International Business.pdf

 BUSMHR 2000 Intro to International Business CH 1: What is International Business? What is International Business? ‹#›  Learning Objectives After completing this chapter you will be able to: 1)...

 BUSMHR 2000 Intro to International Business CH 1: What is International Business? What is International Business? ‹#›  Learning Objectives After completing this chapter you will be able to: 1) Define international business and understand how it is different Loading… from domestic business. 2) Develop an overarching framework that describes the key concepts of international business. 3) Learn about risks in international business. 4) Recognize who participates in international business. 5) Describe why (and how) firms internationalize. 6) Appreciate why you should study international business! ‹#›  LO 1) What is international business? International Business Refers to trade of goods, services, tech, capital and/or knowledge across national borders Involves cross-border transactions of goods and services between two or more countries Also defined as the study of the internationalization process of multinational enterprises (MNEs) Differs from domestic because it crosses borders, has different risks, and different market entry strategies ‹#›  LO 2) Key Concepts What are the key concepts of international business? In the course we will consider the following main areas: 1) 2) Loading… Globalization of markets International trade 3) International investment 4) International business risks 5) Participants 6) Foreign market entry strategies ‹#›  LO 2) Key Concepts Elements of International Business  LO 2) Key Concepts Globalization of Markets Cross-border integration and growing interdependency of countries around the world Drivers include the geopolitical and technological revolutions Trade between nations, is accompanied by substantial flows of capital, technology, and knowledge Globalization both compels and facilitates firms to expand abroad (internationalize) ‹#›  LO 2) Key Concepts Flows in International Business ‹#›  LO 2) Key Concepts International Trade Goods and services exchange across national borders (though exporting and importing) Exporting Goods or services sold abroad Importing Products or services from suppliers located abroad (also referred to as global sourcing) ‹#›  LO 2) Key Concepts Growth in World Trade Index value of world trade and world production (1960=100), world population (billions), and number of regional trade agreements; 1960-2020. In 2020 the value of world trade was estimated to be 21 times larger than it was in 1960, whereas the world economy was around 9.3 times larger. Between 2000 and 2017, the value of world trade increased 98 percent whereas the world economy has increased by 74 percent in real terms (adjusted for inflation). ‹#›  LO 2) Key Concepts International Trade The difference in the growth rates of world production and Loading… world trade is why studying international business is so important! While we produce more goods and services today compared with before, a far greater proportion of that production is being traded across national borders. ‹#›  LO 2) Key Concepts Growth in World Trade as a Multiple of GDP In panel (a), you can see the growth since 1960 in the world’s international trade expressed as a multiple of the world’s GDP. This multiple doubled by the mid-1970s, and it has tripled since the mid- 1980s. ‹#›  LO 2) Key Concepts Imports and Exports as a Percentage of U.S. GDP In the U.S. both imports and exports, expressed as a percentage of annual output (GDP) in panel (b), generally rose after 1950 and recovered following the 2008–2009 recession before dipping again recently. ‹#›  LO 2) Key Concepts International Trade The knowledge society that we live in has resulted in consumers knowing more than ever about goods and services being produced worldwide. From a customer perspective, this is driving demand for internationally traded goods. And the larger the difference between the growth rates of world trade and world production, the greater the extent of globalization and the more important it becomes to understand international business! ‹#›  LO 2) Key Concepts Leading Countries in International Merchandise Trade ‹#›  LO 2) Key Concepts Top 25 Countries in Annual Merchandise Trade ‹#›  LO 2) Key Concepts Leading Countries in International Services Trade ‹#›  LO 2) Key Concepts Service Sector Industries Rapidly Internationalizing ‹#›  LO 2) Key Concepts International Investment The transfer of assets to another country or the acquisition of assets in that country. We make the distinction between portfolio investment and foreign direct investment. ‹#›  LO 2) Key Concepts International Portfolio Investment Passive ownership of foreign securities such as stocks and bonds. Foreign Direct Investment (FDI) Internationalization strategy in which the firm establishes presence abroad through acquisition of resources. An investment in the form of a controlling ownership in a business in one country by an entity based in another. It is distinguished from a foreign portfolio investment by a notion of direct control. ‹#›  LO 2) Key Concepts FDI Inflows in Billions U.S. Dollars Per Year ‹#›  LO 3) Risks in International Business International and Domestic Business: How They Differ International business is in contact with countries that differ in terms of culture, language, political and legal systems, economies, infrastructure and other factors. A strategic way of organizing these macro-level factors in order to manage things at the firm-level is by conducting a PESTEL and SWOT analysis. ‹#›  LO 3) Risks in International Business The PESTEL Framework Engaging in international business requires firms to choose markets carefully, with the help of a PESTEL analysis. Also, to create and align internal management practices that successfully build and execute strategy. The model provides a relatively straightforward way to scan, monitor, and evaluate important external factors and trends that present opportunities and threats to a firm when it engages in international  LO 3) Risks in International Business The Four Risks of International Business 1) Cross-cultural risk 2) Country risk 3) Currency risk 4) Commercial risk These four risks of international business help draw into focus how international business differs from domestic. ‹#›  LO 3) Risks in International Business The Four Risks in International Business ‹#›  LO 3) Risks in International Business Cross-Cultural Risk A situation or event where a cultural miscommunication puts some human value at stake. Cross-cultural risk is posed by differences in language, lifestyles, mindsets, customs, and/or religion. Understanding things like how people communicate, lead, make decisions or value time are critical. ‹#›  LO 3) Risks in International Business Cross-Cultural Risk—Some Examples In giving employees feedback and evaluating their performance, managers in the U.S. are less direct than is the cultural norm in France. Executives in India may be more relationship-based when it comes to establishing trust whereas in the U.S. we see more task-based management (‘let’s get down to business’). ‹#›  LO 3) Risks in International Business Country Risk (also known as Political Risk) Refers to the potentially adverse affects on company operations and profitability. Can be caused by developments in the