from their own belief systems based on circumstances. Ethical values are strongly affected by national cultures and customs.

Corporate social responsibility (CSR)

the set of obligations a corporation undertakes to protect and enhance the society in which it functions

The Triple Bottom Line

The Economic Mission, The Natural Environment, and General Social Welfare

Stakeholder Model

Primary Stakeholders, Secondary Stakeholders

Formal Dimensions

Legal Compliance, Ethical Compliance, and Philanthropic Compliance