Brian Chen
July 14, 2008
(Bonne fête de la Bastille!)
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Introduction to Course
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Chapter 1: Introduction and Overview
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About the GSI
Overview of the Course
Course Expectations
Course Grading and Policy
About the Sections
Chapter 1 Exercise: Globalization Exercise
Chapter 2: National Differences in Political
Economy
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Chapter 2 Exercise: Case – The Troubled Giant
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Fifth-Year PhD Candidate in Business and Public
Policy Group, Haas School of Business, UC
Berkeley
Research Interests:
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Education:
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Health Care Management and Health Policy, Regulation,
Law and Economics, International Law and Business
Harvard College 1992, Stanford Law School 1997
Work Experience:
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Air Liquide (Paris, France); Teisan KK (Tokyo, Japan),
Baker & McKenzie (Taipei, Taiwan); Sullivan & Cromwell
(New York), Orrick Herrington & Sutcliffe (San
Francisco), Kaohsiung Medical University (Kaohsiung,
Taiwan)
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Course is divided into two major themes:
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(1) The political, economic, and financial landscape of international
business
 Instills awareness of the issues a firm might encounter in international
business:
 Globalization of the marketplace, differences that remain in the global
marketplace (culture, ethics, etc), the international trade /investment
environment, political economy of trade, foreign exchange and
international monetary system
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(2) Firm Strategies to undertake in order to operate in a global
arena
 With an awareness of the political, economic, and financial landscape of
international business, how do firms operate transnationally?
 Strategy in general, entry strategy, alliances, exporting/importing, global
production/outsourcing/logistics, global marketing, R&D, global human
resource management, international financial management
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Note that Midterm Examination is placed right between the two
parts of the course
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Thorough understanding of the landscape of
international business and issues arising
therefrom in the course of conducting
international business
To perform well in the course:
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Thorough grasp of material (lecture and cases) as
demonstrated in examinations
Participation in class and section
Excellent participation grade *may* help move your
grade one level up (e.g., from B+ to A-)
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Word about academic honesty:
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No plagiarism: pasting sentences or paragraphs
from various sources without attribution DOES
constitute plagiarism. Copying from another
student also constitutes plagiarism
No dishonesty in attendance: Signing in for one or
more other students constitutes academic dishonesty
No dishonesty in examination: No talking or
exchanging notes during examination
Students caught committing an act of academic
dishonesty will automatically fail the assignment or
the course
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Final course grade is determined by a rough curve
Many UC Berkeley undergraduate courses curved
around a C+. This course was curved around a B
last semester
Spring 2007: the top 13 received an A, the next 24
an A-, the next 28 a B+, the next 21 a B, the next 11
a B-, the next 2 a C+, the next 7 a C, the next 6 a C-,
and a D for the bottom 3 students
In other words, 1/3 of the class received some type
of A
And to emphasize: active participation in section
and in class can only help you
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Goal: To apply concepts learned in class
through discussion
GSI is merely a facilitator and an agenda-setter
Format:
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(1) One-slide review of the previous section
(2) Review of important points in lecture
(3) If necessary, “overflow” material from the class
(4) Two to four lecture-related topics to discuss in
small groups and in class
 Topics may be drawn from the textbook, from the
professor, or self-prepared by the GSI
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Quality trumps quantity
HOWEVER, NO POINT IS EVER DEDUCTED FOR
“WRONG” ANSWERS
 Again, to emphasize, there is only upside potential
by participating in section discussions
GSI will attempt to permit a diverse group of students
to answer questions on a voluntarily basis
However, in the event of lack of participation, GSI may
cold call
Foreign students are especially welcome to share their
experiences, so please do not allow perceived linguistic
barriers to get in way
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Globalization: Definition, Market, Production
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Global Institutions
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GATT, WTO, IMF, World Bank, UN
Drivers of globalization
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Is the globalization of markets “universal”?
Declining barriers
Technological change
How the Global Economy is Changing
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Output is shifting
FDI destination is shifting East
MNE
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Globalization Debate
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Jobs and income security
Labor policies and the environment
National Sovereignty
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Understand what is meant by the term
globalization.
Be familiar with the main drivers of globalization.
Appreciate the changing nature of the global
economy.
Understand the major arguments in the debate
over the impact of globalization.
Appreciate how the process of globalization is
creating opportunities and challenges for business
managers.
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(1) Describe how international business has affected
you in your daily life. Think about who made the
clothes you’re wearing, what type of food you ate for
breakfast or lunch (muesli cereal, sushi, Italian-style
coffee), what type of cell phone you have and where it
was made, where your car was designed and
manufactured, where the components for your
computer were manufactured, and so on.
(2) Why (or why not) are so many of the products you
use made abroad? Which are the ones made abroad?
(Think about an integrated world economy vs. distinct
national economies)
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Describe the shifts in the world economy over
the past 30 years. What are the implications of
these shifts for international businesses based
in Europe? North America? Hong
Kong/Taiwan?
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“The study of international business is fine if
you are going to work in a large multinational
enterprise, but it has no relevance for
individuals who are going to work in small
firms.” Evaluate this statement.
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How have changes in technology contributed
to the globalization of markets and production?
Would the globalization of production and
markets have been possible without these
technological changes?
When grading:
 Questions asking mere facts are weighted less
 Questions asking for inferences and requiring
careful analysis are weighted more
 As much as possible, consider both sides of the
issue
 Imagine as many likely scenarios as possible
when asked to make a guess
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Does globalization cause poverty?
