International Business
Chapter 2: Cross Cultural Business
What is culture?
Culture – set of values, beliefs, rules, and institutions held by a specific group of
people.
Ethnocentricity – belief that ones ethnic group or culture is superior than everyone
else’s.
Cultural literacy – detailed knowledge about a culture that enables a person to
function effectively within it. Improves the ability to manage employees, market
products, etc.
National Culture and Subcultures
Subcultures – a group of people who share a unique way of life within a larger,
dominant culture. It can differ from the dominant culture in language, race, lifestyle,
values, attitudes, or other characteristics.
Components of Culture
Aesthetics – what a culture considers “good taste” in the arts, the imagery evoke by
certain expressions and the symbolism of certain colours. Important when a
business is done with another culture.
Values and Attitudes
Values – ideas, beliefs and customs to which people are emotionally attached.
Honesty, marital faithfulness, freedom and responsibility.
Attitudes – positive or negative evaluations, feelings, and tendencies that
individuals harbor towards objects or concepts.
3 important aspects that affect business activities:
 Attitudes towards time
 Attitudes towards work
 Attitudes towards cultural change
Cultural trait – anything that represents a cultures way of life, gestures, material
objects, traditions and concepts
Cultural diffusion – process whereby cultural traits spread from one culture to
another.
Cultural imperialism – replacement of ones cultures traditions, folk heroes, and
artifacts with substitutes from another.
Manners/Customs
Manners – appropriate ways of behaving, speaking, and dressing in a culture.
Customs – habits, or ways of behaving in certain circumstances that are passed
down through generations in a culture.
Folk customs – behaviour dating back many generations that is practices by a
homogenous group of people
Popular customs – behaviour shared by a heterogeneous group of by several
groups. Eg. Wearing blue jeans or playing golf
Social structure – embodies a cultures fundamental organization, including its
groups and institutions, its system of social positions and their relationships, and
the process by which its resources are distributed.
3 important elements of social structure:
 social group associations
 social status
 social mobility
Social group associations
Social group – collection of two or more people who identify and interact
with one another and contribute to eachothers identity and self image.
 Family – nuclear family/extended family
 Gender – socially learned traits associated with and expected by men
or women.
Social Status
Social stratification – process of ranking people into social layers or classes.
 Family heritage
 Income
 Occupation
Social mobility

ease with which individuals can move up or down a cultures “social
ladder”.
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Caste system – system of social stratification in which people are
born into a social ranking or caste, with no opportunity for social
mobility.
Class system – system of social stratification in which personal
ability and actions determine social status and mobility.
Chapter 3: Politics, Law, and Business Ethics
Political Systems – structures, processes, and activities by which a nation governs
itself.
Politics and Culture
 A countries political system is rooted in the history and culture of its
people.
 Influences: population, age, race composition and per capita income.
Political Participation
 Participation occurs when people voice their opinions, vote, and show
general approval or dis of the system.
 Participation can be wide or narrow
Political ideologies
 Totalitarianism – every aspect of peoples lives must be controlled for a
nations political system to be effective. Treats people as slaves of the
political system (communism/fascism)
 Anarchism – only individuals and private groups should control a
nations political activities.
 Pluralism – both private/public groups play important roles.
(democracy)
Political Risk – likelihood that a society will undergo political changes that
negatively affect business activity.

Types of risk:
o Conflict and violence
o Terrorism and kidnapping
o Property seizure
o Policy changes
o Local content requirements
Legal Systems

Common Law:
o Legal system based on a countrys legal history (tradition), past cases
that have come before its courts (precendent), and how laws are
applied in specific situations.

Civil Law:
o Legal system based on a detailed set of written rules and statutes that
constitute a legal code.

Theocratic Law:
o Legal system based on religious teachings
Intellectual Property

property that results from peoples intellectual talents and abilities.
Property Rights
 legal rights to resources and any income generated
Industrial property
 patents and trademarks
o Patent – Property right granted to the inventor of a product or process
that excludes others from making, using, or selling the invention.
o Trademark – Property rights in the form of words or symbols that
distinguish a product and its mfg.
o Copyrights – Property right giving creators of original works the
freedom to publish or dispose of them as they choose.
Product Safety and Liability
Product Liability
 Responsibilities of mfg’s sellers, or individuals, and others for damage, injury,
or death caused by defective products.
Taxation

Use of tax revenue to pay gov salaries, military, and shift earned from people
with high incomes to the poor.
o Value-added Taxation (VAT) – a tax levied on each party that adds
value to a product throughout production and distribution. There is
no tax at point of sale because it has already been paid for throughout
production and distribution.
Antitrust Regulations

