Introduction to International Business and Globalization PDF

Introduction to International Business and Globalization 01. Explain the concept of international business and why companies engage in IB Define International Business (IB) is any commercial transactions between two or more countries. ▪refers to the trade of goods, services, technology, c...

Introduction to International Business and Globalization 01. Explain the concept of international business and why companies engage in IB Define International Business (IB) is any commercial transactions between two or more countries. ▪refers to the trade of goods, services, technology, capital and/or knowledge across national borders. ▪IB goal of private business is to make profits. ▪IB goal of government may or may not be motivated by profits. Why companies engage in IB 1. Sales Expansion Additional sales from overseas markets increase the sales/revenues of a company e.g. In USA, about 280,000 small and medium-sized enterprises (SMEs), defined as companies with fewer than 500 workers –account for 98% of US exporters. e.g. Large companies such as Boeing, Intel generate over two thirds of their sales from exporting to overseas markets. 2. Resource Acquisition Companies seek out products, services, resources and components from foreign countries – because domestic supplies are inadequate e.g. Apple make the iPhone in China to access inexpensive, productive local expertise in tooling engineering, materials management and assembly Why companies engage in IB 1. Risk Reduction Selling in countries with different business cycle timing can decrease swings in sales and profits By doing so, international operations can smooth sales, profits and supplies. Defensive reasons to counter competitors’ advantages in foreign markets that might hurt them elsewhere e.g. By operating in Japan, Procter & Gamble (P&G) delayed potential Japanese rivals’ foreign expansion by slowing their amassment of the resources needed to enter into other international markets where P&G was active. Why do companies engage in International Business A: Sales Expansion B: Resource Acquisition C: Risk Reduction D: Defensive Reasons Against Rivals E: All of the Above Quiz Answer: all correct 02. Describe the relationship between International Business & Globalization Relationship between IB and Globalization Globalization is the widening and deepening of interdependent relationships among people from different nations. Globalization is sometimes referred to as the elimination of barriers to international movements of goods, services, capital, technology and people, leading to integration of world economies. Globalization is the result of International Business! E.g. About a quarter of world production is sold outside its country of origin, compared to about 7 percent in 1950. E.g. Increase in people-to-people contacts through travel and communications, technological interchanges, government-to-government relationships, acceptance and adaptation of foreign cultures such as words from other languages. What is Globalisation? Globalization is different from internationalization (entities cooperating across national boundaries) Globalization (trend towards greater political, economical, socio-cultural and technological interdependence among companies and economies) is characterized by denationalization (national boundaries becoming less relevant) Globalisation refers to the shift towards a more integrated and interdependent world economy (as defined by Global Business Today)  Globalisation refers to the free flow of factors of production, ideas, goods, services and capital that lead to more integrated economies and societies (as defined as World Bank) These are all definition of globalisation. Pick the one definition that most appropriately define Globalisation with reference to it being the catalyst for the rapid growth of international trade and investment A) Globalization is different from internationalization B) Globalization is characterized by denationalization C) Globalisation refers to the shift towards a more integrated and interdependent world economy D) Globalisation refers to the free flow of factors of production, ideas, goods, services and capital that lead to more integrated economies and societies Quiz Answer: D LO: Define Globalisation with reference to it being the catalyst for the rapid growth of international trade and investment Fun Facts Did you know? (1) Small countries tend to be more globalized than larger ones – mainly because their smaller land masses and populations permit a lower variety of production. (2) Countries with higher per capital incomes tend to be more globalized than those with lower ones because their citizens can better afford foreign products, travel and communications. Importance of International Business IB is the critical difference between flourishing or declining, surviving or perishing for companies in this increasingly globalised world. Example: SingaporeConstraints posed by Singapore’s small domestic market only means that the development of overseas markets continues to be vital and essential! 