International Business and Globalization

Globalizing Business

• International Business (IB) encompasses firms engaging in economic activities abroad.
• Key actors in IB include Multinational Enterprises (MNEs) who engage in Foreign Direct Investment (FDI) by directly investing in, controlling, and managing value-added activities.
• The international aspect of business is crucial due to international competition and the ambiguity of home markets, especially within the European Union's common market.
• Emerging economies are significant due to their increasing weight in the global economy and potential future opportunities.

Understanding Globalization

• Globalization is a process of increasing interdependence and mutual awareness between economic, political, and social units worldwide.
• While globalization has fostered unprecedented cultural contacts, it hasn't significantly reduced conflicts or disagreements.
• Risk management identifies, assesses, and mitigates risks.

Political Systems

• Political systems define who sets business rules and whose interests those rules reflect.
• Political systems determine the influence businesses have on legislative processes through lobbying or corruption.
• Lobbying involves influencing political processes by expressing views to decision-makers, while corruption entails abusing public power for private benefits.
• Non-market strategy involves influencing host country regulations through political and social actions.
• Political risk is associated with political changes that could negatively impact domestic and foreign firms.

Economic Systems

• Economic systems dictate how a country is governed economically.
• The theoretical prototypes are pure market economies and command economies, with capitalism existing on a spectrum between them.
• Market economies are characterized by the invisible hand of market forces, private ownership of production factors, and individual freedom to engage in contracts.

Cultural Tightness-Looseness

• Cultural tightness-looseness refers to the strength of social norms and the degree of sanctioning within societies.
• Tight cultures have strict rules with punishments for violations.
• Loose cultures are more open to new people, ideas, and change.
• Cultural differences impact expatriate effectiveness and the success of mergers and acquisitions by firms from different countries.

National Cultural Differences

• Cultural clusters group countries with similar cultures, often based on shared religion and language.
• Cultural distance measures the difference between two cultures across dimensions of values or subjective affinity.
• Institutional distance gauges the extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries.

Ethics

• Ethics encompass the principles, standards, and norms governing individual and firm behavior, addressing the question of "what is the right thing to do?".
• Ethical relativism suggests that all ethical standards are relative, following the principle of "When in Rome, do as the Romans do."
• Ethical imperialism holds an absolute belief in one set of ethics. In practice, companies often adhere to principles that respect human dignity and human rights.

Trade Restrictions: Non-Tariff Barriers (NTBs)

• NTBs are government policies protecting domestic industries from foreign competition.
• Examples of NTB's include:
  • Subsidies: Government payments to domestic firms.
  • Import quotas: Restrictions on the quantity of imports.
  • Anti-dumping duties: Additional taxes imposed on imports sold at unfairly low prices.
  • Public procurement: Government purchases of products or services.
  • Local content requirements: Mandating value-added creation locally.
  • Export restraints: Limitations on exporting certain goods.

Divergent Regulations

• Regulations vary across countries on issues such as consumer protection, environmental standards, and labor rights.

Arguments Against Free Trade

• Economic Arguments:
  • Protecting domestic industries.
  • Shielding infant industries (temporary protection to attain international competitiveness).
  • Distribution effects: While benefiting society as a whole, free trade can negatively impact low-skilled workers due to increased competition.
  • Political Arguments:
  • National security: Protection of defense-related industries.
  • Consumer protection: Justification for trade barriers.
  • Foreign policy: Using trade measures to influence relationships and support strategic interests.
  • Environmental and social responsibility: Balancing economic growth with environmental and social concerns.

Trade Deficit vs. Trade Surplus

• Trade deficit occurs when the value of a country's imports exceeds its exports.

Jobs and Globalization

• Globalization's impact on jobs is complex and multifaceted.
• Some argue that globalization leads to job losses in developed countries due to outsourcing and offshoring.
• Others believe that globalization creates new job opportunities in developing countries and enhances global economic growth.

Test your knowledge on the concepts of international business and globalization. This quiz covers key players like Multinational Enterprises, the impact of emerging economies, and the complexities of political systems in a global context. Understand the essential processes that drive interdependence in the economy.