Laws designed to prevent companies from fixing prices, sharing markets, and
gaining unfair monopoly advantages. The point is to provide consumers with
a wide variety of products at fair prices.
Ethics and Social Responsibility
Ethical Behaviour
 Personal behaviour in accordance with guidelines for good conduct or
morality, in an ethical dilemma, there is no right or wrong decisions
Corporate Social Responsibility (CSR)
 Practice of companies going beyond legal obligations to actively balance
commitments to investors, customers, and other companies/communities.
The United Nations
 Intl. organization formed after WWII to provide leadership in fostering peace
and stability around the world.
Chapter 4: Economics and Emerging Markets
Economic Systems

Consists of the structure and processes that is uses to allocate its resources
and conduct commercial activities.
Centrally Planned Economy
 System in which a nations land, factories, and other econ resources are
owned by the government, which plans nearly all economic activity.
Mixed Economy
 Economic system in which land, factories, and other resources are equally
split between private and gov. ownership
o Privatization – selling gov. owned resources to private owners.
Market Economy
 Lands resources are owned privately
Development of Nations
Economic Development
 Measure for gauging the economic well-being of one nations people as
compared with that of another nations people.
National Production
 GDP – value of all goods/services produced within a country
 GNP – value of all g/s produced within and abroad the home country
Purchasing Power Parity (PPP)
 Relative ability of two countries ability to buy the same basket of goods.
Purchasing Power
 Value of all g/s that can be purchased with one unit of a country’s currency.
Human Development
 Human Development Index (HDI) – measure of the extent to which a gov.
equitability provides its people with a long and healthy life, an education, and
a decent standard of living.
Classifying Countries
 Developed countries – country that is highly industrialized and highly
efficient, and whose people enjoy a high quality of life.
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Newly Industrialized Countries – Country that has recently increased the
portion of its nation production and exports derived from industrial
operations. Aka emerging markets.
Developing Countries – Nation that has a poor infrastructure and extremely
low personal incomes.
Economic Transition
Process by which a nation changes its fundamental economic organization and
creates new free-market institutions.
 Stabilize economy, reduce defecits, expend credit availability
 Allow prices to reflect supply and demand
 Legalize private business, sell state-owned companies, support property
rights
 Reduce barriers to trade
Obstacles to Transition
 Lack of managerial expertise
 Shortage of capital
 Cultural differences
 Environmental degradation
Chapter 5: International Trade
International Trade
 Purchase, sale, or exchange of goods and services across national borders
Mercantilism
 Trade theory that nations should accumulate financial wealth, usually in the
form of gold, by encouraging exports and discouraging imports.
o Trade surplus – condition that results when the value of a nations
exports is greater than the value of its imports
o Trade defecit – Condition that results when the value of a country’s
imports is greater than its exports.
Absolute Advantage
 Ability of a nation to produce a good more efficiently than any other nation.
Comparative Advantage
 Inability of a nation to produce a good more efficiently than other nations but
an ability to produce that good more efficiently than it does any other good.
Factor Propositions Theory
 Trade theory stating that countries produce and export goods that require
resources (factors) that are abundant and import goods that require
resources short in supply.
The Leontief Paradox
 Leontief tested whether the US which uses an abundance of capital
equipment, exports goods requiring capital-intensive production and
imports goods requiring labour-intensive production. Contrary to the
predictions of the factor propositions theory, his research found that US
exports require more labour intensive production than its imports. This
apparent paradox between the predictions using the theory and the actual
trade flows is the Leontief Paradox.
International Product Life Cycle
 Theory stating that a company will export its product and later undertake
foreign direct investment as the product moves through the cycle.
o Stages:
 New product stage – high purchasing power and demand of
buyers in an industrialized country drive a company to design
and introduce the new concept. Exports begin to pick up late in
this stage
 Maturing product stage – domestic market and markets
abroad become fully aware of the existence of the product and
its benefits. Demand rises and is sustained over a fairly lengthy
period of time. Near the end of the stage, the product starts to
being generating sales in developing nations.
 Standardized Product Stage – competition from other
companies selling similar products pressures companies to
lower prices in order to maintain sales levels. Late in this stage
domestic production might even cease altogether.
New Trade Theory
 There are gains to be made from specialization, and increasing economies of
scale.
 Companies to first market can create barriers to entry
o First mover advantage
 Government may play a role in assisting its home companies.
National Competitive Advantage
 Trade theory stating that nations competitiveness in an industry depends on
the capacity of the industry to innovate and upgrade. (The Porter Diamond)
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Factor conditions
o Considers a nations resources, such as large labour force, natural
resources, climate, surface features, etc, that a country will produce
and export.
 Advanced factors – skill levels of different segments of
workforce, quality of technological infrastructure.
Demand Conditions
o Buyers in the home market are important to C.A. Sophisticated
markets drive companies to design new products and features and the
competiveness of the entire group improves.
Related and supporting industries
o Supporting industries spring up to provide inputs required by the
industry.