03. Describe various international trade theories International Trade Theories Trade theories help government policymakers and company managers focus on these questions: - what products should we import and export? - how much should we trade? - with whom should we trade? Some trade theories prescribe that governments should influence trade patterns’ other propose a laissez-faire (i.e. laid-back) treatment for free trade. International Trade Theories – Theory of Absolute Advantage Theory of Absolute Advantage holds that different countries produce different things more efficiently than others and that consumers should not have to buy domestically produced goods when they can buy them more cheaply from abroad. Thus, unrestricted trade would lead a country to specialize in those products that gave it a competitive advantage. Its resources would shift to these efficient industries because it could not compete in the inefficient ones. Through specialization, it could increase its efficiency for three reasons as below: - labor could become more skilled by repeating the same tasks; - labour would not lose time in switching production from one kind of product to another; and - Larger amounts of production would provide incentives for developing more effective working methods. In summary, each country has to be more efficient than the other in producing its goods! - Adam Smith 1776 International Trade Theories – Theory of Comparative Advantage Theory of Comparative Advantage says that global efficiency gains may still result from trade if a country specializes in what it can produce most efficiently – regardless of other countries’ absolute advantage. Does it sound incongruent and contradicting? Imagine the best doctor in town also happens to be the best administrator. It would not make sense for the doctor to handle all the office’s administrative duties because the doctor can earn more money by concentrating on medical duties, even though that means having to hire a less-skilled office administrator. In the same manner, a country gains if it concentrates its resources on the products/services it can produce most efficiently. It then trades some of those for products and services produced abroad. In summary, gains from trade will occur even in a country that has absolute advantage in all products and services, because the country must give up less efficient output (administrative duties) to produce more efficient output (doctor duties). - David Ricardo 1817 04. Describe the pros and cons of globalization  Impact of Globalisation Is the shift towards a more integrated and interdependent global economy a good thing? Here’s what supporters say about the associated advantages of globalisation: Declining barriers to international trade and investments simulates economic growth Increases wealth and efficiency in all nations Lower the prices for goods and services Helps create jobs Raises income of consumers In turn, here’s what critics has to say about the disadvantages associated with globalisation: Degradation/stress to environment Homogenizes our world and destroys our rich diversity of cultures Widening income inequality within nations, luSbetween nations Threats to national sovereignty Quiz Match one advantages and disadvantages of globalisation Individual - Access to better quality good and services. Access to a greater variety of good and services Companies- Access to cheaper labour and capital Increased competition Countries - Job creation in developing nations Culture impoverishment World- Growth in the global economy 05. Introduction to trade barriers –tariffs and non-tariffs based Trade Barriers In seeking to influence exports or imports, governments’ choice of trade-control instrument is crucial because each may result in different responses from domestic and foreign groups. One way to understand these instruments is by distinguishing between those that directly influence export or import prices and those that directly limit the amount of a good that can be traded. Trade Barriers :Tariffs-based Tariffs may be levied: - on goods entering, leaving, or passing through a country; - for protection or revenue; - on a per-unit basis, a value basis or bothMost commonly used is import tariffs which influence prices. Import tariffs raise the price of imported goods by taxing them, thereby giving domestically produced goods a relative price advantage. Trade Barriers : Non Tariffs-based Most commonly used are subsidies which influence prices, quotas and licensing requirements which influence quantity. Subsidies are direct assistance to companies to boost their competitiveness. E.g. EU claim that the US national and state governments subsidize Boeing through R&D contracts for military aircraft that also have commercial applications and through the granting of incentives to influence their location decisions Trade Barriers : Non Tariffs-based Quotas limit the quantity of a product that can be imported or exported in a given time frame, typically per year. This will raise prices because it (1) limit supplies and (2) provide little incentive to use price competition by the importers to increase sales. Quota thus protects domestic producers from cheap overseas competitors. Country may also establish export quotas to provide domestic consumers a sufficient supply of goods at a low price or to prevent depletion of natural resources. Trade Barriers : Non Tariffs-based Licensing requirements may require that importers or exporters secure a license before trade is permitted. A company may have to submit samples to government authorities to obtain such a license. The procedure can restrict imports or exports directly be denying permission or indirectly because of the cost, time, and uncertainty involved. Other non-tariffs based quantity controls include administrative delays, standards and labels, “buy local” legislation etc. - Introduction to International Business and Globalization International Business AnalysisLecture - Introduction to Business