political, legal and economic environment of a foreign country. Includes the possibility of foreign government intervention in a firms’ business activities. ‹#›  LO 3) Risks in International Business Country Risk (also known as Political Risk)—Some Examples Loading… EU's fine of 4.3 billion euros ordered against Google for abusing the dominant position of its Android mobile operating system to promote Google's search engine in 2024. Also, in the EU, there was a tariff in retaliation to U.S. tariffs on steel and aluminum from the region. The EU threatened to increase the import tariff on Harley Davidson motorcycles from 6% to 56%! ‹#›  LO 3) Risks in International Business What is Currency Risk (also known as Financial Risk)? Currency risk, or exchange-rate risk, arises from the change in price of one currency in relation to another. Investors or companies that have assets or business operations across national borders are exposed to currency risk that may create unpredictable profits and losses. Many multinational corporations use forex futures, options contracts, or other derivatives to hedge the risk. ‹#›  LO 3) Risks in International Business Currency Risk (also known as Financial Risk)—Some Examples Rising value of the U.S. dollar during 2022 and 2023 relative to other key currencies cut into revenues of U.S. multinational firms such as Netflix, IBM, and Johnson & Johnson. Also, Microsoft saw its slowest growth in five years, with currency fluctuations depressing revenues by $2.3 billion. Procter & Gamble experienced a significant sales decline, noting that the strong dollar had hurt its sales dramatically. ‹#›  LO 3) Risks in International Business Commercial Risk Firms’ potential loss or failure from poorly conceived or executed business strategies, tactics, or procedures Business partner risk, timing of market entry, pricing, product features, promotional themes Risks also include social media risk (unfavorable trending), and cyber risk too ‹#›  LO 3) Risks in International Business Commercial Risk—Some Examples There are many examples of firms that have not delivered on their global strategy at some point or another, such as Walmart (in Germany and Japan) and eBay (in China). Cyber risk includes the recent rise in “ransomware” attacks such as when Colonial Pipeline Co. complied with the $4.4 million ransom demand. Social media risk includes the recent “joke” by Volkswagen it would change the company name to “Voltswagen” because it was producing more electric vehicles. It wasn’t well received. ‹#›  LO 4) Who participates in international business? Who participates in international business? Focal firms (referred to as MNEs) Small and medium-sized enterprises Born global firms Governments Nongovernmental organizations (NGOs) Others ‹#›  LO 4) Who participates in international business? Geographic Locations of the 500 Largest MNEs  LO 4) Who participates in international business? Who participates in international business? Multinational enterprise (MNE): A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries (e.g., Disney, Microsoft, Samsung, Unilever, Vodafone). Small and medium-sized enterprise (SME): Typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries. SMEs increasingly engage in international business. Born global firm: A young, entrepreneurial SME that undertakes substantial international business at or near its founding. ‹#› LO 4) Who participates in international business? ‹#›  LO 5) Why do firms internationalize? Why do firms internationalize? Seek opportunities for growth through market diversification. Earn higher margins and profits. Gain new ideas about products, services, and business methods. Serve key customers better that have relocated abroad. Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in product sourcing. ‹#›  LO 5) Why do firms internationalize? Why do firms internationalize? Gain access to lower-cost or better value factors of production. Gain economies of scale in sourcing, production, marketing, and research and development (R&D). Confront international competitors more effectively or thwart the growth of competition in the home market. Invest in a potentially rewarding relationship with a foreign partner. ‹#›  LO 5) Why do firms internationalize? Firms Internationalize to Achieve Objectives A B C External factors present risks that must be managed for an MNE to achieve its objectives. You can do a PESTEL and SWOT analysis to determine how to manage strategic objectives. As a global leader, you need to ensure the MNE can achieve fit between A and B (external and internal environ) to accomplish C. ‹#›  LO 5) Why do firms internationalize? Looking for Growth Opportunities ‹#›  LO 5) How do firms internationalize? How do firms internationalize? Once a company decides to enter a foreign market, one of its first management decisions is choosing the best method for entering that market. ‹#›  LO 5) How do firms internationalize? What is the country entry method going to be? In general, firms can use one of six market entry strategies: 1) exporting/importing, 2) turnkey projects, 3) licensing, 4) franchising, 5) establishing joint ventures, 6) or setting up a new, wholly owned subsidiary. ‹#›  LO 5) How do firms internationalize? How do firms internationalize? The framework illustrated moving from left to right, has been suggested as a stage model of sequential commitment to a foreign market over time. ‹#›  LO 6) Why study international business? Why Study International Business? From the perspective of a global economy, national economy, the firm, and you as a future manager… Facilitator of the global economy and interconnectedness Contributor to national economic well-being A competitive advantage for the firm A competitive advantage for you An opportunity to support ethics, sustainability and corporate citizenship ‹#› What have we learned? How can we use it? ‹#›  BUSMHR 2000 Intro to International Business CH 1: What is International Business?  BUSMHR 2000 Intro to International Business CH 2: Globalization of Markets and the Internationalization of the Firm Globalization of Markets and the Internationalization of the Firm ‹#›  Learning Objectives After completing this chapter you will be able to: 1) Define what is meant by globalization and internationalization. 2) Review phases of globalization. 3) Loading… Develop a framework regarding globalization of markets and internationalization of firms. 4) Learn about the driving forces of globalization. 5) Recognize dimensions of market globalization. 6) Understand firm-level consequences of globalization and internationalization. 