IBT Modules - University of Eastern Pangasinan - PDF

College of Accountancy and Business Administration First Semester, A.Y. 2024-2025 MODULE 1 Introduction to International Business and Trade A. Overvie...

College of Accountancy and Business Administration First Semester, A.Y. 2024-2025 MODULE 1 Introduction to International Business and Trade A. Overview of International Business B. Globalization Introduction This module entitled Introduction to International Business and Trade which introduces the students to the world of business and its concept as a system and the theories which underlie it. It will provide students with the knowledge, skills, and abilities to understand the global economic, political, cultural and social environment within which firms operate. It will examine the strategies and structures of international business and assess the special roles of an international business's various functions. Date and Time Allotment Aug.12 – 23, 2024 (6 hours) I. Objectives Upon the completion of this module, the students should be able to: 1. Cite ideas on what the businesses need to do to survive internationally. 2. Explain the concept of globalization and its impact on global business. 3. Elaborate how international business and globalization affect each other. II. Lecture INTRODUCTION TO INTERNATIONAL BUSINESS It is an organization or economic system where goods and services are exchanged for one another or for money. Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit. Businesses can be privately owned, not for profit or state-owned. Why study international business? International business is a growing portion of the world’s total business (currently 25% of world production is sold outside its country of origin) Mode of operating international business (exporting and importing) is different from domestic business WHAT IS INTERNATIONAL MANAGEMENT IT IS THE PROCESS OF APPLYING MANAGEMENT CONCEPTS AND TECHNIQUES IN A MULTINATIONAL ENVIRONMENT. Richard M.H and Fred L. (2000) 1 A BUSINESS, International or domestic, requires the application of effective management process in order to achieve its set goals and objectives. WHAT IS INTERNATIONAL BUSINESS International business is defined as all business activities, including the creation and transfer of resources, goods, services, know-how, skills, and information, which transcend national boundaries. The resources may be raw materials, energy, technological know-how and patents, capital, and organizational skills. Goods include manufactured parts, sub-assemblies, and assemblies. Services may include accounting, financial, legal, consulting, import and export, health care, and transportation. Know-how may include product and process technological innovations, copyrights, trademarks, and brands. Skills may include organizational and managerial skills. Information includes databases as well as information networks. WHAT IS INTERNATIONAL BUSINESS International Business is business wh ose activities involves crossing national borders. This definition includes not only International trade and foreign manufacturing, but also the growing service industry in such areas as transportation, tourism, banking, advertising, construction, retailing, wholesaling and mass communication. Don B. and Wendell M. (1999) DEFINITIONS OF KEY TERMS MULTIDOMESTIC COMPANY: It is an organization with Multi country affiliateseach of which formulates its own business strategies based on perceived market differences. GLOBAL COMPANY: An organization that attempts to standardized and integrate operations worldwide in all functional areas. INTERNATIONAL COMPANY: Either a global or a multi domestic company. ENVIRONMENT as used here is the sum of all forces surrounding and influencing the life and development of the firm. The forces themselves can be classified as external or external. Furthermore management has no direct control over them, though it can exert influences such as lobbing for a change in a law and heavily promoting a new product that requires a change in a cultural attitude. INTERNATIONAL ENVIRONMENT: Involves interactions between the domestic and foreign environmental forces or between set of foreign environmental forces. ------------Don B. and Wendell M. (1999)------------- THREE FORMS OF INTERNATIONAL BUSINESS DOMESTIC MARKET EXTENSION BY EXPORTING: Firms following this strategy locate all production function and as many as the marketing function as possible in the home country. Export managers must be knowledgeable about any differences between domestic and foreign environmental forces that could have impact on the marketing mix. MULTI-DOMESTIC COMPANY Similar to a Holding company –strong financial control from head quarters but whose subsidiary have considerable autonomy in formulating their own business strategies based on perceived market differences Headquarter managers maintain veto power. 2 GLOBAL CORPORATION: Management of global corporation look at the world economy as the single market. There is a strong central authority with global managers of functional areas such as marketing and production etc. who attempt to standardize their operations world wide and there is no international division. Managerial functions such as strategic planning and budgeting are performed globally. Globalization Defined Globalization: the ongoing social, economic, and political process that deepens and broadens the relationships and inter-dependencies amongst nations—their people, their firms, their organizations, and their governments Globalization refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, technology, services and labor The Forces Behind Globalization Increased expansion and technological improvements in transportation and communications networks Liberalization of cross-border trade and