Chapter 1: Globalization

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Chapter 1 Globalization

• WHAT IS GLOBALIZATION?
• Globalization refers to the shift towards a more
  integrated and interdependent world economy.
• The Globalization of Markets
• The Globalization of Production

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Chapter 1 Globalization

• THE EMERGENCE OF GLOBAL INSTITUTIONS
• Global institutions
• help manage, regulate, and police the global
  market place
• promote the establishment of multinational
  treaties to govern the global business system

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Chapter 1 Globalization

• DRIVERS OF GLOBALIZATION
• Two macro factors underlie the trend toward
  greater globalization
• Declining Trade and Investment Barriers
• The Role of Technological Change

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Chapter 1 Globalization

• THE CHANGING DEMOGRAPHICS OF THE GLOBAL ECONOMY
• In the 1960s
• The U.S. dominated the world economy and the
  world trade picture
• U.S. multinationals dominated the international
  business scene
• About half the world the centrally planned
  economies of the communist world was off limits
  to Western international business

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Chapter 1 Globalization

• The Changing World Output and World Trade Picture
• The Changing Foreign Direct Investment Picture
• The Changing Nature of the Multinational
  Enterprise
• The Changing World Order
• The Global Economy of the 21st Century

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Chapter 1 Globalization

• MANAGING IN THE GLOBAL MARKETPLACE
• Managing an international business (any firm that
  engages in international trade or investment) is
  different from managing a domestic business
  because
• Countries differ
• Managers face a greater and more complex range
  of problems
• International companies must work within the
  limits imposed by governmental intervention
  and the global trading system
• International transactions require converting
  funds and being susceptible to exchange rate
  changes

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Chapter 2 National Differences in Political
Economy

• POLITICAL SYSTEMS
• A political system is the system of government
  in a nation
• Political systems can be assessed according to
• the degree to which they emphasize collectivism
  as opposed to individualism
• the degree to which they are democratic or
  totalitarian

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Chapter 2 National Differences in Political
Economy

• ECONOMIC SYSTEMS
• A free market system is likely in countries
  where individual goals are given primacy over
  collective goals
• State-owned enterprises and restricted markets
  are common in countries where collective goals
  are dominant

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Chapter 2 National Differences in Political
Economy

• LEGAL SYSTEMS
• The legal system of a country is the rules, or
  laws, that regulate behavior, along with the
  processes by which the laws of a country are
  enforced and through which redress for grievances
  is obtained.

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Chapter 2 National Differences in Political
Economy

• Different Legal Systems
• Differences in Contract Law
• Property Rights and Corruption
• The Protection of Intellectual Property
• Product Safety and Product Liability

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Chapter 2 National Differences in Political
Economy

• THE DETERMINANTS OF ECONOMIC DEVELOPMENT
• Differing political, economic, and legal systems
  can have a profound impact on the level of a
  country's economic development, and hence on the
  attractiveness of a country as a possible market
  and/or production location for a firm.

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Chapter 2 National Differences in Political
Economy

• STATES IN TRANSITION
• Since the late 1980s, a wave of democratic
  revolutions has swept the world, and many of the
  previous totalitarian regimes collapsed
• There has been a move away from centrally
  planned and mixed economies towards free markets

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Chapter 2 National Differences in Political
Economy

• STATES IN TRANSITION
• The Spread of Democracy
• The New World Order and Global Terrorism
• The Spread of Market-Based Systems
• The Nature of Economic Transformation
• Deregulation
• Privatization
• Legal Systems
• Implications of Changing Political Economy

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Chapter 2 National Differences in Political
Economy

• IMPLICATIONS FOR MANAGERS
• Political, economic, and legal systems of a
  country raise important ethical issues that have
  implications for the practice of international
  business
• The political, economic, and legal environment
  of a country clearly influences the
  attractiveness of that country as a market and/or
  investment site

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Chapter 3 Differences in Culture

• INTRODUCTION
• Operating a successful international business
  requires cross-cultural literacy (an
  understanding of how cultural differences across
  and within nations can affect the way in which
  business is practiced).
• A relationship may exist between culture and the
  costs of doing business in a country or region.

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Chapter 3 Differences in Culture

• WHAT IS CULTURE?
• The fundamental building blocks of culture are
  values (abstract ideas about what a group
  believes to be good, right, and desirable) and
  norms (the social rules and guidelines that
  prescribe appropriate behavior in particular
  situations).
• Society refers to a group of people who share a
  common set of values and norms.

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Chapter 3 Differences in Culture

• SOCIAL STRUCTURE
• A society's social structure is its basic social
  organization.
• Two dimensions to consider
• the degree to which the basic unit of social
  organization is the individual, as opposed to the
  group
• the degree to which a society is stratified into
  classes or castes

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Chapter 3 Differences in Culture

• RELIGIOUS AND ETHICAL SYSTEMS
• Religion can be defined as a system of shared
  beliefs and rituals that are concerned with the
  realm of the sacred.
• Ethical systems refer to a set of moral
  principles, or values, that are used to guide and
  shape behavior.