7) Understand societal consequences. ‹#›  Course Framework Elements of International Business  LO 1) Define what is meant by globalization of markets and internationalization of firms. Globalization of Markets Ongoing economic integration and growing interdependency of national economies. Loading… Globalization both compels and facilitates firms to expand abroad (internationalize). Internationalization of Firms The tendency of companies to deepen their international business activities systematically. ‹#›  LO 2) Phases of Globalization Phase of Approximate Triggers Key Characteristics Globalization Period First phase 1830 to late 1800s, Introduction of Rise of manufacturing: peaking in 1880 railroads and cross-border trade of ocean transport commodities, largely by trading companies Second phase 1900 to 1930 Rise of electricity Emergence and and steel dominance of early MNE production s(mainly from Europe and North America) in manufacturing, extractive, and agricultural industries Third phase 1948 to 1970s Formation of Focus by industrializing General Western countries to Agreement on reduce trade barriers; Tariffs and Trade rise of MNEs from (GATT); conclusion Japan; development of of World War II; global capital markets; Marshall Plan to rise of global trade reconstruct Europe names ‹#›  LO 2) Phases of Globalization Phase of Approximate Triggers Key Characteristics Globalization Period Fourth phase 1980s to about Privatization of Rapid growth in cross- 2006 state enterprises in border trade of transition products, services, economies; and capital; rise of revolution in internationally active information, SMEs and services communication, and firms; rising prosperity transportation of emerging markets technologies; remarkable growth of emerging markets Fifth phase 2007 to present Rise of digital Leveraging technology technologies, and to facilitate trade and other new local production; rising technologies, which trade in digitally are boosting enabled services but manufacturing slowing growth of productivity and the trade in merchandise efficiency of goods ‹#›  LO 3) Use an Organizing Framework Market Globalization: Organizing Framework The organizing framework to understand market globalization includes: Driving forces or causes of globalization Dimensions or manifestations of globalization Firm-level consequences of market globalization Societal consequences of market globalization ‹#›  LO 3) Use an Organizing Framework Driving forces, dimensions, and consequences of globalization – an organizing framework. ‹#›  The Driving Forces Driving Forces of Globalization ‹#›  LO 4) The Driving Forces Driving Forces of Market Globalization Worldwide Reduction of Barriers to Trade and Investment Loading… Governments have greatly reduced trade and investment barriers. Market Liberalization and Adoption of Free Markets Free market reforms in China, and India, and other nations opened the world to freer trade. ‹#›  LO 4) The Driving Forces Driving Forces of Market Globalization Industrialization, Economic Development, and Modernization Rising living standards have made such countries more attractive as target markets for sales and investment. ‹#›  LO 4) The Driving Forces The Growth of World GDP, Average Annual GDP Growth Rate GDP = C + Ig + G + Xn Gross domestic product (GDP) equals consumption, plus gross private domestic investment, plus government spending, plus net exports (exports minus imports). ‹#›  LO 4) The Driving Forces Levels of Gross National Income (GNI) per capita, in U.S. Dollars GNI is the total amount of money earned by a nation's people and businesses. It is used to measure and track a nation's wealth from year to year. GNI = GDP + (EXfs – IMfs) GNI = GDP + money flowing from foreign countries minus money flowing to foreign countries. The number includes the nation's gross domestic product plus the income it receives from overseas sources. ‹#›  LO 4) The Driving Forces Driving Forces of Market Globalization Integration of World Financial Markets Integration enables firms to raise capital, borrow funds, and engage in foreign currency transactions. The SWIFT network connects more than 11,000 financial institutions in some 200 countries. Transactions are easier because funds can be transferred between buyers and sellers. ‹#›  LO 4) The Driving Forces “Technology, in the minds of many people, consists of machines, but machines provide only half a definition of technology: the other half consists of structures...which form the physical foundations of society.” David Billington ‹#›  LO 4) The Driving Forces Driving Forces of Market Globalization Advances in Technology Perhaps the most important driving force of market globalization has been technological advances in information, communications, manufacturing, and transportation. ‹#›  LO 4) The Driving Forces Declining Cost of Global Communication and Growing Number of Internet Users ‹#›  LO 4) The Driving Forces Driving Forces of Market Globalization Advances in Technology With low cost manufacturing, firms can make products cost- effectively even in short production runs. Costs of international transportation have declined substantially, spurring rapid growth in global trade. ‹#› LO 4) The Driving Forces ‹#›  LO 4) The Driving Forces Technology as Infrastructure Physical infrastructure (the hardware) Information infrastructure (the software) Human capital infrastructure (the “brainware”) of a country Using this framework helps global business leaders assess how technology as infrastructure affects opportunities. ‹#›  Dimensions of Globalization Dimensions of Globalization ‹#›  LO 5) Dimensions Dimensions of Market Globalization Integration and Interdependence of National Economies Internationally active firms develop multi-country operations through trade, investment, geographic dispersal of company resources, and integration and coordination of value-chain activities. The collective activities of such firms give rise to economic integration, that is, increased trade and other commercial activities among the nations of the world. Governments assist integration by lowering barriers to international trade and investment, harmonizing their policies (e.g., regional economic integration blocs). ‹#› LO 5) Dimensions ‹#›  LO 5) Dimensions Dimensions of Market Globalization Integration and Interdependence of National Economies Interdependence: Supranational institutions include such organizations as the World Bank, International Monetary Fund (IMF), and World Trade Organization (WTO). ‹#›  LO 5) Dimensions The WTO is the world's largest international economic organization, with 164 member states representing over 96% of global trade and global GDP. ‹#›  LO 5) Dimensions Dimensions of Market Globalization Growth of Global Investment and Financial Flows The globalization of capital–extends economic activities across the globe. Firms and governments buy and sell large volumes of national currencies. Foreign stocks and bonds represent a major source of equity and debt financing. ‹#›  LO 5) Dimensions Dimensions of Market Globalization Convergence of Buyer Lifestyles and Preferences Consumers around the world from New York, to Paris, and Shanghai increasingly demand similar things. Business are standardizing on a global scale in terms of products and processes (from parts, IT, services, etc.). ‹#›  LO 5) Dimensions Dimensions of Market Globalization Globalization of Production Loading… Intense global competition is forcing firms to reduce their costs of production. Companies cut costs and prices through economies of scale and standardization of finished products. ‹#›  LO 5) Dimensions Dimensions of Market Globalization Globalization of Services The services sector–banking, hospitality, retailing, and other service industries–is undergoing widespread internationalization too. ‹#›  Consequences of Globalization Consequences of Globalization ‹#›  LO 6) Firm-Level Consequences Firm-Level Consequences of Market Globalization: Internationalization of the Firm’s Value Chain The most direct consequence of market globalization is on the firm’s value chain. ‹#›  LO 6) Firm-Level Consequences What is A Firm’s Value Chain? The sequence of value-adding