Challenges & Opportunities in the Global Trade & Investment Environment Factor in External Environment - China Economic Difficulty Global Trend – Artificial IntelligenceEconomic & Trade Data 01. Global Challenges & Opportunities Global Challenges & Opportunities Challenges (1) High Interest Rate (2) China Economic Difficulty (3) Geopolitical Tension Resource Acquisition (1) Opportunities in the U.S. (2) Adoption of A.I. 02. Higher Interest Rates over Extended Time Period Economically, interest rate has been rising since 2022 The Federal Reserve left the rate at 5.25%-5.5% for the 7th consecutive meeting in June 2024. Federal Funds Rate History 1990 to 2023 – Forbes AdvisorUnited States Fed Funds Interest Rate (tradingeconomics.com) But Why? Just as the economy began to level out and supply chain issues started to heal from Covid-19, a major foreign conflict (Russia-Ukraine war in 2022) occurred. This caused the perfect storm of demand-pull and cost-push inflation, causing some of the highest inflation rates in history. Why Is Inflation So High Right Now? But first, what is demand-pull inflation and cost-push inflation? Demand-pull inflation occurs when the aggregate demand of an economy exceeds the aggregate supply. Well, people are spending after the lockdowns from months and months of savings! Cost-push inflation occurs when an aggregate supply of goods and services experiences a decrease. Well, this is mainly due to the Russian-Ukraine war which affected more goods and services experiences than we can imagine! But Why? 1.The Covid-19 pandemic The pandemic caused a classic case of demand-pull inflation. A few factors can cause demand-pull inflation; however, in this case, it is mainly caused by household spending. Throughout history, demand-pull inflation often happened after wartime. For example, when World War II ended, the country's economy experienced a boom it was not quite expecting.Because people were celebrating the war's end and living more carefreely, they began to make more purchases than they had in previous years. This caused a rapid shift in the economy as demand soared above supply. A similar phenomenon occurred when lockdowns were lifted, and people became more comfortable resuming everyday life as the pandemic began to wane.People began buying again, but the purchases happened more rapidly than the slowed supply chain could handle.And when the demand is that much greater than the supply, shortages and price increases occur. 2. Russia's invasion of Ukraine Russia and Ukraine supply the world with essential commodities, and because of the supply chain disruption the war has caused, sanctions were imposed, and higher prices became inevitable. With these two countries at war, significant shifts and shortages are happening worldwide. There are three key areas where the world is seeing the harshest effects: Food: Russia and Ukraine supply the world with one-fourth of its wheat, one-fifth of its corn and coarse grains and 80% of its sunflower oil. Because of the conflict, global food prices have increased by 17%. Transport: Russia is one of the world's foremost suppliers of palladium, mine production, platinum, titanium and fertilizer. These commodities contribute to significant industries like automobiles, aircraft and farming. Energy: Russia is a massive contributor to the world's oil and energy industry. In June 2022, the price of Brent oil surged to $120 per barrel, and overall energy prices have increased by 30%. Energy used in the U.S. accounts for 7.6% of the CPI, leading to further inflation and a global energy crisis. So what has it got to do with interest rates? Interest rates and inflation have an indissoluble link.Interest rates are the primary tool used by central banks to manage inflation. When inflation rises, central banks may raise interest rates to discourage borrowing and spending, reduce the amount of money circulating in the economy. This tends to slow down economic growth and decrease inflation.When inflation falls, central banks may lower interest rates to stimulate borrowing and spending, and increase the amount of money circulating in the economy. This tends to boost economic growth and increase inflation.Interest rates represent the return or the cost of money. Higher interest rates mean less money supply and lower inflation. Lower interest rates mean more money supply and higher inflation.Inflation indicates the cost of living rising and is a sign of economic growth. Interest rates are adjusted in response to inflation expectations. When inflation increases faster than expected, interest rates will rise. When inflation decreases faster than expected, interest rates will fall. 03. China Economic Difficulty But Why? “To continue growing rapidly, China needs to make the next transition, from sweatshop economy to innovation economy. This transition is the one that has often proved difficult elsewhere. Once a country has turned itself into an export factory, it cannot keep growing by repeating the exercise. It can’t move a worker from an inefficient farm to a modern factory more than once. It cannot even retain its industrial might forever. As a country industrializes, workers will demand their share of the bounty, as has started happening in China, and some factories will start moving to poorer countries. Eventually, a rising economy needs to take two crucial steps: manufacture goods that aren’t just cheaper than the competition, but better; and create a thriving domestic market, so that its own consumers can pick up the slack when exports inevitably slow. These steps go hand in hand. Big consumer markets become laboratories where companies know that innovations will be tested and the successful ones richly rewarded.”