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Chapter 3 Differences in Culture

• EDUCATION
• Formal education is the medium through which
  individuals learn many of the language,
  conceptual, and mathematical skills that are
  indispensable in a modern society.
• The knowledge base, training, and educational
  opportunities available to a country's citizens
  can also give it a competitive advantage in the
  market and make it a more or less attractive
  place for expanding business.

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Chapter 3 Differences in Culture

• Hofstedes four dimensions of culture
• Power Distance
• Individualism Versus Collectivism
• Uncertainty Avoidance
• Masculinity Versus Femininity

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Chapter 3 Differences in Culture

• CULTURAL CHANGE
• Culture evolves over time, although changes in
  value systems can be slow and painful for a
  society. Social turmoil is an inevitable outcome
  of cultural change.
• As countries become economically stronger,
  cultural change is particularly common.

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Chapter 4 Ethics in International Business

• INTRODUCTION
• Ethics refers to accepted principles of right or
  wrong that govern the conduct of a person, the
  members of a profession, or the actions of an
  organization.
• Business ethics are the accepted principles of
  right or wrong governing the conduct of business
  people.
• Ethical strategy is a strategy, or course of
  action, that does not violate these accepted
  principles.

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Chapter 4 Ethics in International Business

• ETHICAL ISSUES IN INTERNATIONAL BUSINESS
• The most common ethical issues in business
  involve employment practices, human rights,
  environmental regulations, corruption, and the
  moral obligation of multinational companies.

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Chapter 4 Ethics in International Business

• ETHICAL DILEMMAS
• Ethical dilemmas are situations in which none of
  the available alternatives seems ethically
  acceptable.

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Chapter 4 Ethics in International Business

• THE ROOTS OF UNETHICAL BEHAVIOR
• What are the roots of unethical behavior?
• Personal Ethics
• Decision Making Processes
• Organizational Culture
• Unrealistic Performance Expectations
• Leadership

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Chapter 5 International Trade Theory

• AN OVERVIEW OF TRADE THEORY
• Free trade refers to a situation where a
  government does not attempt to influence through
  quotas or duties what its citizens can buy from
  another country or what they can produce and sell
  to another country.

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Chapter 5 International Trade Theory

• MERCANTILISM
• Mercantilism, which emerged in England in the
  mid-16th century, asserted that it is in a
  countrys best interest to maintain a trade
  surplus-- to export more than it imports.

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Chapter 5 International Trade Theory

• ABSOLUTE ADVANTAGE
• In 1776, Adam Smith attacked the mercantilist
  assumption that trade is a zero-sum game and
  argued that countries differ in their ability to
  produce goods efficiently, and that a country has
  an absolute advantage in the production of a
  product when it is more efficient than any other
  country in producing it.

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Chapter 5 International Trade Theory

• COMPARATIVE ADVANTAGE
• In 1817, David Ricardo argued that it makes sense
  for a country to specialize in the production of
  those goods that it produces most efficiently and
  to buy the goods that it produces less
  efficiently from other countries, even if this
  means buying goods from other countries that it
  could produce more efficiently itself.

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Chapter 5 International Trade Theory

• HECKSCHER-OHLIN THEORY
• Hecksher and Ohlin argued that that countries
  will export goods that make intensive use of
  those factors that are locally abundant, while
  importing goods that make intensive use of
  factors that are locally scarce.

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Chapter 5 International Trade Theory

• THE PRODUCT LIFE CYCLE THEORY
• In the mid-1960s, Raymond Vernon proposed the
  product life-cycle theory that suggested that as
  products mature both the location of sales and
  the optimal production location will change
  affecting the flow and direction of trade.

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Chapter 5 International Trade Theory

• NEW TRADE THEORY
• New trade theory suggests that because of
  economies of scale (unit cost reductions
  associated with a large scale of output) and
  increasing returns to specialization, in some
  industries there are likely to be only a few
  profitable firms

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Chapter 5 International Trade Theory

• NATIONAL COMPETITIVE ADVANTAGE PORTERS DIAMOND
• Porters 1990 study tried to explain why a nation
  achieves international success in a particular
  industry and identified attributes that promote
  or impede the creation of competitive advantage.

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Chapter 5 International Trade Theory

• Factor Endowments
• Demand Conditions
• Related and Supporting Industries
• Firm Strategy, Structure, Rivalry

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Chapter 5 International Trade Theory

• FOCUS ON MANAGERIAL IMPLICATIONS
• There are at least three main implications for
  international businesses
• Location
• First-Mover Advantages
• Government Policy

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Chapter 6 The Political Economy of
International Trade

• INTRODUCTION
• Free trade refers to a situation where a
  government does not attempt to restrict what its
  citizens can buy from another country or what
  they can sell to another country.
• While many nations are nominally committed to
  free trade, they tend to intervene in
  international trade to protect the interests of
  politically important groups.