activities the firm performs in the course of developing, producing, marketing, and servicing a product. ‹#›  LO 6) Firm-Level Consequences Firm-Level Consequences of Market Globalization: Internationalization of the Firm’s Value Chain Each value-adding activity in the firm’s value chain is subject to internationalization; that is, it can be performed in locations outside the home country. The value-chain concept is therefore useful in international business because it helps clarify what activities are performed where in the world. ‹#›  LO 6) Firm-Level Consequences Internationalization of the Firm’s Value Chain: Some Examples ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Contagion: The Rapid Spread of Monetary and Financial Crises Contagion is the tendency of a financial or monetary crisis in one country to spread rapidly to other countries due to the ongoing integration of national economies. ‹#›  LO 7) Societal Consequences Percentage of Change in Annual GDP Growth The Financial Crisis and Great Recession  LO 7) Societal Consequences Societal Consequences of Market Globalization Loss of National Sovereignty MNEs can interfere with a government’s ability to control its economy, social structure, and political system. Some corporations are bigger than the economies of small nations! ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Loss of National Sovereignty Corporate dominance of individual markets is rare. In reality, market forces generally dominate companies. For example, Ford, Chrysler, and General Motors once dominated the U.S. auto market. Not any more. This begets new societal consequences as jobs are outsourced and offshored. ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Offshoring Offshoring is the relocation of manufacturing and other value-chain activities to cost-effective locations abroad. Ford and General Motors have laid off thousands of workers in the U.S. and offshored jobs, for example. ‹#›  LO 7) Societal Consequences Market Shares of Automakers in Passenger Car Sales in the United States: 2002 and 2022 ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Reshoring MNEs sometimes engage in reshoring—the return of manufacturing and services back to the home country. It is the opposite of offshoring which refers to the relocation of manufacturing to a foreign country. Ford, Boeing and General Electric have recently re-shored thousands of jobs back to the United States. ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Effect on the Poor As nations’ economies develop and per-capita incomes rise, globalization can worsen income inequality. Good-paying jobs in the manufacturing sector are lost as companies shift production to low-wage countries too. Yet, countries that liberalize international trade and investment enjoy rising income and GDP growth levels. ‹#›  LO 7) Societal Consequences Relationship Between Trade and GDP Growth, Billions of U.S. Dollars The exhibit shows the relationship between trade and gross domestic product (GDP). Trade is expressed as the volume of merchandise exports, and GDP measures the volume of goods and services production. Countries that undertake international trade, and whose trade levels have increased, enjoy high and rapidly rising GDP. ‹#›  LO 7) Societal Consequences The Rise of Daily Income Levels, by Region, in U.S. Dollars This exhibit illustrates the The Middle East and income status of people in North Africa, Latin developing economies. America, and East Asia Poverty remains a major are home to billions of factor in South Asia and people whose daily sub-Saharan Africa (that incomes have risen part of Africa below the substantially. Saharan Desert), but even Much of these those areas have made improvements are due to much progress in the past international trade and decade. investment activities. ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Effect on Sustainability and Natural Environment Globalization promotes manufacturing and economic activity that results in increased pollution. Stakeholders demand companies engage in ESG concerns (environmental, social, and governance). Evolving company values and concern for corporate reputations have led firms toward sustainability. In Mexico, for example, Ford and General Motors have gradually improved their environmental standards. ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Effect on Sustainability and Natural Environment Alcan in Canada (aluminum), Kirin in Japan (beverages), are examples of firms that embrace practices that protect the environment, often at the expense of profits. ‹#›  LO 7) Societal Consequences Societal Consequences of Market Globalization Effect on National Culture Cultural values are affected given the increased globalization of markets and internationalization of firms. Increased globalization exposes local consumers to global brands from different cultures. There are examples of ‘importing’ and ‘exporting’ aspects of foreign culture. Can you think of some? ‹#›  LO 7) Societal Consequences Average Annual GDP Growth in Select Countries 2013-2022 (%) The Financial Crisis and Great Recession Globalization tends to support a growing economy. Countries that liberalize international trade and investment enjoy faster per-capita economic growth. Developing economies that seek to integrate with the rest of the world tend to have faster What have we learned? How can we use it? ‹#›  BUSMHR 2000 Intro to International Business CH 2: Globalization of Markets and the Internationalization of the Firm  BUSMHR 2000 Intro to International Business CH 3: The Cultural Environment of International Business The Cultural Environment of International Business ‹#›  Learning Objectives After completing this chapter, you will be able to: 1) Understand culture and cross-cultural risk. 2) 3) Loading… Learn the dimensions of culture. Describe the role of language and religion in culture. 4) Describe culture’s effect in international business. 5) Learn models and explanations of culture. 6) Understand managerial implications of culture. ‹#›  Framework on the Essential Elements of Culture Framework on the Essential Elements of Culture  LO 1) Understand culture and cross-cultural risk. Culture The values, beliefs, customs, arts, and other products of human thought and work that characterize a people of a given society. Loading… Culture emerges through the integration of our values and attitudes; manners and customs; time and space perceptions; symbolic, material, and creative expressions; education; social structure; language; and religion. Cross-Cultural Risk A situation or event in which a cultural misunderstanding puts some human value at stake. ‹#›  The Four Major Risks of International Business Risks in International Business  LO 1) Understand culture and cross-cultural risk. What Culture Is Not Not about right or wrong –culture is relative, and people perceive the world differently. Not about individual behavior –culture is about groups. Not inherited –culture comes from people’s social environment. No one is born with a shared set of values and attitudes. ‹#›  LO 1) Understand culture and cross-cultural risk. Socialization The process of learning the rules and behavioral patterns appropriate for living in one’s own society. Acculturation The process of adjusting and adapting to a culture other than one’s own. ‹#›  LO 2) Learn the dimensions of culture. Dimensions of