IBM2702 International Business Environment
CHAPTER I GLOBALIZATION
What is Globalization
The shift toward a more integrated and interdependent world economy
Globalization of Markets  the merging of obvious and separate national markets
into one huge global market place.
The Globalization of Production  The sourcing of goods /services from around the
world to take advantage of national
differences in the cost and quality of
factors of production
The Emergence of Global Institutions
Factors of
Production
labor,that
energy,
land,
General Agreement on Tariffs and Trade (GATT)  International treaty
lowering
barriers
to the free flow of goods across national borders
and led to the
WTO.
management,
and
capital
WTO  The organization that succeeded the GAT
International Monetary Fund (IMF)  International institutions maintain monetary
system.
World Bank  International institution set up to promote general economic
development in the world’s poorer nations.
United Nations  International organization
promotes peace, security and cooperation.
INTERNATIONAL
TRADE
WHEN

A
FIRM
EXPORTS
GOODS/SERVICES
CONSUMERS
TO
IN
ANOTHER COUNTRY.
Divers of Globalization
FOREIGN DERIECT
Two macro factors control the trend toward greater
INVESTMENT
globalization

DIRECT INVESTMENT IN
  BUSINESS OPERATIONS IN A
FOREIGN COUNTRY.


 

 Microprocessors and Telecommunications
 The Internet and World Wide Web
 Transportation technology
 Implications for the Globalization of Production
 Implications for the Globalization of markets
The Changing Demographics of the Global economy
 


 

Stock of foreign direct Investment The total accumulated value of foreign-
owned assets at a given time
 


Multinational Enterprise (MNE) firms that owns business operations in
more than one country
 Non-U.S. multinationals
 The rise of Mini-Multinationals
 

 

The Globalization debate
 

 

 


 

E. 

CHAPTER 2 NATIONAL DIFFERENCES IN POLITICAL ECONOMY
POLITICAL
SYSTEM
POLITICAL
SYSTEM
 THE SYSTEM OF GOVERNMENT IN A NATION
Collectivism and Individualism
Collectivism = political system that stresses the primary of collective goals.
 The needs as a whole “the goal of society”
 Plato  The republic
Socialism (socialists) government ownership of the average productions


1. Communists = violent revolution and totalitarian
dictatorship.



2. Social Democrats = democratic
means


Individualism = an individual should
have freedom in his/her economic &

for common goods.
Political pursuits.
1. The needs as an individual
2. Aristotle
ECONOMIC
Democracy and Totalitarianism
SYSTEM
Democracy (Government is by people, elected preventatives)
Totalitarianism (Government exercise absolute control)
1. Communist Totalitarianism
2. Theocratic Totalitarianism = Governs according to religious
principles 
3. Tribal Totalitarianism = Political party that represents the interests


of a particular tribe, monopolize power

4. Right-wing Totalitarianism = Governments are backed by military
or are the military officers
Market Economy All product activities are privately
owned. 



 Production is determined by supply & Demand.
 Supplies are not restricted.
Command Economy  Government plans the goods & services (What to
produce/How much is it) 
 Set prices and Quantities
 Allocate resources for the good of society
 No innovation/Dynamism
Mixed Economy  Government and private firms share the economic

LEGAL
 Regulate behavior and the processes.
SYSTEM
Common
Law  based
on tradition, precedent, and custom
Country’s legal history
 Cases that have come before the courts in
the past
 The ways in which laws are applied in specific
situations
Civil Law 
based on a detailed set of laws organized into codes.
Theocratic Law based
on religious teachings
Property rights and corruption
The legal rights over the use to which a resource is put
and over the use made of any income that may be derived
from that resource.
Private Actiontheft,
piracy, blackmail, and the like by private individuals or
groups.
Public action and corruption 
violate property rights occurs when public officials
cheat income, resources, or the property itself from property holders
U.S. law regulating behavior regarding
**Foreign corrupt practices Act 
the conduct of international business in the taking of bribes
and other unethical actions.
The Protection of intellectual property
Intellectual propertythe
PatentGrants
product of intellectual Software
activity Screenplay Music score
New drug
the innovator of a new product.
Copyrightexclusive
legal rights of authors, composers, playwrights, artists
etc.
Trademarkthe
design and name, often officially registered, by merchants
designate
** World Intellectual
their product.
Property Organization
Paris Convention for the Protection of Industrial Property
CHAPTER 3 POLITICAL ECONOMY AND ECONOMIC DEVELOPMENT
DIFFERENCES IN ECONOMIC DEVELOPMENT
GROSS NATIONAL INCOME (GNI)The total annual income of a
nation’s residents.
PURCHASING POWER PARITY (PPP)An adjustment in gross
domestic per capita to reflect differences in the cost of living.
HUMAN DEVELOP INDEX (HDI)  The impact of a number of factors
on the quality of human life in a country.
POLITICAL ECONOMY AND ECONOMIC PROGRESS
INNOVATION AND ENTREPRENEURSHIP ARE:
 The engines of growth
 Require a market economy
 Require strong property rights
THE REQUIRED POLITICAL SYSTEM
ECONOMIC PROGRESS CREATES DEMOCRACY
Innovation