- David Leonhardt During the last 20 years, the Chinese government has positioned real estate investments as the engine of economic growth. Since land is publicly owned in China, the Chinese government separated ownership rights and usage rights and made it possible to sell the latter. Through this reform, urban redevelopment took off, and the construction of condominiums for individuals accelerated. With the change in the rules making ownership possible, such deep-seated demand has augmented the aggressive development of property. In October 2017, President Xi declared that homes are for living in, not for speculation. This comment slowed the demand for real estate in China, and the real estate market turned downward. Then What Happened…. During good times, China’s property developers borrowed funds from state-owned banks and issued bonds, burdening them with debt beyond their financial capacity. Owing to the downward trend of the real estate market, many developers are unable to repay their debts. Local governments, which are no longer able to finance their budgets through the sale of land usage rights, resulted in pensions and social security funds controlled at the local level at risk running out of funds. Should the real estate bubble burst and should China’s economy slow further, foreign companies that have set up local operations will rush to pull their factories out of China.With this happening, unemployment rates have also been creeping up in China… Then What Happened…. During good times, China’s property developers borrowed funds from state-owned banks and issued bonds, burdening them with debt beyond their financial capacity. Owing to the downward trend of the real estate market, many developers are unable to repay their debts.Local governments, which are no longer able to finance their budgets through the sale of land usage rights, resulted in pensions and social security funds controlled at the local level at risk running out of funds.Should the real estate bubble burst and should China’s economy slow further, foreign companies that have set up local operations will rush to pull their factories out of China.With this happening, unemployment rates have also been creeping up in China… Then What Happened…. China youth unemployment will stay elevated in 2024, but EIU warns economic impact will linger (cnbc.com) The jobless rate for 16 to 24-year-olds in China, excluding college students, was at 13.2 percent for the month of June. The rate was 6.4 per cent for 25 to 29-year-olds, and 4 per cent for people between 30 and 59 years of age.China’s youth unemployment rate had previously climbed to record highs exceeding 20% before the country’s National Bureau of Statistics temporarily suspended the release of the group’s unemployment rate in 2023, citing the need to reassess calculation methods. 04. Global Trend – Artificial Intelligence Artificial Intelligence Artificial intelligence (AI) is the simulation of human intelligence in machines that are programmed to think and act like humans. Examples include learning, reasoning, problem-solving, perception, and language comprehension etc. Experts regard artificial intelligence as a factor of production, which has the potential to introduce new sources of growth and change the way work is done across industries. PwC predicts that AI could potentially contribute $15.7 trillion to the global economy by 2035. China and the United States are primed to benefit the most from the coming AI boom, accounting for nearly 70% of the global impact. Artificial Intelligence Opportunity? But Challenges Remain… High potential use case: Autonomous fleets for ride sharing Autonomous fleets would enable travellers to access the vehicle they need at that point, rather than having to make do with what they have or pay for insurance and maintenance on a car that sits in the drive for much of the time. Most of the necessary data is available and technology is advancing. However, businesses still need to win consumer trust. Barriers to overcome Technology still needs development – having an autonomous vehicle perform safely under extreme weather conditions might prove more challenging. Even if the technology is in place, it would need to gain consumer trust and regulatory acceptance. Opportunity? But Challenges Remain… High potential use case: Personalised design and production Instead of being produced uniformly, apparels and consumables can be tailored on demand. If we look at fashion and clothing as an example, we could eventually move to fully interactive and customised design and supply in which AI created mock-ups of garments are sold online, made in small batches using automated production, and subsequent changes are made to design based on user feedback. Barriers to overcome Adapting design and production to this more agile and tailored approach. Businesses also need to strengthen trust over data usage and protection. 