resource movements (Why do governments encourage liberalization?) Development of services (banking and finance) that support international business activities Growing consumer demand for foreign products Increased global competition Changing political and economic situations Expanded cross-national treaties and agreements Why companies engage in international business To expand sales To acquire resources To minimize risk Rapid increase in and expansion of technology Liberalization of government policies on cross border movement of trade and resources Development of institutions/services that facilitate international trade Growing consumer pressures Changing political situations Increased global competition Expanded cross-national cooperation Implications/Conclusions Managing an international business differs from managing a domestic business because: Geographic influences Political policies and political disputes Legal policies Behavioral policies Economic forces Competitive strategy for products Company resources and experience Competitors faced in each market 3 III. Application/Activity 1. Why is it important to study International Business (5 reasons) 2. Why International Business Differs from Domestic Business: - Physical and Social Factors? 3. Why International Business Differs from Domestic Business: - Competitive Factors? IV. Assessment Reflection Paper about the topic. V. Other References Donald, B. Wendell H. McCulloch, Micheal Geringer, Paul L. Frantz, Michael S. Minor (2005) International Business: The challenge of global completion 10th edition, Irwin McGraw-Hill Mauro Guill‚ Global Turning Points, Cambridge en and Emilio Ontiveros (2012) University Press http://www.sagepub.com/menipaz/Chapter%201.pdf 4  College of Accountancy and Business Administration First Semester, A.Y. 2024-2025 MODULE 2 Differences in Culture Introduction This module entitled Differences in Culture is about understanding the culture and its effect on the international business and how it can help promote good global business. We will also discuss how cultural and behavioral differences influence countries business practices, and how these differences can be addressed using appropriate strategies. Date and Time Allotment September 11, 14, 16 and 18 at 9:00-10:00am and 11:00-12:00nn. I. Objectives After studying this module, the students should be able to: 1. Grasp the major causes of cultural difference and change. 2. Discuss behavioral factors influencing countries’ business practices. 3. Recognize the complexities of cross-cultural information differences, especially communications. II. Lecture UNDERSTANDING THE DIFFERENCES IN CULTURE FOR INTERNATIONAL BUSINESS Define Culture: “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.” Prof. Geert Hofstede Understanding culture and its effect on international business provides a foundation for working in the global community. Understanding cultural differences can help promote good global business. CULTURE The set of beliefs, customs, and attitudes of a distinct group of people. SUBCULTURE A smaller group or subset within a larger culture UNDERSTANDING THE CULTURE Each level of culture—national, regional, or local—has an impact on the lives of people who live on that level. UNDERSTANDING THE CULTURE Succeeding in the world of international business requires three things. 1. Understanding Culture 2. Understanding and adjusting culture 3. Participating in culture Elements of Culture 1. Values 2. Norms 3. Roles 4. Folkways and Mores 5  VALUES, NORMS AND ROLES VALUES: Abstract ideas/assumptions about what a group believes to be good, right and desirable NORMS: social rules and guidelines that Prescribe appropriate behavior in particular situations ROLES: The part a person plays in a social Situation. FOLKWAYS AND MORES FOLKWAYS: Routine conventions of everyday life. – Little moral significance – Generally, social conventions such as dress codes, social manners, and neighborly behavior MORES – Greater significance than folkways – Violation can bring serious retribution Theft, adultery, incest and cannibalism HOFSTEDE’S CULTURAL DIMENSIONS Four dimensions of culture – Power distance – Individualism versus collectivism – Uncertainty avoidance – Masculinity versus femininity POWER DISTANCE Cultures are ranked high or low based on the particular society’s ability to deal with inequalities Distance between individuals at different levels of a hierarchy Scale is from equal (small power distance) to extremely unequal (large power distance) INDIVIDUALISM Vs COLLECTIVISM INDIVIDUALISTIC SOCIETIES: – Degree to which people in a country prefer to act as individuals rather than in groups – Individual achievement and freedom highly valued. COLLECTIVIST SOCIETIES: – The relations between the individual and his/her fellows. – Tend to be more relationship oriented UNCERTAINTY AVOIDANCE – More or less need to avoid uncertainty about the future – Degree of preference for structured versus unstructured situations – Structured situations: have tight rules may or may not be written down (high context society?) – High uncertainty avoidance: people with more nervous energy (vs easy going), rigid society, "what is different is dangerous." MASCULINITY Vs FEMININITY – Division of roles and values in a society – This dimension looks at the relationship between gender and work roles. – Masculine values prevail: assertiveness, success, competition – Feminine values prevail: quality of life, maintenance of warm personal relationships, service, care for the weak, solidarity CULTURE IN INTERNATIONAL BUSINESS The cultures of two trading partners can affect a business relationship. Understanding culture difference is the foundation, or basis, of understanding every other aspect of conducting international business. III. Application/Activity Answer the following questions given below. 