Development of new
products, processes
organization,
strategies.
and
GEOGRAPHY, EDUCATION, AND ECONOMIC DEVELOPMENT
CHAPTER 4 DIFFERENCES IN CULTURE
What is
culture?
 A system of values and norms that are shared among a group of people
and that when taken together constitute a design for living.
Values and Norms
Values = Abstract ideas about what a group believes to be good, right, and
desirable.
Norms = the social rules and guidelines that
prescribe appropriate behavior in a particular
INDIVIDUAL & GROUP
situations.
[WESTERN = INDIVIDUAL
The determinants of culture
Social Structure
The basic social organization of a society
Individuals and Groups
]
ASIAN =GROUP
CLASSES & CASTES
[INDIA = CASTES
]
AMERICAN = CLASSES
Group = two or more individuals who have a shared sense of identity and
interact with each other in common set of expectations about each other’s
behavior.
The Individual
Positive
Negative
High degree of managerial mobility
High level of entrepreneurial activity
 create new products and new
ways of doing business
between companies lack of
loyalty& commitment leads to
frequent move to better office, so
they lost knowledge, experience and
network of personal contact
High degree of managerial mobility
 exposed to different ways of doing
Difficult to make a teams
business
The Group
Positive
Employees can Build up knowledge,
experience and a networkthey can
perform their job effectively
Create pressures for mutual self-help
and collective action
Negative
Lack of dynamism and
entrepreneurship
Social stratification
Social strata family background, occupation, and income
Social Mobility individuals can move out of the strata into which they are
born
Caste system closed system that is determined by the family into which a
person is born, cannot change position
Class system social mobility is possible up or down depends on his or her
achievements or luck
Language
Spoken Language

Spoken & written vocabulary
Unspoken Language  nonverbal communication
Language blunder = Advertising slogans & company documents must
be translated carefully so that messages are received precisely as intended.
Education


Hofetede framework

Hofetede framework
1.
(5 dimensions)
Power distance = how society deal with the fact that people are
unequal in physical & intellectual capabilities.
 Inequality in power & wealth
 Greater equality
2.
Individualism & Collectivism = Focus on relationship between the
individual and his or her fellows.
Individualist culture
Individual achievement & freedom
Hard work/ innovation
Collectivist culture
Collective goal
Strong association to the group
3.
Uncertainty avoidance the members can accept ambiguous situation
and tolerate uncertainty.
 Value job security/low employee turnover
 Ready to take risk & change/entrepreneurship
4.
Masculinity VS Femininity
Masculinity
Sex roles are shaped differentiated
Masculine value
Femininity
Little differentiation between men & women
Relaxed lifestyle
5.
Long-term orientation
 Strong long-term business relationship
 Respect for tradition/Reciprocation of gifts
Implication
for international
business
Implication
for international
business
1. Cross-cultural literacy  Developed
2. Ethnocentricity  Avoided
Chapter 5: Ethics in international business
Ethical
Ethical issues
issues in
in international
international business
business
1. Employment practice
 Wages, working hours, and working environment
2. Human right
 Freedom of speech/assembly/movement etc
3. Environment pollution = arise when environmental regulations in host
nations are far inferior to those in the home nation.
4. Corruption
 Foreign corruption practices act, convention on combating bribery of
foreign public officials in international business Transactions
5. Moral obligation
 Social responsibility
Ethical dilemmas = situation in which none of the available seems ethically
5acceptable.
things to do
5 things to do
1. Hiring & Promotion
 Hire people who have a strong sense of personal ethics
2. Organization
 Reward & Sanction
3. Leadership
 Leaders should act in manner
4. Decision making process
 Stakeholders: Internal = employees, stockholders
External = customers, suppliers, government
 Moral imagination = standing the shoes of a stakeholder & ask how a
proposed decision might impact them.
5. Develop moral courage
Chapter 6: International Trade Theory
Free
Free trade
trade