Why are so many people opposed to
globalization?
Does globalization diminish cultural diversity?
Can globalization be controlled?
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Political Systems: Collectivism/Socialism vs.
Individualism; Democracy vs. Totalitarianism
Economic Systems: Market Economy vs.
Command Economy vs. Mixed Economy
Legal Systems: Common Law, Civil Law,
Theocratic Law
Contract Law: Property Rights, Private Action,
Public Action, Foreign Corrupt Practices Act
Intellectual Property: Patent, Copyrights,
Trademarks, (TRIPS)
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Determinants of Economic Development
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Measuring economic development: PPP, GDP,
Amartya Sen
Political Economy:
 Innovation as engine of growth.
 Innovation requires market economy
 Innovation requires strong property rights
 But what is the right political system?
 Does progress lead to democracy?
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Geography and Education on development
States in transition: What is the general trend
in political economy worldwide?
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Understand how the political systems of countries differ.
Understand how the economic systems of countries differ.
Understand how the legal systems of countries differ.
Be able to explain what determines the level of economic
development of a nation.
Discuss the macro-political and economic changes taking
place worldwide.
Describe how transition economies are moving towards
market based systems.
Articulate the implications for management practice of
national differences in political economy.
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QUESTION 1: What political factors explain
Indonesia’s poor economic performance? What
economic factors? Are the two related?
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The political factors are totalitarianism,
corruption and red tape. The economic factors
are the flight of foreign capital and poor
infrastructure. Yes, they are related.
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For 30 years, Indonesia was run under a
dictatorship style government where internal
dissent was repressed. Today, while a democracy
is in place, the country continues to be plagued by
corruption and red tape. Foreign capital is fleeing
the country, and the infrastructure is in desperate
need of improvement. All of these factors have
contributed to the nation’s poor economic climate.
Indonesia’s political and economic situations are
intertwined, and that to fix one area, changes will
have to made to the other.
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For thirty years, Indonesia’s economy grew steadily under the ironclad rule of President Suharto – but at the
heavy cost of internal suppression of dissent. This suppression of dissent robbed Indonesia’s economy of the
vitality and incentives associated with a free-market economy in which individual property owners, who in
the process of seeking to accumulate wealth enrich the entire economy and create economic growth. While
Indonesia has since overthrown the dictatorial government, corruption and red tape remain rife at almost all
levels of government in Indonesia. A World Bank study revealed how excessive red tape in Indonesia hurts
business activities: An entrepreneur in Indonesia must wait an average of 151 days to complete the necessary
paperwork to start a business, compared to 30 days in Malaysia and a mere 8 days in Singapore, severely
hampering the Indonesian entrepreneur’s speed and desire to participate in the economy. In turn, the
excessive red tape translates into long lines of government bureaucrats, whose low salaries make it attractive
for them to seek a bribe at every step of the business transaction, further distracting and detracting the
entrepreneur from legitimate business pursuits.
In addition to these political factors, Indonesia also suffers from economics factors that hinder growth.
Indonesia’s poor infrastructure makes it difficult to conduct business: A poor infrastructure in roads signifies
that it is difficult to transport goods and services to the consumers, and may even hinder export-related
businesses if companies cannot ship the finished intermediary or final products to their intended customers
abroad. The unreliability of the electric grid means that production and even administrative activities can be
interrupted at any moment. Together, these inhospitable business climates decrease business confidence in
Indonesia, leading to capital flight and a decrease in investments, shaking the very foundation of economic
growth.
The political and economic factors that hinder growth in Indonesia are indeed intertwined. The unfriendly
political environment makes it less likely that foreign or domestic capital would be interested in investing in
Indonesia because of the business costs associated with red tape and corruption. In turn, the lack in
investment feeds the desire of government officials to continue to seek bribes and create red tape in order to
supplement their low income due to a stagnant or slow-growing economy.
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QUESTION 2: Why do you think foreign firms
have been exiting Indonesia in recent years?
What are the implications for the country?
What is required to reverse this trend?
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QUESTION 3: Why is corruption so endemic
in Indonesia? What are its consequences?
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QUESTION 4: What are the risks facing
foreign firms that do business in Indonesia?
What is required to reduce these risks?
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How is the case related to the course material?
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Do not be surprised if the questions ask for the
same answers from different angles.
However, this is not always the case.
Use your judgment.
REMEMBER: The best answers support their
claims with facts or logic.
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Free market economies stimulate greater
economic growth, whereas state-directed
economies stifle growth. Discuss.
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A democratic political system is an essential
condition for sustained economic progress.
Discuss.
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What is the relationship between corruption in
a country (i.e., bribe taking by government
officials) and economic growth? Is corruption
always bad?
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The Nobel Prize-winning economic Armatya
Sen argues that the concept of development
should be broadened to include more than just
economic development. What other factors
does Sen think should be included in an
assessment of development? How might
adoption of Sen’s views influence government
policy? Do you think Sen is right that
development is about more than just economic
development? Explain.
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You are the CEO of a company that has to
choose between making a $100 million
investment in Russia or the Czech Republic.
Both investments promise the same long-run
return, so your choice is driven by risk
considerations. Assess the various risks of
doing business in each of these nations. Which
investment would you favor and why?
Consider: political risks, economic risks, legal
risks
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“Many Factories in China’s South Sound Last
Whistle”
“The Forbidden City of Terry Gou”
“Look Who’s Pumping Out Engineers?”
How are they related to the course material?
What do they teach us?
Do you agree with the message(s) of the
articles?