International Business: Key Concepts

International Business Basics

• International business involves firms engaging in cross-border economic activities.
• Global business encompasses both international and domestic business activities.
• Multinational enterprises (MNEs) engage in foreign direct investment (FDI) and operate in multiple countries.
• Foreign direct investment (FDI) is defined as investments in, controlling, and managing value-added activities in other countries.
• Gross national product (GNP) is the sum of value added by resident firms, households, and government in an economy.
• Gross domestic product (GDP) is the total market value of all final goods and services produced within a country in a calendar year.
• Gross national income (GNI) is GDP plus income from nonresident sources abroad, used by organizations like the World Bank.
• Purchasing power parity (PPP) adjusts GDP to reflect differences in the cost of living.

Institution-Based View in International Business

• Institution-based view emphasizes understanding the formal and informal rules of the game in different countries.
• Formal rules include requirements that domestic and foreign firms be treated equally.
• Informal rules include culture, norms and values play a role in firm success.

Resource-Based View in International Business

• Resource-based view focuses on a firm's internal resources and capabilities.
• "Liability of outsidership" suggests that firms with origins very different from the host environment face challenges.

Globalization Definition

• Globalization is defined as a process leading to greater interdependence and mutual awareness among economic, political, and social units.

Institutional Framework

• Institutional framework consists of formal and informal institutions governing behavior.
• Transaction costs are the costs associated with economic transactions or the costs of doing business.
• Opportunism in this context is acting in self-interest with guile.

Formal and Informal Institutions

• Formal institutions are normally administered by the government.
• Informal institutions concern what behaviours are morally right and wrong in a society.
• Institutions are the 'rules of the game'.
• Institutional transitions are changes to the formal and informal rules affecting firms.
• Success and failure of firms are enabled and constrained by institutions.

Types of Institutions

• Formal institutions include laws, regulations, and rules.
• Norms are values, beliefs, and actions.
• Regulatory pillar is the coercive power of governments.
• Normative pillar is the influence of norms on behavior.
• Cognitive pillar is reliance on internalized values and beliefs.

Institutional Roles

• Institutions reduce uncertainty by increasing transaction costs and reducing opportunistic behavior.
• Institutions evolve over time, with institutional transition being common in emerging economies.
• The political, economic, and legal systems are among the chief formal institutions.

Political Systems

• Political system determines how a country is governed, where political risk impacts firms.
• Democracy is a system where citizens elect representatives.
• Authoritarianism concentrates power in one person or a small elite.

Economic and Legal Systems

• Economic systems define rules for governing a country economically.
• Market economy is characterized by the 'invisible hand' with a laissez-faire approach.
• Command economy involves government-controlled production, supply, demand, and pricing.
• Mixed economy combines elements of both market and command economies.
• Legal systems define the rules for enacting and enforcing laws.
• Civil law uses comprehensive statutes and codes.
• Common law is shaped by precedents of previous judicial decisions.
• Case law is created by precedents in court cases.

Intellectual Property and Governance

• Intellectual Property Rights (IPRs) include: -Patents: Exclusive rights for inventors. -Copyrights: Rights for authors and publishers. -Trademarks: Rights to use names, brands, and designs.
• Corporate governance defines rules for controlling corporate decision-makers.
• Rules specify rights and responsibilities among participants.
• Corporate governance varies with economic and legal systems.

Informal Institutions and Culture

• Informal institutions derive from socially transmitted information.
• Culture defines what behaviors are considered acceptable.
• Cultures evolve with no clearly defined origin.

Cultural Perspectives

• Ethnocentrism is to perceive one's own culture as natural, rational, and morally right.
• Culture is the collective programming of the mind.
• Culture connects members of a group with each other and with their history.
• Nation states are the focal point.

Cultural Dimensions and Factors

• A civilization is the highest cultural grouping of people.
• Hofstede's dimensions include: -Power distance. -Individualism. -Masculinity versus femininity. -Uncertainty avoidance -Long-term orientation.
• Language barriers hinder communication.
• Lingua franca is a common language (often English) in international communication.
• Religion is a major manifestation of culture with differences in norms and values.
• Ethics are principles governing individual and firm behavior.
• Ethics are apart of informal institutions and laws and regulations.

Ethical Perspectives

• Ethical relativism suggests that all ethical standards are relative ("when in Rome, do as the Romans do").
• Ethical imperialism suggests that there is only one set of Ethics.
• Corruption is the abuse of public power for private benefits.

Social Groups

• Although national culture is important local social groups can be even more improtant in some contexts.

Convergence, Divergence, and Collectivism

• Every culture evolves and changes.
• Convergence in western values replacing socialist values, while divergence in cultures is through the rise of the Internet and promotion of 'localism'.
• Collectivism reflects players from collectivist societies being more collaborative and trustworthy.
• Collectivists can discriminate against outgroup members
• In-group (individuals and firms regarded as part of 'us')
• Out-group (individuals and firms not regarded as part of 'us').

Resource-Based View

• The resource-based view is one of the two core perspectives on global business.
• It focuses on firms’ internal environment.
• Primary resources are tangible (financial, physical) and intangible assets (technological, reputational) as well as human resources.
• Tangible assets are observable and quantifiable. -Financial assets includes internal and external funds. -Physical assets includes plants, offices, infrastructure and equipment.
• Intangible assets are intellectual property rights and business relationships.
• Human resources are individuals contributing knowledge, skills, and practices (capabilities).
• The value chain includes value-added activities in the production of goods and services.
• Value chain analysis forces managers to think at a micro level.
• Benchmarking examines a firm's activities and capabilities superior to competitors.
• Commoditization is a process in which products gradually lose their ability to command high prices.

Capabilities

• Capabilities in innovation, operations, marketing, sales, distribution, and corporate functions.
• Benchmarking compares resources against those of competitors.
• Outsourcing is when an organizational activity is turned over to an outside supplier.