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• An expatriate is assigned to work for a domestic company outside their home country

International Business

• Includes transnational, commercial business transactions involving goods, services, capital, and people crossing borders
• Key participants are corporations, governments, and individuals

Challenges and Complexities in International Business

• Market selection involves researching pros and cons and considering the national and global trading environments
• Strategy options involve determining how to go to market and serve customers
• Operational differences exist between home and global markets in geography, political economy, and development levels
• Transactional challenges and risk are always present

Benefits of Engaging in International Business

• Increased income and sales, profits, new markets, and first-mover advantages
• Access to new resources and knowledge, natural resources, lower production costs, and higher quality goods and services
• Consumer benefits include more variety, better quality, and lower prices
• Reduced risk through sales maintenance during economic downturns

International Business Strategies

• Exporting: Selling to buyers in other countries
• Importing: Buying from another country
• Licensing: Granting a firm in another country the right to manufacture a product under license for a fee
• Joint Venture: A partnership between firms in different countries
• Franchising: Granting another entity the right to sell products under a company's name
• Foreign Direct Investment: Buying or owning assets in another country
• Management Contracts: Giving operational control to a third party outside a country

Globalization

• Shift toward a more integrated, interdependent world market, leading to fewer self-contained national economies
• Characterized by lower trade and investment barriers
• Reduced effect of distances and time zones
• Cultural differences are shrinking and easy to overcome
• Open flows of information, capital, trade, and people
• Four pillars: Trade, Capital, Information, People

Influences on Trade

• War
• Technology
• Trade Barriers (FDI)
• Institutions (WTO)

Globalization Driver: Technology

• Communication: information processing
• Moore's Law: the power of technology doubles every 18 months and costs half as much
• Internet of Things
• Transportation advancements: includes containerization and commercial jets
• Containerization: The world's largest container ship can carry 19,000 containers; a 20-foot container can hold 40,000 bananas or 60 refrigerators
• Commercial Jet, such as Quantas airlines' "project sunrise" 20-hour flight from Sydney to London

Globalization Driver: Declining Barriers (Trade and FDI)

• WTO and regional trade agreements promote free trade
• Reduction happens through both tariff and non-tariff barriers
• Restrictions on Foreign Direct Investment
• Increased efficiencies
• Positive impact on global wealth and output

Globalization of Markets

• Distinct, separate markets merge into one huge global market.
• Consumer products: Driven by MNCs pushing and consumers pulling
• Convergence does not mean exactly the same
• Non-consumer Products: Commodities, financial assets, and industrial goods

Globalization of Production

• Sourcing goods and services from global locations
• Decisions based on production factors cost and quality
• Firms try to gain competitive advantage by lowering cost structures and improving product offering
• Offshoring: Transferring a portion of business operations to another country
• Outsourcing: Delegating a business process to another firm (can be in another country)

Globalization of Services

• A huge opportunity driven by digital technology
• Web Design - Vietnam
• Graphic specialists - Brazil
• MRIs read in India
• Threat to service-sector and professional workers in developed economies
• Software engineers in India
• Tech support is done in the Philippines and Mexico
• IT Services

Global Institutions

• World Trade Organization (WTO): Policing global trade
• International Monetary Fund (IMF): Promotes financial stability and monetary cooperation
• World Bank: Focuses on economic development
• United Nations: International peace and security
• G20: Includes 19 of the largest countries in the world, with 80% of the global GDP, 75% of global trade, and 60% of the global population

Evolving Global Economy

• The US share of global manufactured output is shrinking
• Economies growing faster include BRICS (Brazil, Russia, India, China, South Africa)
• Trade deficit impacts the dollar's value

Globalization Measurement

• DHL global connectedness index
• KOF index

Chapter 2 Political Economy

• Political, economic, legal factors
• Transfer risk: Relates to currency convertibility issues
• Ownership risk: Includes expropriation (government taking private property) and nationalization (covers entire industry)
• Operational risk: Impacts a firm's day-to-day operation

Political Systems

• China's communist economy: Suppression, propaganda, surveillance, freedom, and protest
• Assessing political systems: Political environment, political system
• Political environment: Attitudes and policies that influence business, interaction between government and business, and influence of other nations and fake news
• Political system: Institutions that create, enforce, and apply laws, including rules, regulations, and norms
• Legitimacy determines who is really in power

Government's View on the Rights of an Individual

• Individualism: Stresses personal freedoms and liberties, supports free markets with limited government intervention, and believes self-regulation supports economic prosperity
• Collectivism: Stresses socialism (totalitarianism), group takes precedence over the individual, and supports government intervention for the common good

Firm Implications

• Giving up autonomy and decision making
• Facing a highly regulated business environment
• Subject to high taxation

Political Ideologies

• Views about how a society should function
• Includes the scale of democracy vs totalitarianism