Culture More than any other feature of human civilization, culture illustrates the differences among societies based on language, habits, customs, and modes of thought. Yet most of us are not completely aware of how culture affects our behavior until we encounter people from other cultures! ‹#›  LO 2) Learn the dimensions of culture. Dimensions of Culture Anthropologists use the iceberg metaphor to call attention to the many dimensions of culture, some obvious and some not so obvious. Above the surface, certain characteristics are visible, but below, invisible to the observer, is a massive base of assumptions, attitudes, and values. ‹#›  LO 2) Learn the dimensions of culture. Culture as an Iceberg Loading… ‹#›  LO 2) Learn the dimensions of culture. Values and Attitudes Values represent a person’s judgments about what is good or bad, acceptable or unacceptable, important or unimportant, and normal or abnormal. Values are the basis for our motivation and behavior. Attitudes are similar to opinions but are often unconsciously held and may not be based on logical facts. Prejudices are rigidly held attitudes, and usually unfavorable. ‹#›  LO 2) Learn the dimensions of culture. Manners and Customs Manners and customs are ways of behaving and conducting oneself in public and business situations. Appropriate behavior at social gatherings, work hours, personal greetings are some examples. ‹#›  LO 2) Learn the dimensions of culture. Perceptions of Time Time has a strong influence on business. It affects people’s expectations about planning, scheduling, profit flows, and promptness in arriving for work and meetings. Perceptions of Space Cultures differ in their perceptions of physical space. For example, people in the U.S. keep a greater distance than say, those in Brazil. ‹#›  LO 2) Learn the dimensions of culture. Monochronic Countries such as Australia, Canada, and the United States are relatively focused on the present. They tend to have a monochronic orientation to time—a rigid orientation in which people are focused on schedules, punctuality, and time as a resource. ‹#›  LO 2) Learn the dimensions of culture. Polychronic Some cultures have a polychronic perspective on time. In such societies, instead of performing single tasks serially, people are inclined to do many things at once. In this way, members of polychronic cultures are easily distracted. ‹#›  LO 2) Learn the dimensions of culture. Symbolic Productions A symbol can be letters, figures, colors, or other characters that communicate a meaning. Symbols can represent nations, religions, or corporations. Color meanings in each country are based on spiritual, social, cultural, historic and political influences. Colors are important and powerful communication tools that express emotions and feelings. ‹#›  LO 2) Learn the dimensions of culture. The Meaning of Colors Around the World ‹#›  LO 2) Learn the dimensions of culture. Material Productions and Creative Expressions Material productions are artifacts, objects, and include technology-based, social, and financial infrastructure. Creative expressions of culture include arts, folklore, music, dance, theater, and cuisine. ‹#›  LO 2) Learn the dimensions of culture. Education Cultural values, ideas, beliefs, traditions, and attitudes are passed from one generation to the next through education. Education takes place through lessons and behavior acquired from parents, family, and peers; participation in groups (social, business, and religious); and schooling. ‹#›  LO 2) Learn the dimensions of culture. Literacy Rates by Gender in Selected Countries ‹#›  LO 2) Learn the dimensions of culture. Social Structure Refers to the pattern of social arrangements and organized relationships that characterize a society. It is how a society is organized in terms of individuals, families, groups, and socioeconomic strata. As a manager, understanding the social structure of international employees, clients, and suppliers is vital. ‹#›  LO 3) Describe the role of language and religion in culture. Language Described as the expression or mirror of culture, verbal language is essential to communications, and provides insights into culture. It’s a major differentiator between cultural groups and provides a means for business leaders to communicate effectively with employees, suppliers, and customers. ‹#›  LO 3) Describe the role of language and religion in culture. The Most Common Primary Languages  LO 3) Describe the role of language and religion in culture. Blunders in International Advertising ‹#›  LO 3) Describe the role of language and religion in culture. Differences in Meaning Between U.S. and British English ‹#›  LO 3) Describe the role of language and religion in culture. Idiom An expression whose symbolic meaning is different from its literal meaning. It is a phrase you cannot understand by knowing only what the individual words in the phrase mean. Idioms exist in virtually every culture, and people often use them as a short way to express a larger concept. Managers should study national idioms to gain a better understanding of cultural values. ‹#›  LO 3) Describe the role of language and religion in culture. Idioms That Symbolize Cultural Values ‹#›  LO 3) Describe the role of language and religion in culture. Nonverbal Communication Nonverbal communication is unspoken, and nonverbal Loading… messages accompany most verbal ones. Includes facial expressions, body movements, eye contact, physical distance, posture, and other signals. ‹#›  LO 3) Describe the role of language and religion in culture. Nonverbal Communication  LO 3) Describe the role of language and religion in culture. Religion Almost every culture is underpinned by religious beliefs. Religion is a system of common beliefs or attitudes concerning a being or a system of thought that people consider sacred, divine, or the highest truth and includes the moral codes, values, institutions, traditions, and rituals associated with this system. Religious concepts of right and wrong have played a key role in the development of ethical values and social responsibility. Religion influences culture and, therefore, managerial and customer behavior in many ways. ‹#›  LO 3) Describe the role of language and religion in culture. World Religions Four major religions dominate: Christianity with roughly 2 billion adherents, Islam with about 1.5 billion followers, and Hinduism and Buddhism, each with about 1 billion adherents. Other belief systems include Confucianism and Judaism. ‹#›  LO 4) Describe culture’s effect on international business. Culture’s Effect on International Business Cross-cultural proficiency is paramount in many managerial tasks, including such things as: Managing employees (e.g., planning, organizing, leading) Developing products and services Communicating and interacting with foreign business partners Negotiating and structuring international business ventures Preparing advertising and promotional materials Interacting with current and potential customers from abroad ‹#›  LO 4) Describe culture’s effect on international business. A Culture Map ‹#›  LO 5) Learn models and explanations of culture. Cultural Metaphor A distinctive tradition or institution strongly associated with a particular society. It is a guide to deciphering people’s attitudes, values, and behavior. ‹#›  LO 5) Learn models and explanations of culture. Hall’s High- and Low-Context Typology of Cultures Low-Context Culture A culture that relies on elaborate verbal explanations, putting much emphasis on spoken words. High-Context Culture A culture that emphasizes nonverbal messages and views communication as a means to promote smooth, harmonious relationships. ‹#›  LO 5) Learn models and explanations of culture. Hall’s High- and Low-Context Typology of Cultures ‹#›  LO 5) Learn models and explanations of culture. Hofstede’s Research on National Culture Dutch anthropologist Geert Hofstede conducted one of the early studies of national cultural traits. He collected data on the values and attitudes of 116,000 employees at IBM, a diverse company in terms of nationality, age, and gender. Hofstede identified six independent dimensions of national culture: 1) power distance, 2) individualism versus collectivism, 3) masculinity versus femininity, 4) uncertainty avoidance, 5) long- term versus short-term orientation, and 6) indulgence versus restraint. ‹#› LO 5) Learn models and explanations of culture.  