05. Economic & Trade Data Economic & Trade Data Useful ResourcesTrading Economics - provides data for 20 million economic indicators from 196 countries including actual values, consensus figures, forecasts, historical time series and news. https://tradingeconomics.com UN Trade and Development (UNCTAD) - UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. UNCTAD is part of the UN Secretariat and also part of the United Nations Development Group. https://unctad.org Ministry of Trade and Industry (MTI) Singapore - Key Economic Indicators (mti.gov.sg) PwC's Global Artificial Intelligence Study | PwC - Introduction to Business Challenges & Opportunities in the Global Trade & Investment Environment International Business AnalysisLecture – Balance of Payment (BOP) & Free Trade Agreements (FTAs) 01. Introduction to Balance of Payment and its components Introduction to Balance of Payment The balance of payments (BOP) is a record of all financial transactions between a country’s residents and the rest of the world over a specific period (usually quarter or calendar year). All trades conducted by both the private and public sectors are accounted for in the BOP to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance, but in practice, this is rarely the case. Thus, the BOP can tell the observer if a country has a deficit (debit) or a surplus (credit) and from which part of the economy the discrepancies are stemming.The BOP looks at an economy’s transactions with the rest of the globe. It is an important indicator of an economy’s health. Watch Video: What Is the Balance of Payments (BOP)? (investopedia.com)investopedia.com BOP Introduction and Components There are 3 components of BOP: ✓Current account✓Capital account✓Financial account The Balance of Payments (BOP) is a statement that records all the economic transactions between entities, governments, or individuals of one country and another for a specific period. It encompasses transactions related to goods, services, income, transfers, foreign investments, and loans. The BOP helps monitor international monetary transactions and analyze the flow of funds.From an economist’s or financial analyst’s perspective, BOP is crucial for understanding a country’s economic health and position in international trade. It provides insights into a country’s overall financial status. Current account Used to mark the inflow and outflow of goods and services into a country.It represents a country’s net income over a period of time. Goods e.g. raw materials and manufactured goods that are bought, sold, or given away. Services e.g. tourism receipts, transportation, engineering, business service fees, and royalties from patents and copyrights. Goods and services together make up a country's balance of trade (BOT) – also known as imports and exports. The BOT is typically the biggest bulk of a country’s balance of payments. If a country has a BOT deficit, it imports more than it exports, and if it has a BOT surplus, it exports more than it imports.Receipts from income-generating assets such as stocks—in the form of dividends—are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly workers’ remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that is directly received. Capital account refers to the acquisition or disposal of non-financial assets e.g. physical asset such as land and non-produced assets, which are needed for production but have not been produced, such as a mine used for the extraction of diamonds. It records the net change of assets and liabilities over a period of time. The three major elements of the capital account are loans and borrowings, investments and foreign exchange reserves.In simple terms, it includes transactions which cause a change in the assets or liabilities of a country’s residents or its government. Financial Account The financial account measures a country’s ownership of international assets.It can be broken down into two sub-accounts (1) Domestic ownership of foreign assets; and (2) Foreign ownership of domestic assets If (1) increases, the overall financial account increases. Likewise, if (1) decreases, the overall financial account decreases.If (2) increases, the overall financial account decreases. Likewise, if (2) decreases, the overall financial account increases. The financial account deals with money related to: -Foreign reserves -Private investments in businesses, real estate, bonds and stocks -Private sector assets held in other countries-Local assets held by foreigners (government and private) -Foreign direct investment 02. Impact of Balance of Payment Impact of BOP The BOP looks at an economy’s transactions with the rest of the globe. It is an important indicator of an economy’s health.There are various factors that can affect the balance of payments, including exchange rates, economic growth, government policies, and political instability.A change in a country's balance of payments can cause fluctuations in the exchange rate between its currency and foreign currencies.When a country is faced with trade deficits, it is likely to experience a fall in its reserves and a depreciation of its currency. Conversely, if it has a trade surplus, it is likely to result in an appreciation of its currency. 