6 1. What Is The Role Of Education In Culture? 2. How Does Culture Impact The Workplace? 3. Does Culture Change? 4. What Do Cultural Differences Mean For Managers? IV. Assessment In a long bond paper make a reflection paper about the topic. It should be handwritten and also at least 500 words. V. Other References ∙ Qu, Dongya Marcia (2015) "The Impact of Cultural Difference on International Business Negotiations," Academic Leadership Journal in Student Research: Vol. 3, Article 4. 7  College of Accountancy and Business Administration First Semester, A.Y. 2024-2025 MODULE 3 Political and Legal Factors That Impact International Trade Introduction This module entitled Political and Legal Factors That Impact International Trade talks about despite the globalization of business, firms must abide by the local rules and regulations of the countries in which they operate. Time allotment Sept. 9 – 24, 2024 (6 hours) I. Objectives At the end of the end of this module, students should be able to: 1. Know the different political systems. 2. Identify the different legal systems. 3. Understand government-business trade relations and how political and legal factors impact international business. II. Lecture What Are the Different Political Systems? The study of political systems is extensive and complex. A political system is basically the system of politics and government in a country. It governs a complete set of rules, regulations, institutions, and attitudes. A main differentiator of political systems is each system’s philosophy on the rights of the individual and the group as well as the role of government. Each political system’s philosophy impacts the policies that govern the local economy and business environment. There are more than thirteen major types of government, each of which consists of multiple variations. Let’s focus on the overarching modern political philosophies. At one end of the extremes of political philosophies, or ideologies, is anarchism, which contends that individuals should control political activities and public government is both unnecessary and unwanted. At the other extreme is totalitarianism, which contends that every aspect of an individual’s life should be controlled and dictated by a strong central government. Neither extreme exists in its purest form. Instead, most countries have a combination of both, the balance of which is often a reflection of the country’s history, culture, and religion. This combination is called pluralism, which asserts that both public and private groups are important in a well-functioning political system. Although most countries are pluralistic politically, they may lean more to one extreme than the other. In some countries, the government controls more aspects of daily life than in others. While the common usage treats totalitarian and authoritarian as synonyms, there is a distinct difference. To this discussion, the main relevant difference is in ideology. Authoritarian governments centralize all control in the hands of one strong leader or a small group of leaders, who have full authority. These leaders are not democratically elected and are not politically, economically, or socially accountable to the people in the country. Totalitarianism, a more extreme form of authoritarianism, occurs when an authoritarian leadership is motivated by a distinct ideology, such as communism. In totalitarianism, the ideology influences or controls the people, not just a person or party. Authoritarian leaders tend not to have a guiding philosophy and use more fear and corruption to maintain control. Democracy is the most common form of government around the world today. Democratic governments derive their power from the people of the country, either by direct referendum (called a direct democracy) or by means of elected representatives of the people (a representative democracy). Democracy has a number of variations, both in theory and practice, some of which provide better representation and more freedoms for their citizens than others. What businesses must focus on is how a country’s political system impacts the economy as well as the particular firm and industry. Firms need to assess the balance to determine how local policies, rules, and regulations will affect their business. Depending on how long a company expects to 8 operate in a country and how easy it is for it to enter and exit, a firm may also assess the country’s political risk and stability. A company may ask several questions regarding a prospective country’s government to assess possible risks: a. How stable is the government? b. Is it a democracy or a dictatorship? c. If a new party comes into power, will the rules of business change dramatically? d. Is power concentrated in the hands of a few, or is it clearly outlined in a constitution or similar national legal document? e. How involved is the government in the private sector? f. Is there a well-established legal environment both to enforce policies and rules as well as to challenge them? How transparent is the government’s political, legal, and economic decision-making process? While any country can, in theory, pose a risk in all of these factors, some countries offer a more stable business environment than others. In fact, political stability is a key part of government efforts to attract foreign investment to their country. Businesses need to assess if a country believes in free markets, government control, or heavy intervention (often to the benefit of a few) in industry. The country’s view on capitalism is also a factor for business consideration. In the broadest sense, capitalism is an economic system in which the means of production are owned and controlled privately. In contrast, a planned economy is one in which the government