LO 5) Learn models and explanations of culture. 1) Power Distance This dimension deals with the fact that all individuals in societies are not equal –it expresses the attitude of the culture towards these inequalities amongst us. The extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally. At a score of 81, Mexico is a hierarchical society. This means that people accept a hierarchical order in which everybody has a place, and which needs no further justification. ‹#›  LO 5) Learn models and explanations of culture. 2) Individualism versus Collectivism The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. It has to do with whether people’s self-image is defined in terms of “I” or “We”. In collectivist societies people belong to ‘in groups’ that take care of them in exchange for loyalty. Mexico, with a score of 30 is collectivistic. This is manifest in a close long-term commitment to the member ‘group’ be that a family, extended family, or extended relationships. ‹#›  LO 5) Learn models and explanations of culture. 3) Masculinity versus Femininity A high score (masculine) indicates that the society will be driven by competition, achievement and success. A low score (feminine) means that the dominant values in society are caring for others and quality of life. The issue here is what motivates people, wanting to be the best (masculine) or liking what you do (feminine). Mexico scores 69 on this dimension and is thus a masculine society. Managers are expected to be decisive and assertive. ‹#›  LO 5) Learn models and explanations of culture. 4) Uncertainty Avoidance The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these. People in societies with high uncertainty avoidance create institutions that minimize risk and ensure financial security (e.g., Mexico with a score of 82). Societies that score lower on uncertainty avoidance socialize their members to accept and become accustomed to uncertainty (e.g., United States at 46). ‹#›  LO 5) Learn models and explanations of culture. 5) Long-Term versus Short-Term Orientation Refers to the degree to which people and organizations defer pleasure and gratification to achieve long-term success. Firms and people in cultures with a long-term orientation tend to take the long view to planning and living. They focus on years and decades (e.g., China and Japan). By contrast, the United States and most other Western countries emphasize a short-term orientation. ‹#›  LO 5) Learn models and explanations of culture. 6) Indulgence versus Restraint The extent to which people try to control their desires and impulses. Indulgent cultures focus on individual happiness, having fun, and enjoying life (e.g., U.S., Mexico). Restrained societies try to suppress needs gratification, often controlled by strict social norms (e.g., Egypt). ‹#›  LO 5) Learn models and explanations of culture. Comparative Cultural Dimensions: U.S. and Mexico ‹#›  LO 5) Learn models and explanations of culture. Deal versus Relationship Orientation In deal-oriented cultures, managers focus on the task at hand and prefer getting down to business. Leading examples of deal-oriented cultures include those of Australia, northern Europe, and North America. In relationship-oriented cultures, managers put more value on relationships with people. It is important to build trust and understanding and get to know the other party in business interactions (e.g., guanxi in China). ‹#›  LO 6) Understand managerial implications of culture. Understand Managerial Implications of Culture Company employees are socialized by three cultures: 1) national culture, 2) professional culture, 3) and corporate culture. ‹#›  LO 6) Understand managerial implications of culture. National, Professional, and Corporate Culture ‹#›  LO 6) Understand managerial implications of culture. Cultural Orientations An ethnocentric orientation is using our own culture as the standard for judging other cultures. It is also known as home-country orientation. A polycentric orientation refers to a host-country mind-set in which the manager develops a strong attachment to the country in which she or he conducts business. A geocentric orientation refers to a global mind-set through which the manager can understand a business or market without regard to country boundaries. ‹#›  LO 6) Understand managerial implications of culture. Self-Reference Criterion The tendency to view other cultures through the lens of your own culture. Critical Incident Analysis A method for analyzing awkward situations in cross-cultural encounters. Involves becoming more objective and developing empathy for other points of view. ‹#›  LO 6) Understand managerial implications of culture. How to Acquire Cross-Cultural Competence Develop cross-cultural skills. Strive for cross-cultural proficiency (tolerance, perceptiveness, relationships). Manage cultural differences through recognition, respect and reconciliation processes through time. Strive to develop a global mind-set by improving your CQ (cultural intelligence) cognitive, behavioral, motivational. ‹#›  LO 6) Understand managerial implications of culture. How to Acquire Cross-Cultural Competence A global mindset is found in a leader who recognizes “the need for global integration and local responsiveness and works to optimize this duality, …and includes an appreciation for diversity as well as homogeneity and openness to learning from everywhere.” ‹#› What have we learned? How can we use it? ‹#›  BUSMHR 2000 Intro to International Business CH 3: The Cultural Environment of International Business  BUSMHR 2000 Intro to International Business CH 4: Ethics, Corporate Social Responsibility, Sustainability, and Governance in International Business The Cultural Environment of International Business Ethics, Corporate Social Responsibility, and Governance in International Business ‹#›  Learning Objectives After completing this chapter, you should be able to: 1) Learn the components of ethical behavior and their importance Loading… in international business. 2) Recognize ethical challenges in international business. 3) Understand corporate social responsibility. 4) Understand sustainability. 5) Know the role of corporate governance. 