03. Definition of Terms of Trade What are Terms of Trade? Terms of trade (TOT) represent the ratio between a country's export prices and its import prices. The ratio is calculated by dividing the price of the exports by the price of the imports and multiplying the result by 100.When more capital is leaving the country than is entering the country, then the TOT will be less than 100%.When the TOT is greater than 100%, the country is accumulating more capital from exports than it is spending on imports. A TOT over 100% or that shows improvement over time can be a positive economic indicator as it can mean that export prices have risen as import prices have held steady or declined. So What’s Next…. The TOT is used as an indicator of a country’s economic health.An improvement or increase in a country's TOT generally indicates that export prices have gone up as import prices have either maintained or dropped. Conversely, export prices might have dropped but not as significantly as import prices. Export prices might remain steady while import prices have decreased or they might have simply increased at a faster pace than import prices. All these scenarios can result in an improved TOT. As such, it can lead analysts to draw the wrong conclusions. A country can purchase more imported goods for every unit of export that it sells when its TOT improves. An increase in the TOT can thus be beneficial because the country needs fewer exports to buy a given number of imports. Factors Affecting TOT TOT is dependent to some extent on exchange and inflation rates and prices. A variety of other factors influence TOT as well, and some are unique to specific sectors and industries.Scarcity — the number of goods available for trade — is one such factor. The more goods a vendor has available for sale, the more goods it will likely sell, and the more goods that vendor can buy using capital obtained from sales.The size and quality of goods also affect TOT. Larger and higher-quality goods will likely cost more. If goods sell for a higher price, a seller will have additional capital to purchase more goods.Developing countries experienced increases in their terms of trade during the commodity price boom in the early 2000s. They could buy more consumer goods from other countries when selling a certain quantity of commodities, such as oil and copper.A rise in globalization, however, has reduced the price of manufactured goods. Industrialized countries' advantage over developing countries is becoming less significant. 04. Relationship between BOP and TOT Balance of Payments Refers to all economic transactions between residents of a country and the rest of the world, including trade, financial transfers, and investments. Terms of Trade, on the other hand, is the value of a country's exports vs imports. BOP vs TOT How TOT affects the BOP (current account) An improvement in the terms of trade means that export prices are increasing faster than import price. Therefore, assuming all other factors remain the same, a rise in export prices will cause a fall in the quantity of exports. Relatively cheaper import prices will increase the quantity of imports.Therefore, it is likely that with lower exports the current account deficit (+ trade deficit) will get worse, i.e. bigger deficit. BOP vs TOTA deterioration in the terms of trade A deterioration in the terms of trade means import prices rise relative to export prices (higher import prices, cheaper export prices). Assuming demand is relatively elastic, this will tend to improve the current account – as demand for exports will increase and demand for imports fall.Therefore, it is likely that with higher exports the current account surplus (+ trade surplus) will get better, i.e. bigger surplus.In conclusion, both the concepts of BOP and TOT are inter-linked. 05. Introduction to Free Trade Agreements (FTAs) Free Trade Agreements (FTAs) The goal of an FTA is to abolish all tariffs between member countries.It usually begins modestly by eliminating them on goods that already have low tariffs, and there is usually an implementation period during which all tariffs are eliminated on all products included in the agreement.Moreover, each member country maintains its own external tariffs against non-FTA countries.FTAs can be bilateral agreements between two countries or regional trade agreements involving larger groups of countries. Over the years, Singapore has forged an extensive network of 28 FTAs (as of Oct 2024). Examples of bilateral FTAs for Singapore: - Singapore-India Comprehensive Economic Cooperation Agreement (CECA) - China – Singapore Free Trade Agreement (CSFTA) - Korea-Singapore Free Trade Agreement (KSFTA) Examples of regional FTAs for Singapore: - ASEAN Free Trade Area (AFTA) - Comprehensive and Progressive Agreement for Trans -Pacific Partnership (CPTPP) Digital Economy Agreements (DEAs) - Singapore DEAs will encourage greater cooperation in areas such as artificial intelligence (AI), and facilitate inter-operability between digital systems, providing organizations the capacity to trial new technologies across different countries.DEAs are part of the Singapore government’s strategy to strengthen underlying infrastructure to build up its footprint as a global tech and e-commerce hub, as well as add to the country’s extensive FTA network.DEPA will establish new approaches to digital trade issues, such as data innovation and ease of cross-border data flow to promote AI. The digital economy agreement will ultimately help businesses lower the costs of operations and improve access to each other’s markets. Digital Economy Agreements (DEAs) - Singapore Singapore’s Digital Economy Partnership Agreement (DEPA) with New Zealand and Chile came into effect on January 7, 2021. DEPA was first signed in June 2020 and is the world’s first ‘digital only’ trade agreement. On February 25, 2022, Singapore and the United Kingdom signed the UK-Singapore Digital Economy Agreement (UKSDEA), making the agreement the first digitally-focused trade deal ever signed by a European nation. In addition to the DEPA and UKSDEA, Singapore has signed the following DEAs: The Singapore-Australia Digital Economy Agreement (SADEA); The EU-Singapore Digital Partnership (EUSDP); and The Korea-Singapore Digital Partnership Agreement (KSDPA). Balance of Payment (BOP) and Terms of Trade (TOT) International Business AnalysisLecture – Key International Organizations and Internationalization Agencies 1. Introduction to WTO / World Bank and IMF World Trade Organization (WTO) ▪Came officially into being on 1st January 1995, taking over its predecessor GATT. ▪The World Trade Organization (WTO) exhibits how governments can come to agreements to settle trade disputes. Dispute resolution mechanism in which countries may bring charges of unfair trade practices and accused countries may appeal▪Makes significant decisions by consensus. ▪WTO has more legal powers to enforce trade rules and to monitor the trading behavior of member countries as compared to GATT. General Agreement on Tariffs and Trade (GATT) was the predecessor to WTO. Established in 1947 with 23 member countries with the aim to abolish quotas and reduce tariffs, it was succeeded by WTO in 1995.As world trade grew more complex and trade in services grew more important, there is a need for an effective means for trade liberalisation. Today, WTO has 164 members (160 UN countries, EU, Hong Kong, Macau and Taiwan) representing more than 97% of global trade. Objectives of World Bank (est. 1944) Support poverty elimination and social/economic progress of developing countries by: ▪Provide economic assistance to help needy member countries to build communication systems, transportation networks and energy plants ▪Funds from contributions by member countries and borrowings in international financial markets. World Bank The bank considers itself a unique financial institution that sets up partnerships to reduce poverty and support economic development.The World Bank supplies qualifying governments with low-interest loans, zero-interest credits, and grants, all to support the development of individual economies. Debt borrowings and cash infusions help with global education, healthcare, public administration, infrastructure, and private-sector development. Example of healthcare initiatives is the National Immunization Support Project in Pakistan,The World Bank also shares information with various entities through policy advice, research and analysis, and technical assistance. It offers advice and training for both the public and private sectors. Objectives of IMF (est. 1945) ▪Promotes international monetary co-operation ▪Facilitate the expansion and balanced growth of international trade ▪Promote stability of foreign exchange ▪Avoid competitive currency devaluations ▪Create standby reserves International Monetary Fund (IMF) SurveillanceThe IMF collects massive amounts of data on national economies and international trade. It provides regularly updated economic forecasts at the national and international levels via the World Economic Outlook.Capacity BuildingThe IMF provides technical assistance, training, and policy advice to member countries through its capacity-building programs. These programs feed into the IMF's project of monitoring national and global economies.LendingThe IMF makes loans to countries that are experiencing economic distress to prevent or mitigate financial crises. IMF funds are often conditional on recipients making reforms to increase their growth potential and financial stability. Difference between World Bank and IMF Oversees the stability of the world's monetary system.Keeps track of the economy globally and in member countries, lends to countries with balance of payments difficulties, and gives practical help to members. Focuses on macroeconomic and financial stability.Reduce poverty by offering assistance to middle-income and low-income countries.World Bank provides financing, policy advice, and technical assistance to governments, and also focuses on strengthening the private sector in developing countries.World Bank concentrates on long-term economic development and poverty reduction. 02. Introduction to ASEAN & Enterprise Singapore ASEAN The Name “ASEAN” refers to the “Association of Southeast Asian Nations”The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN: Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam joined ASEAN on 7 January 1984, followed by Vietnam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN. Aims accelerate economic growth, social progress and cultural development in the region to strengthen the foundation for a prosperous and peaceful community promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields provide assistance to each other in the form of training and research facilities in the educational,professional, technical and administrative spheres collaborate effectively to encourage further growth in the agriculture and industry, and trade sectors- with the goal of raising the living standards of ASEAN peoples promote Southeast Asian studies; and maintain close and beneficial cooperation with existing international and regional organisations,and explore all avenues for closer cooperation ASEAN - Economic With a market size of $2.3 trillion and 600 million people, ASEAN Economic Community aims to achieve a single integrated market through the process of regional economic integration.The AEC is the realization of the region’s end goal of economic integration. It envisions ASEAN as a single market and product base, a highly competitive region, with equitable economic development, andfully integrated into the global economy.The history of AEC can be traced back as far as 1992 when the ASEAN Leaders mandated the creation of the ASEAN Free Trade Area (AFTA).Since then, efforts were intensified to broaden the region’s economic potentials. The AEC Blueprint 2025 is