or state directs and controls the economy, including the means and decision making for production. Historically, democratic governments have supported capitalism and authoritarian regimes have tended to utilize a state- controlled approach to managing the economy. As you might expect, established democracies, such as those found in the United States, Canada, Western Europe, Japan, and Australia, offer a high level of political stability. While many countries in Asia and Latin America also are functioning democracies, their stage of development impacts the stability of their economic and trade policy, which can fluctuate with government changes.. Within reason, in democracies, businesses understand that most rules survive changes in government. Any changes are usually a reflection of a changing economic environment, like the world economic crisis of 2008, and not a change in the government players. This contrasts with more authoritarian governments, where democracy is either not in effect or simply a token process. China is one of the more visible examples, with its strong government and limited individual rights. However, in the past two decades, China has pursued a new balance of how much the state plans and manages the national economy. While the government still remains the dominant force by controlling more than a third of the economy, more private businesses have emerged. China has successfully combined state intervention with private investment to develop a robust, market- driven economy—all within a communist form of government. This system is commonly referred to as “a socialist market economy with Chinese characteristics.” The Chinese are eager to portray their version of combining an authoritarian form of government with a market-oriented economy as a better alternative model for fledging economies, such as those in Africa. This new combination has also posed more questions for businesses that are encountering new issues—such as privacy, individual rights, and intellectual rights protections—as they try to do business with China, now the second-largest economy in the world behind the United States. The Chinese model of an authoritarian government and a market-oriented economy has, at times, tilted favor toward companies, usually Chinese, who understand how to navigate the nuances of this new system. Chinese government control on the Internet, for example, has helped propel homegrown, Baidu, a Chinese search engine, which earns more than 73 percent of the Chinese search-engine revenues. Baidu self-censors and, as a result, has seen its revenues soar after Google limited its operations in the country.Rolfe Winkler, “Internet Plus China Equals Screaming Baidu,” Wall Street Journal, November 9, 2010, accessed December 21, 2010, http://online.wsj.com/article/SB10001424052748703514904575602781130437538.html. It might seem straightforward to assume that businesses prefer to operate only in democratic, capitalist countries where there is little or no government involvement or intervention. However, history demonstrates that, for some industries, global firms have chosen to do business with countries whose governments control that industry. Businesses in industries, such as commodities and oil, have found more authoritarian governments to be predictable partners for long-term access and investment for these commodities. The complexity of trade in these situations increases, as throughout history, governments have come to the aid and protection of their nation’s largest business interests in markets around the world. The history of the oil industry shows how various governments have, on occasion, protected their national companies’ access to oil through political force. In current times, the Chinese government has been using a combination of government loans and investment in Africa to obtain access for Chinese companies to utilize local resources and commodities. Many business analysts mention these issues in discussions of global business ethics 9 and the role and responsibility of companies in different political environments. What Are the Different Legal Systems? Let’s focus briefly on how the political and economic ideologies that define countries impact their legal systems. In essence, there are three main kinds of legal systems—common law, civil law, and religious or theocratic law. Most countries actually have a combination of these systems, creating hybrid legal systems. Civil law is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. It’s the most widespread legal system in the world. Common law is based on traditions and precedence. In common law systems, judges interpret the law and judicial rulings can set precedent. Religious law is also known as theocratic law and is based on religious guidelines. The most commonly known example of religious law is Islamic law, also known as Sharia. Islamic law governs a number of Islamic nations and communities around the world and is the most widely accepted religious law system. Two additional religious law systems are the Jewish Halacha and the Christian Canon system, neither of which is practiced at the national level in a country. The Christian Canon system is observed in the Vatican City. The most direct impact on business can be observed in Islamic law—which is a moral, rather than a commercial, legal system. Sharia has clear guidelines for aspects of life. For example, in Islamic law, business is directly impacted by the concept of interest. According to Islamic law, banks cannot charge or benefit from interest. This provision has generated an entire set of financial products and strategies to simulate interest—or a gain—for an Islamic bank, while not technically being classified as interest. Some banks will charge a large up-front fee. Many are permitted to engage in