Chapter 1
Chapter 1- Introduction to International Management
1. Globalization- the changes in societies and the world economy that result from
dramatically increased international trade, foreign direct investment and cultural
exchange.
2. Benefits to Consumers of International Trade
A. less expensive and higher quality products
B. International competition pushes product development and forces companies to
be better
C. Shipping, production, and coordination costs, and tariffs have all declined,
which increases international trade
D. Outsourcing- delegation of non-core operations or jobs from internal
production to an external entity that specializes in that operation
E. The number of jobs outsourced increased but the number of jobs insourced to
the US has also increased
F. International business focuses on the macro approach to operating a business
internationally, while international management focuses on how individuals
manage a global business
3. A Global World
A. Tariffs after WWII were high, which discouraged trade but now at only 4%,
trade has become a dominant factor in business
4. Two Periods in the Globalization Trend
A. Big Unit Capitalism- dominated by Big Business, Big Government, and Big
Labor. The Big Unit economy generally produced efficient but rigid, pyramidal
organizations and government departments that were full of soft niches that
relaxed standards and did not demand excellence and accountability in work and
educational quality.
i. Stable economics, large domestic firms, high-degree of central planning
B. Bretton Woods System- a negotiated monetary order after WWII to govern
monetary relations and currency exchange rates among independent states
i. Created mechanisms to support countries that ran into balance-ofpayments difficulties
ii. Created the World Bank and the international monetary fund (IMF)
5. Drivers of Globalization
A. Technology Changes
i. Multinational enterprise- large firm that operates in a large number of
countries
ii. Improvements in technology made it easy for even small firms to do
business internationally
iii. Improving technology makes communication, etc. cheaper, which
allows for far more people to be able to afford it
B. Changes in Access to Information
i. Internet and Satellite dishes that allow for TV have made the flow of
information incredibly easy
C. Changes in How People Save, Spend, and Invest
i. Disruptive innovation- new technological innovation, product, service,
or business model that overturns the existing dominant innovation or
technological standard in the marketplace.
ii. Commercial Paper- bonds that corporations issue directly to the public
in order to raise capital.
iii. Market for Corporate Control- the ability to take over a poorly
performing firm and turn it around to profitability
Effects of Globalization
-Competition has increased greatly in the past two to three decades with the
advent of globalization and the energizing forces of technology changes and
major financial innovations.
-Business face changes with how things are done globally
-Friendly competition that existed before has been replaced with hard competition
-New players introduced; new rules created
-Formal rules: government regulations, labor agreements, corporate bureaucratic
policies
-Informal rules: “I wont hit you if you don’t hit me.” “Lets set all of our prices at
the same level.” – These are gone
-Instability of industry, speed of change, problems and opportunities, availability
of higher-quality or lower priced goods and services all been changed
-Possible issues: protesters believe globalization negatively impacts poor, the
environment, safety standards, not a reciprocal relationship
-Evidence shows that worlds population are best served by international trade;
gives people an opportunity to rise out of their poor situation; “Greatest
opportunity for the poor is free trade.”
Why Study IM?
-Human nature assumes what we view as normal or traditional will also be what is
viewed as normal or traditional in other countries and cultures
-Success in international business requires an open mind and willingness to challenge
assumptions
-IM teaches that through education and study you will learn some of the things that differ
from what is considered right; differences that you may face when managing
international firm
-prep through education is key to success because it prepares you to respond to different
scenarios
-Important to understand shift players in international business and new economic players
Shifting Players:
-Fifteen years ago large firms could reliably assume that they needed operations
in North America, Japan and the European Community
-World has changed considerably, more countries entering the stage
-USSR broken up and free-market economies showing up
-EC has given way to EU, which includes 27 European countries
-China has opened its economy and is now the largest recipient of Foreign Direct
Investment
Multinational & bilateral agreements
EU: Traced to 1951 (European Coal and Steel Community) with 6
members; Belgium, West Germany, Luxembourg, France, Italy,
Netherlands
-27 Countries today: (google this and copy/paste)
-Borderless union approx. size of United States
-Some tax laws determined locally but many issues such as product
standards and nature of expected competition are determined centrally by
the EU governmental body
-Currency is the Euro (minus England – very arrogant)
-EU third biggest population behind China and India
WTO: established in 1995, composed of 148 countries throughout the
world
-Committed to promotion of trade; members abide by the rules; rules are
an umbrella agreement called General Agreement on Trade and Tariffs
(GATT). WTO provides ability to evaluate disputes when they arise and
reach a solution
-Creates a structure to solve problems; equivalent to a legal system to
evaluate disputes
-Ability to impose penalties
NAFTA: signed in 1994 between Mexico, US, Canada
-Creates free trade zone between three nations with tariffs eliminated as of
2003
-Trade has exploded with exports between countries growing
tremendously
Japan/Thailand: bilateral agreement went beyond established regional
trade agreement and allowed Japan, which has one of the world’s most
protected markets for rice, greater access to rice grown in Thailand; in turn
it allowed Thailand greater access to Japanese manufactured goods
New Economic Players
China: World’s largest country; doctrinaire communist country until 1978
-Deng Xiaonping: didn’t care whether the cat was white or black as long
as it caught the mouse; didn’t care if it was capitalism or socialism as long
as the people prospered
-During last 30 years China has experienced economic growth averaging
9% annually, but country is generally poor
India: World’s largest democracy; second largest population
-Economy has averaged growth of about 7% since economic reform
commenced in 1991
-Sizable middle class
-Large number of well-educated people, who possess strong English
language skills and considerable growth in nation’s software services
Other players: International Monetary Fund and World Bank
IMF: 180 member nations; 1944; means of providing additional economic
stability to the economic system of various member states after WW2;
helps national banks exchange funds; advises nations on how to establish
sound policies; can lend to different nations if they have shortages that
endanger the monetary system
World Bank: mission to fight poverty; over 100 member countries;
development bank that provides loans, policy advice, technical assistance,
and knowledge sharing services to low- and mille- income countries
Ethics Concerns
Legal Foundation: absolute minimum level of ethics a business must observe are
legal standards of its nation; laws of its nation do not necessarily stop at its
country’s border; two major pieces of legislation that affect international
management in US are Foreign Corrupt Practices Act and Sarbanes Oxley
Foreign Corrupt Practices Act: grew out of revelations that some US
firms had paid bribes to obtain contracts overseas; against capitalist system; made
it illegal to pay bribes to organizations and government officials in foreign
countries; however it is okay to pay “facilitating payments” to make to
bureaucratic process move along
Sarbanes Oxley: passed in response to perceived business misconduct;
major provisions include:
-CEO and CFO certification of financial reports
-Real time disclosure of material events
- Requirement of audit committee independence
-Accelerated reporting of trades by insiders
-Ban on loans to insiders
-Prohibition on insider trading
-Required reporting if business has a code of ethics for senior
management
-Auditor independence
-Enhanced punishments and sanctions
Beyond the legal foundation of ethics: more than law; grows on legal
standards
–
–
codes on their own usually inefficient
Firms should keep in mind:
o Ethics is concerned with understanding firms stakeholders
needs and desires
o External reference points are useful to judge whether
behaviors are ethical
o Firms need to glorify the stories and examples of those
judgments that individuals make that demonstrate the type of
ethical standards they want to encourage
o Dialog important in developing ethical understanding within a
firm. Standards don’t develop on their own – leaders job to
demonstrate
Ethical Choices: ethical dilemmas require trade offs; 4 most popular dilemmas:
-Truth vs. loyalty
-Individual vs. Community
-short term vs. long term
-justice vs. mercy