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Chapter 6 The Political Economy of
International Trade

• IINSTRUMENTS OF TRADE POLICY
• There are seven main instruments of trade policy
• Tariffs
• Subsidies
• Import Quotas
• Voluntary Export Restraints
• Local Content Requirements
• Administrative Polices
• Antidumping Policies

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Chapter 6 The Political Economy of
International Trade

• THE CASE FOR GOVERNMENT INTERVENTION
• There are two types of arguments for government
  intervention political and economic.
• Political arguments are concerned with
  protecting the interests of certain groups within
  a nation (normally producers), often at the
  expense of other groups (normally consumers)
• Economic arguments are typically concerned with
  boosting the overall wealth of a nation (to the
  benefit of all, both producers and consumers)

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Chapter 6 The Political Economy of
International Trade

• 1947-1979 GATT, Trade Liberalization, and
  Economic Growth
• The World Trade Organization (WTO), Experience
  to Date

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Chapter 7 Foreign Direct Investment

• INTRODUCTION
• Foreign direct investment (FDI) occurs when a
  firm invests directly in new facilities to
  produce and/or market in a foreign country.
• Once a firm undertakes FDI it becomes a
  multinational enterprise.

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Chapter 7 Foreign Direct Investment

• FDI takes on two main forms
• A greenfield investment (the establishment of a
  wholly new operation in a foreign country)
• Acquisition or merging with an existing firm in
  the foreign country
• FDI is not foreign portfolio investment
  (investment by individuals, firms, or public
  bodies in foreign financial instruments).

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Chapter 7 Foreign Direct Investment

• FOREIGN DIRECT INVESTMENT IN THE WORLD ECONOMY
• The flow of FDI refers to the amount of FDI
  undertaken over a given time period
• The stock of FDI refers to the total accumulated
  value of foreign-owned assets at a given time
• Outflows of FDI are the flows of FDI out of a
  country
• Inflows of FDI are the flows of FDI into a
  country

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Chapter 7 Foreign Direct Investment

• POLITICAL IDEOLOGY AND FOREIGN DIRECT INVESTMENT
• Ideology toward FDI ranges from a radical stance
  that is hostile to all FDI to the
  non-interventionist principle of free market
  economies
• Between these two extremes is an approach that
  might be called pragmatic nationalism

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Chapter 7 Foreign Direct Investment

• BENEFITS AND COSTS OF FDI
• FDI affects countries in different ways.
• Host Country Benefits
• Host Country Costs
• Home Country Benefits
• Home Country Costs

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Chapter 8 Regional Economic Integration

• INTRODUCTION
• Regional economic integration refers to
  agreements between countries in a geographic
  region to reduce tariff and nontariff barriers to
  the free flow of goods, services, and factors of
  production between each other.
• While regional trade agreements are designed to
  promote free trade, there is some concern that
  the world is moving toward a situation in which a
  number of regional trade blocks compete against
  each other.

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Chapter 8 Regional Economic Integration

• LEVELS OF ECONOMIC INTEGRATION
• There are five levels of economic integration
• Free trade area
• Customs union
• Common market
• Economic union
• Political union

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Chapter 8 Regional Economic Integration

• THE CASE FOR REGIONAL INTEGRATION
• The case for regional integration is both
  economic and political.
• The Economic Case for Integration
• The Political Case for Integration
• Impediments to Integration

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Chapter 8 Regional Economic Integration

• THE CASE AGAINST REGIONAL INTEGRATION
• Regional economic integration only makes sense
  when the amount of trade it creates exceeds the
  amount it diverts
• Trade creation occurs when low cost producers
  within the free trade area replace high cost
  domestic producers
• Trade diversion occurs when higher cost suppliers
  within the free trade area replace lower cost
  external suppliers

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Chapter 8 Regional Economic Integration

• REGIONAL ECONOMIC INTEGRATION IN EUROPE
• There are two trade blocks in Europe the
  European Union (EU) and the European Free Trade
  Association. Of the two, the EU is by far the
  more significant, not just in terms of
  membership, but also in terms of economic and
  political influence in the world economy.

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Chapter 8 Regional Economic Integration

• REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS
• Regional economic integration is on the rise in
  the Americas. The North American Free Trade
  Agreement (NAFTA) is the most significant
  attempt.
• Other efforts include the Andean group and
  MERCOSUR.
• In addition, there are plans to establish a
  hemisphere-wide Free Trade Area of the Americas
  (FTAA).