No government intervention in international trade (no tariffs & Quotas)
 Have a specialize in production
 More efficiency export goods/ cheaper import goods
International Trade
Trade Theory
Theory
International
1.
Mercantilism
 Maintain trade surplus (≠ trade deficit)
 Government intervention  impose import restrictions
 Zero-sum game = one country gain, another losses
2.
Absolute advantage
 Production Possibilities Frontiers (PPF)
 Positive-sum game = both countries benefit from trade
Example
Ghana
South Korea
Cocoa
10 hrs
40 hrs
Rice
20 hrs
10 hrs
Without trade
Ghana
South Korea
Total production
Cocoa
10
2.5
12.5
Rice
5
10
15
Specialization
Ghana
Ghana
South
Korea
South
Korea
Total production
Cocoa
Cocoa
10 20
hrs
40 0hrs
20
Rice
Rice
13.33
hrs
0
20
hrs
20
20
After Trade
Ghana
South Korea
Total production
Cocoa
14
6
20
Rice
6
14
20
Ghana
South Korea
Total production
Cocoa
4
3.5
7.5
Rice
1
4
5
Gain
3.
Comparative Advantage
 When a country can produce a good with lower opportunity cost than
other
 Positive-sum game
Example
Without trade
Ghana
South Korea
total production
Cocoa
10
2.5
12.5
Rice
7.5
5
12.5
Cocoa
Rice
Specialization
Ghana
South Korea
total production
15
0
15
3.75
10
13.75
Ghana
South Korea
total production
Cocoa
11
4
15
Rice
7.75
6
13.75
Ghana
South Korea
total production
Cocoa
1
1.5
2.5
Rice
0.25
1
1.25
After Trade
Gain
4.
Heckscher-Ohlin theory
 Factor endowment (land, labor, capital)
 The more abundant, the lower its cost
 Leontif Paradox
5.
International product life cycle
 3 stages  New, Maturity, Standardized product
6.
New trade theory
 Economic of Scale (EOS) = unit cost reductions associated with a
large scale of output
 First mover Advantage = the first to enter the market
7.
National competitive advantage
 Porter’s diamonds
1.
Factor conditions basic & advanced
2.
Demand conditions
3.
Related & Supporting industries
4.
Firm strategies, Structure, and rivalry
Chapter 7: Political economy of inter trade
Instruments of
of trade
trade policy
policy
Instruments
1. Tariffs
 Export tariff
 Import Tariff  Ad valorem tariff = percentage
Specific tariff = fixed charge
2. Subsidies
 cash payment, low interest loans, Tax breaks
 Pros = help domestic firms
 Cons = inefficient domestic producers
3. Quotas
 Import quotas
 Voluntary export restraints (VER)
 Tariff Rate Quotas
4. Local content requirements (LCR)
5. Administrative policies
6. Antidumping policies
 Dumping = Selling goods in a foreign market below their cost of
production
 Punish foreign firms
Case for
for Government
Government intervention
intervention
Case
1. Protecting Job & Industry
2. National security
 Protect certain industries because they are important for national
security
3. Retaliation
 Play by the rule of the game = Trade war
4. Protecting Consumers
 Protect from unsafe products
5. Furthering foreign policy objectives
 Support their foreign policy objectives = build strong relations
6. Protecting human rights
 Most favored nation (MFN)
7. Protecting the environment
 International trade leads to higher pollution (CO2)
Economic arguments for the intervention
Economic arguments for the intervention
1. Infant industry argument
 new factories cannot compete with industries that come from
developed countries
2. Strategic trade policy
 improve the competitive position of a domestic firm
 help firms gain first-mover advantage