Democracy

• Citizens participate widely in decision-making
• Pluralistic system with at least two legitimate political parties
• Various types: direct, representative, and parliamentarian

Totalitarianism:

• Includes political repression and a lack of free and fair elections
• Various Types: Secular or theocratic

Civil Liberties and Political Rights

• In Democracy: Free pass, equality by law, personal social freedoms, and free-form government corruption
• In Totalitarianism: Prohibit challenges to the government, denial of basic civil liberties, and media censorship

Firm Implications

• Deal with state-controlled media-propaganda
• Monitor what you say and do

The Economist Democracy Index

• Considers factor of civil liberties, political participation, the electoral process, democratic political culture, and functioning of government
• Full democracy (8+): Political culture supports democracy, functioning government, independent media, checks, balances, and judiciary
• Flawed democracy (6-8): Elections are free and fair but low participation, limited parties, and weak governance
• Hybrid democracy (4-6): Sham elections and corruption
• Authoritarian (<4): Issues with pluralism and elections

Economic Systems

• Sets of structures and processes that guide the allocation of resources and shape the conduct of business activities in a country
• In democracies - market based economy
• Market economy: Stresses individualism, limited government, driven by self-interest, strong property rights, prices based on supply and demand, firm allocate and control resources and economic freedom
• In totalitarian systems - command economy
• Command economy: Stress collectivism, government controls the economy, prices, resources, and production, state-owned firms

Legal Systems

• Rules and laws that regulate behavior, including how these are made, interpreted, and enforced
• In Democracies: Rule of Law: Written and transparent laws, contacts enforced, leads to less corruption and lower poverty rates
• In command economies: Rule of Man: Arbitrary and oppressive, weak contracts, state-serving uncertainty, bureaucracy, and and assumption of guilt

Firms Operating Under Rule of Man

• Policies tend to favor domestic firms
• Private property concerns
• Encounter intellectual property risks and changing rules
• Experience liabilities

Legal System Types

• Common Law: Based on tradition, precedent, customs, prior judicial decisions, and the court's interpretation
• Civil Law: Based on a detailed set of laws organized into legal code
• Theocratic Law: Based on religious teaching
• Customary Law: Based on indigenous norms

Mixed Legal Systems

• When 2 or more different legal systems are used in some capacity within a country's borders
• Pakistan: common theocratic

Managing Difference in Contract Law

• United Nations Convention on Contracts for the International Sales of Goods (CISG) to establish uniform rules governing commercial contracts Countries that adopt CISG signal to other countries that will treat the Convention's rules as part of their law

Corruption and Property Rights

• Corruption occurs at both government and private levels
• Private Actions: Related to government or public, includes theft, piracy, and blackmail
• Public Actions: Public official extorts income, resources, and property
• Facilitating Payment: Intended to expedite an administrative process, and can be legal
• US Foreign Corrupt Practices Act: Makes bribing foreign government officials a crime

Intellectual Property Rights

• Patents: Grant inventors exclusive rights
• Copyrights: Exclusive legal rights of authors, composers, artists, and publishers to display work
• Trademarks: Designs and names officially registered to differentiate products

Intellectual Property Protection

• Differs by country
• Influenced by political, economic, legal, and cultural differences

Legal Systems: Product Liability

• Product safety- interpretations differ
• Product liability- who's responsible, at what cost?, Firms have the choice of following home or host country regulations

Assessing Global Markets

• Risks- political, economic, legal
• Costs- corruption, poor infrastructure, legal costs
• Benefits- size of economy, GDP growth rates

Economic Development Levels

• Developed: High level of economic freedom
• Emerging: Increasing economic freedom
• Developing: Limited economic freedom
• Frontier market: Not growing as fast, too small, risky, or illiquid to be emerging

Predicting Growth Opportunities:

• Firms look for business environments to support innovation and entrepreneurship
• Legal systems protect private property and enforce contacts

Economic Freedom

• Choice, autonomy, self-direction, deregulations, privatization
• Impacts investment, resource allocation, ownership, and business decisions
• Impacts of life expectancy

Predicting Growth: Monetary

• GDP
• GDP Growth
• GNI
• Purchasing power parity (PPP): Rates of currency conversion that equalize the purchasing power of different currencies by eliminating the difference in price levels between countries

Predicting Growth: Non-Monetary

• Fiscal Policy
• Monetary policy
• Inequality (GINI COEFFICIENT)
• Consumer Confidence
• Infrastructure
• Population Trends
• Factor endowment:
• Technology
• Human Development Index (HDI): Measures longevity, knowledge, and living standards
• Happynomics - the measure of emotional prosperity
• Poverty: A Multidimensional Condition

Base of the Pyramid

• Base = income
• A huge 4 billion people
• Market opportunity
• Challenges