6) Learn how to apply the framework for making ethical decisions. ‹#›  LO 1) Learn the components of ethical behavior. Components of Ethical Behavior Ethics Moral principles and values that govern the behavior of people, firms, and governments regarding right and wrong. Corporate Social Responsibility (CSR) A manner of operating a business that meets or exceeds the ethical, legal, commercial, and public expectations of customers, shareholders, employees, and communities. ‹#›  LO 1) Learn the components of ethical behavior. Components of Ethical Behavior Sustainability Loading… Meeting humanity’s needs without harming future generations. Corporate Governance The system of procedures and processes by which corporations are managed, directed, and controlled. ‹#›  Organizing Framework for Ethical Behavior in International Business Organizing Framework for Ethical Behavior  Case Study Coca-Cola Case Study Coca-Cola Achieving sustainability often requires the firm to be flexible and creative. A good example is Coca-Cola, which had to deal with water sustainability challenges. As water resources dwindled in some countries, Coke began to experience conflicts with communities and other water users, especially in India. To address such challenges, Coke developed a water sustainability program that goes well beyond efficiency and legal compliance needs alone. ‹#›  LO 1) Learn the components of ethical behavior. Value of Ethical Behavior Acting in a fair and respectful way that does not harm human rights is the right thing to do. Ethical behavior is often prescribed within laws and regulations. Customers, governments, and the news media demand ethical behavior. Ethical behavior is good business, leading to enhanced corporate image and selling prospects. ‹#›  LO 1) Learn the components of ethical behavior. Ethical Standards Are ethical standards uniform around the world? Not really. Each society develops its own traditions, values, attitudes, norms, customs, and laws. Ethical Dilemma A problem that involves two or more possible solutions, none of which resolves the situation in a morally satisfactory manner. ‹#›  LO 1) Learn the components of ethical behavior. Relativism The belief that ethical truths are not absolute but differ from group to group. Normativism The belief that ethical behavioral standards are universal and global firms should seek to uphold them. ‹#›  The Pyramid of Ethical Behavior The Pyramid of Ethical Behavior The pyramid shows CSR is at the top, and ethical responsibilities are Loading… above legal ones. ‹#›  LO 2) Recognize ethical challenges in international business. Ethical Challenges in International Business Corruption Bribery Harmful Work Environment Unethical Business Practices Harmful Global Sourcing Illicit Products and Marketing Intellectual Property Infringement ‹#›  LO 2) Recognize ethical challenges in international business. Corruption The practice of obtaining power, personal gain, or influence through illegitimate means. Includes bribery, embezzlement, fraud, extortion and blackmail, and money laundering. ‹#›  LO 2) Recognize ethical challenges in international business. Corruption More than 30 percent of MNEs believe corruption is a major concern in their activities worldwide. Recent data suggest the cost amounts to more than 5 percent of global GDP annually (more than $2.6 trillion). Corruption increases global business costs by up to 10 percent. ‹#›  LO 2) Recognize ethical challenges in international business. Bribery Bribery, widely practiced around the world, is the most notable form of corruption in international business. More than $1 trillion in bribes are paid every year to gain access to markets and achieve other business goals. One study found that 40 percent of business executives have been asked to pay a bribe to public institutions. Twenty percent claimed to have lost business because of bribes paid by a competitor. ‹#›  LO 2) Recognize ethical challenges in international business. Bribery Numerous countries have signed the anti-bribery convention developed by the Organization for Economic Co-operation and Development (OECD). In the United States, the Foreign Corrupt Practices Act (FCPA) makes it illegal for U.S. firms to offer bribes to foreign parties to secure or retain business. The FCPA excludes grease payments, small payments made to low- level government officials to perform routine duties more efficiently. ‹#›  LO 2) Recognize ethical challenges in international business. Corruption Perceptions Index ‹#›  LO 2) Recognize ethical challenges in international business. Intellectual Property Ideas or works that individuals or firms create, including discoveries and inventions; artistic, musical, and literary works; and words, phrases, symbols, and designs. Intellectual Property Rights Legal claim through which the proprietary assets of firms and individuals are protected from unauthorized use by other parties. Trademarks, copyrights, and patents are examples of intellectual property rights, the legal claim through which proprietary assets are protected from unauthorized use. ‹#›  LO 2) Recognize ethical challenges in international business. Intellectual Property Infringement Intellectual property infringement arises in the form of piracy and counterfeiting, the unauthorized reproduction or use of copyrighted or patented work for financial gain. Pirated goods typically are sold at low prices in illicit markets, in person, or through the internet. The total value of counterfeit and pirated products is approximately $2 trillion annually. ‹#›  LO 2) Recognize ethical challenges in international business. Counterfeit Products Seized ‹#›  LO 2) Recognize ethical challenges in international business. Piracy and Counterfeiting Affect: International Trade Direct Investment Company Performance Innovation Tax Revenues Criminal Activity The Environment Prosperity and Well-Being ‹#›  LO 3) Understand corporate social responsibility. Corporate Social Responsibility Corporate social responsibility (CSR) refers to operating a business in a manner that meets or exceeds the ethical, legal, and commercial expectations of customers, shareholders, employees, and the communities where the firm does business. ‹#›  LO 3) Understand corporate social responsibility. Corporate Social Responsibility Companies that practice CSR aim to do more for the betterment of others than is required by laws, regulations, or special interest groups. Sometimes called corporate citizenship, CSR emphasizes the development of shared value for both shareholders and stakeholders, creating a double-win scenario. ‹#›  LO 3) Understand corporate social responsibility. Settings for Corporate Social Responsibility  LO 3) Understand corporate social responsibility. Settings for Corporate Social Responsibility Workplace CSR focuses on the firm’s employees and implies a thoughtful approach to diversity, recruitment, salary, safety, health, and working conditions. Marketplace CSR emphasizes interactions with customers, competitors, suppliers, and distributors and appropriate behavior regarding product development, marketing, and advertising. Environmental CSR refers to the firm’s activities to minimize or eliminate the creation of pollutants as well as efforts to improve the natural environment. Community CSR accounts for the firm’s activities aimed at benefiting the community and society. It includes employee volunteering programs and philanthropy. ‹#›  LO 3) Understand corporate social responsibility. Adhering to CSR principles implies a proactive approach to ethical behavior in which firms seek not