sale- buyback or leaseback of an asset. For example, if a company wants to borrow money from an Islamic bank, it would sell its assets or product to the bank for a fixed price. At the same time, an agreement would be signed for the bank to sell back the assets to the company at a later date and at a higher price. The difference between the sale and buyback price functions as the interest. In the Persian Gulf region alone, there are twenty-two Sharia-compliant, Islamic banks, which in 2008 had approximately $300 billion in assets.Tala Malik, “Gulf Islamic Bank Assets to Hit $300bn,” Arabian Business, February 20, 2008, accessed December 21, 2010, http://www.arabianbusiness.com/511804-gulf-islamic-banks-assets-to-hit-300bn. Clearly, many global businesses and investment banks are finding creative ways to do business with these Islamic banks so that they can comply with Islamic law while earning a profit. Government—Business Trade Relations: The Impact of Political and Legal Factors on International Trade How do political and legal realities impact international trade, and what do businesses need to think about as they develop their global strategy? Governments have long intervened in international trade through a variety of mechanisms. First, let’s briefly discuss some of the reasons behind these interventions. Why Do Governments Intervene in Trade? Governments intervene in trade for a combination of political, economic, social, and cultural reasons. Politically, a country’s government may seek to protect jobs or specific industries. Some industries may be considered essential for national security purposes, such as defense, telecommunications, and infrastructure—for example, a government may be concerned about who owns the ports within its country. National security issues can impact both the import and exports of a country, as some governments may not want advanced technological information to be sold to unfriendly foreign interests. Some governments use trade as a retaliatory measure if another country is politically or economically unfair. On the other hand, governments may influence trade to reward a country for political support on global matters. Governments are also motivated by economic factors to intervene in trade. They may want to protect young industries or to preserve access to local consumer markets for domestic firms. Cultural and social factors might also impact a government’s intervention in trade. For example, some countries’ governments have tried to limit the influence of American culture on local markets by limiting or denying the entry of American companies operating in the media, food, and music industries. 10 How Do Governments Intervene in Trade? While the past century has seen a major shifelimit toward free trade, many governments continue to intervene in trade. Governments have several key policy areas that can be used to create rules and regulations to control and manage trade. Tariffs. Tariffs are taxes imposed on imports. Two kinds of tariffs exist—specific tariffs, which are levied as a fixed charge, and ad valorem tariffs, which are calculated as a percentage of the value. Many governments still charge ad valorem tariffs as a way to regulate imports and raise revenues for their coffers. Subsidies. A subsidy is a form of government payment to a producer. Types of subsidies include tax breaks or low-interest loans; both of which are common. Subsidies can also be cash grants and government-equity participation, which are less common because they require a direct use of government resources. Import quotas and VER. Import quotas and voluntary export restraints (VER) are two strategies to limit the amount of imports into a country. The importing government directs import quotas, while VER are imposed at the discretion of the exporting nation in conjunction with the importing one. Currency controls. Governments may limit the convertibility of one currency (usually its own) into others, usually in an effort to limit imports. Additionally, some governments will manage the exchange rate at a high level to create an import disincentive. Local content requirements. Many countries continue to require that a certain percentage of a product or an item be manufactured or “assembled” locally. Some countries specify that a local firm must be used as the domestic partner to conduct business. Antidumping rules. Dumping occurs when a company sells product below market price often in order to win market share and weaken a competitor. Export financing. Governments provide financing to domestic companies to promote exports. Free-trade zone. Many countries designate certain geographic areas as free-trade zones. These areas enjoy reduced tariffs, taxes, customs, procedures, or restrictions in an effort to promote trade with other countries. Administrative policies. These are the bureaucratic policies and procedures governments may use to deter imports by making entry or operations more difficult and time consuming. III. Application/Activity Answer the following questions given below. 1. Identify the main political ideologies. 2. What is capitalism? What is a planned economy? Compare and contrast the two forms of economic ideology discussed in this section. 11  3. What are three policy areas in which governments can create rules and regulations in order to control, manage, and intervene in trade. IV. Assessment In a long bond paper make a reflection paper about the topic. It should be handwritten and also at least 500 words. V. Other References “Liberty and Justice for Some,” Economist, August 22, 2007, accessed December 21, 2010, http://www.economist.com/node/8908438. Economist, October 29, 2008, accessed December 21, 2010, http://graphics.eiu.com/PDF/Democracy%20Index%202008.pdf. Several things stand out in the 2008 index. 12