Firm strategy, structure, and rivalry
o Strategies of firms and the actions of their managers have lasting
effects on future competitiveness. Essential to successful companies
are mangers who are commited to producing quality products valued
by buyers while maximizing the firms market share and/or financial
returns

Government and chance
o Gov. actions can increase competitiveness of firms and perhaps even
the entire industries.
o Gov. policies should not be designed to protect national industries
that are not internationally competitive but should develop the
components of the diamond that contribute to increased
competitiveness.
Chapter 6: Business-Government Trade Relations
Why Do Governments intervene in Trade?

Free Trade – pattern of imports and exports that occurs in the absence of
trade barriers.
Political Motives
 Protect jobs
 Preserve national security
 Respond to “unfair” trade
 Gain influence
Economic Motives
 Protect infant industries
 Pursue strategic trade policy
Cultural Motives
 Cultural influences
Methods of Promoting Trade

Subsidies
o Financial assistance to domestic producers in the form of cash
payments, low interest loans, tax breaks, product price supports, or
other forms.

Export Financing
o Gov. promotes exports by helping companies finance their export
activities. Gives them loans lower than market rates.

Foreign Trade Zones
o Designated geographic region through which merchandise is allowed
to pass with lower customs.

Special Government Agencies
o Special agencies for promoting exports
o Helpful to small and medium sized businesses that have limited
financial resources
o Organize trips to get new business contacts for the company
Methods of Restricting Trade
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Tariffs
o Gov tax on a product as it enters or leaves a country
 Ad valorem tariff
 Specific tariff
 Compound tariff
Quotas
o A restriction on the specific amount of a good or service that is
allowed to leave a country during a certain period of time. Second
most common type behind tariffs.
Embargoes
o Complete ban on trade
Local Content Requirements
o Laws stipulating that producers in a domestic market must supply a
specified amount of a good or service. These requirements can state
that a certain portion of the end product consists of domestically
produced goods or that a certain portion of the final cost of a product
has domestic sources.
Administrative Delays
o Regulatory controls or bureaucratic rules designed to impair the flow
of imports into a country.
Currency Controls
o Restrictions on the convertibility of a currency into other currencies.
Global Trading System
General Agreement on Tariffs and Trade (Gatt)
 Treaty designed to promote free trade by reducing both tariff and non tariff
barriers to international trade.
World Trade Organization (WTO)
 The international organization that regulates trade among nation.
o 3 main goals:
 help free flow of trade
 help negotiate further opening of markets
 settle disputes amongst members

Chapter 7: Foreign Direct Investment
Foreign Direct Investment (FDI)
 Purchase of physical assets or a significant amount of ownership (stock) of a
company in another country to gain measure of management control.
Portfolio Investments
 Investments that do not require a degree of control in a company.
Market imperfections
 When the market has an inefficiency the theory states that a company will
then undertake in FDI to internalize the transaction and thereby remove the
imperfection.
Electic Theory
 Theory stating that firms undertake FDI when the features of a particular
location combine with the ownership and internalization advantages o make
a location appealing for investment.
Market Power
 Theory stating that a firm tries to establish a dominant market presence in an
industry by undertaking FDI.
Management Issues in the FDI Decision
 Control
o Partnership requirements
o Benefits of cooperation
 Purchase or build decision
 Production costs
o Rationalized production  using lowest possible cost
o Cost of R&D
 Customer Knowledge
 Following clients
 Following rivals
Government Intervention in FDI
 Balance of payments  National accounting system that records all
payments to entities in other countries and all receipts coming into the
nation.
o Current account  National account that involves the import and
exports of g/s, income receipts from abroad, and income payments on
foreign assets inside the country
Current account surplus (more exports/receipts that
imports/payments outgoing)
 Current account deficit (opposite of surplus)
o Capital account  National account that records transactions
involving the purchase or sale of assets.

Reasons for Intervention by the Host Country
 Controlling the balance of payments
 Obtain resources and benefits
Reasons for Intervention by the Home Country
 Investing in other nations sends resources out of the home country
 Outgoing FDI may ultimately damage a nations balance of payments by
taking place of its exports
 Jobs resulting from outgoing investments may replace jobs at home
 Outward FDi can increase long-term competitiveness.
 Nations may encourage FDI in industries identified as ‘sunset” industries.
Industries that employ people with few skills.
Government Policy Instruments and FDI
Host Countries:
Promotion
 Financial incentives
 Infrastructure improvements
Restriction
 Ownership restrictions
 Performance demands
Home Countries:
Promotion
 Offering insurance to cover risks of abroad investments
 Granting loans
 Offering tax breaks
 Applying political pressure
Restriction
 Imposing differential tax rates
 Imposing outright sanctions