only to maximize profits but also to benefit society and the environment. Examples of CSR values include: Avoiding human rights abuses. Upholding the right to join or form labor unions. Eliminating child labor. Avoiding workplace discrimination. Protecting the natural environment. Guarding against corruption. Undertaking philanthropic efforts. ‹#›  LO 3) Understand corporate social responsibility. CSR and MNE Accomplishments ‹#›  LO 4) Understand Sustainability Sustainability Sustainability implies the development and execution of company practices that avoid harming the ability of future generations to meet their needs. It is endorsed by economic development experts, environmentalists, and human rights activists. ‹#›  LO 4) Understand Sustainability Sustainability The sustainable firm carries out value-chain activities in Loading… ways that protect and preserve economic, social, and natural environments. For example, sustainable firms pay fair wages, ensure worker safety, and avoid emitting toxic waste. ‹#›  LO 4) Understand Sustainability Examples of sustainable practices include: Beneficial Agricultural Practices Water Conservation Air Quality Protection Reduced Energy and Fuel Consumption Increased Use of Solar and Wind Energy Improved Work Processes ‹#›  LO 4) Understand Sustainability Air Pollution in Selected Cities (particulate matter concentration in micrograms per cubic meter) ‹#›  LO 4) Understand Sustainability Company Role in Sustainability Sophisticated companies, large or small, view sustainability as an opportunity to reduce waste, increase efficiency and effectiveness, and generally create competitive advantage. ‹#›  LO 4) Understand Sustainability A Sustainable Business Pursues Three Interests: 1) Economic Interests 2) Social Interests 3) Environmental Interests ‹#›  Organizing Framework for Ethical Behavior in International Business Organizing Framework for Ethical Behavior  LO 5) Know the role of corporate governance. The Role of Corporate Governance Implementing ethical conduct, CSR, and sustainability is challenging for most firms, especially those with extensive operations across many countries. Corporate governance provides the means through which the firm’s directors and managers undertake such behaviors. ‹#›  LO 5) Know the role of corporate governance. The Role of Corporate Governance Implement corporate governance creating a set of values and set of ground rules for guiding behavior. The values and ground rules should be established in the firm’s code of ethics and code of conduct documents. ‹#›  LO 5) Know the role of corporate governance. Code of Ethics A document that describes the values and expectations that guide decision making by all employees in the firm. Code of Conduct A document that translates the code of ethics into specific rules regarding behaviors and practices. ‹#›  LO 5) Know the role of corporate governance. Embracing CSR and Sustainability 1) Build internal and external capabilities to enhance the firm’s contribution to the local community and global environment. 2) Ensure diverse voices are heard by creating organizational structures that employ managers and workers around the world. 3) Develop global ethical standards and objectives that are communicated and implemented across the firm worldwide. 4) Train managers in global ethical principles and integrate these into managerial responsibilities. 5) Develop closer relations with foreign stakeholders to understand their needs better and jointly work toward solutions. ‹#›  Case Study BMW Case Study BMW BMW introduced a series of electric cars to support the firm’s sustainability goals. The cars have carbon-fiber bodies to reduce weight and save fuel. Recycled aluminum is used in the chassis, and interior panels and seats are made of hemp fibers and recycled water bottles. Lithium-ion batteries allow users to drive up to more than 300 miles before charging. Smartphone apps show the way to charging stations and smart parking spots. ‹#›  LO 5) Know the role of corporate governance. Ethical Standard Approaches for Corporate Governance ‹#›  LO 5) Know the role of corporate governance. A Global Consensus International organizations such as the United Nations, the World Bank, and the International Monetary Fund have launched programs to combat corruption. The International Chamber of Commerce has adopted Rules of Conduct to Combat Extortion and Bribery, and the United Nations issued a Declaration against Corruption. ‹#›  LO 5) Know the role of corporate governance. A Global Consensus The Organization for Economic Co-operation and Development (OECD) has developed an anti-bribery agreement. The United Nations Global Compact (see www.unglobalcompact.org) is a policy platform and for companies committed to sustainability. ‹#›  LO 5) Know the role of corporate governance. A Global Consensus The Global Reporting Initiative (www.globalreporting.org) pioneered the development of the most widely used sustainability reporting framework. It sets out the principles and indicators that organizations can use to measure and report their economic, environmental, and social performance. ‹#›  LO 5) Know the role of corporate governance. Going Deep, Wide, and Local Going deep means institutionalizing appropriate behavior in the organization’s culture so it becomes part and parcel of strategy. Going wide implies a continuous effort to understand how CSR and sustainability affect every aspect of the firm’s operations worldwide. Going local goes hand in hand with globalization. It requires the firm to examine its global operations to identify and improve specific local issues that affect stakeholders. ‹#›  LO 5) Know the role of corporate governance. Benefits of Good Corporate Governance Increased Employee Commitment Increased Customer Loyalty and Sales Improved Reputation and Brand Image Reduced Likelihood of Government Intervention Reduced Business Costs Improved Financial Performance ‹#›  LO 6) Learn how to apply a framework for making ethical decisions. A Framework for Ethical Decisions Scholars have devised a five-step framework for making ethical decisions. Initially, the manager should recognize the existence of an ethical problem. The next steps are to get the facts, evaluate alternative courses of action, implement the decisions, and evaluate the results. ‹#›  LO 6) Learn how to apply a framework for making ethical decisions. Framework for Arriving at Ethical Decisions ‹#›  LO 6) Learn how to apply a framework for making ethical decisions. A Framework for Ethical Decisions Imagine you are a manager visiting a company factory in Colombia, where you discover child labor. Without the children’s income, their families might go hungry. The children could even turn to illicit activity such as street crime. How would you use the framework for arriving at ethical decisions? ‹#›  LO 6) Learn how to apply a framework for making ethical decisions. A Framework for Ethical Decisions Managers must make ethical behavior, CSR, and sustainability part of company activities and operations. Business must balance their obligation to shareholders with explicit contributions to the broader public good. ‹#› What have we learned? How can we use it? ‹#›  BUSMHR 2000 Intro to International Business CH 4: Ethics, Corporate Social Responsibility, Sustainability, and Governance in International Business The Cultural Environment of International Business