envisaged to further deepen economic integration and achieve a more integrated economic community. Enterprise Singapore (ESG) ESG is responsible for enterprise development and work with companies to build capabilities, innovate and go global. They also support the growth of Singapore as a hub for global trading and startups. As the national standards and accreditation body, they build trust in Singapore’s products and services through quality and standards.ESG adopts a company-centric approach, providing programmes and support catered to company’s stage of growth, industry, and overseas markets of interest.By working with extensive network of local and overseas partners, ESG supports the efforts to enhance industry and enterprise competitiveness through 23 Industry Transformation Maps. They also work with companies to capture new market share through upgrading and innovation; adopt new technologies to improve productivity; facilitate expansion into overseas markets; and strengthen leadership capabilities. In 2023, ESG helped Singapore companies grow despite a challenging global business environment which saw a manufacturing contraction, higher interest rates and rising business costs.By intensifying internationalisation, accelerating innovation and driving capability building, their efforts are set to boost companies’ annual revenue by S$16.4 billion. In turn, this is expected to create 21,500 skilled jobs for Singaporeans.Facilitated 460 overseas projects which included business matching and partnerships with foreign corporations to help companies secure deals and expand their presence overseas. Lecture – Country Analysis using PESTEL Model: Political & Legal Factors 01. Explain the reasons for assessing the political factor of a country in terms of its impact on the operations and viability of international firms Why assess Political Factors? ▪Technically speaking, one should first consider the political environment before proceeding with other factors. Several reasons may include: ▪Political considerations encompass the foundation of the foreign/host country ▪Political aspects dictate economic policies, social policies, technological and environmental policies etc. ▪Political strength/influence is a key determinant of operations and viability ▪Political factor is the “first” alphabet in PESTEL ▪However, it may not always be the case. Sometimes, it depends on the company, the product/service offered and a whole series of other variables. Reasons for assessing Political Factors Control (because companies believe that greater ownership gives them greater control) ▪Does local government intervene and require company to hire local managers? ▪Does local government require all goods produced to be exported to reduce competition? ▪Is there labour laws requiring company to provide benefits, in addition to hourly wages? Additionally ▪Is there a certain impression (perception) to be based in a certain country due to customers' knowledge of quality/luxury products? ▪Following your key clients as they expand overseas to maintain the relationship? ▪Following your key rivals to avoid losing out on potentially lucrative overseas markets? 02. Identify and describe the different categories of political risks facing firms operating in foreign markets What is Political Risk? Refers to the possibility (as it is a risk, not a certainty) of unwanted consequences arising from political activities and events, which may lead to impact on profit and other goals of the business enterprise. 1. Ownership Risk: Property & Life 2. Operating Risk: Interference with the ongoing operations of a company 3. Transfer Risk: Interference with attempts to transfer funds back to home country Ownership Risk: Property & Life Risk of damage/loss of business’ assets & lives of employees/investors in the event of strikes, violent protests, civil war, war, terrorist attacks, sudden government confiscation, etc. Operating Risk Hong Kong Protest 2019 Operating Risk: crowds obstructed traffic Ownership Risk: damage to properties Terminal High Altitude Area Defence Operating Risk: Interference with the ongoing operations of a company Transfer Risk Transfer Risk: Interference with attempts to transfer funds back to home country Risk of not being able to remit funds/profits from host country to home country. Also risk of not being able to receive payment from foreign buyer.Risk of not being able to transfer resources into and out of host country 03. Evaluate the state of political factor in the foreign market and analyse the impact by assessing the various sub-factors What do we consider when we discuss the political environment? 1.Stability of host government 2.Social stability 3.Relationship between governments 4.Legal environment 1. Stability of Host Government a) Ability to government to stay in power ▪Frequent changes in government →(likely) frequent changes in policies →unpredictable / uncertain business environment →frowned by businesses ▪e.g. Singapore vs Malaysia and Thailand and Myanmar Indicators ▪Political Instability Ranking (Institute for Economics and Peace) ▪Political Stability & Absence of Violence (Worldwide Governance Indicator, World Bank) 2. Social Stability Demonstrations and other social expressions (e.g. protests, strikes) that might affect business activities ▪Political-induced riots e.g. Capitol Hill in 2021 ▪Labour issues resulting in strikes e.g. South Korea labour strike in 2021 ▪Domestic and international terrorism e.g. Bali bombing in 2002 Indicator(s) - Cooperation in labor-employer relations - (Likelihoodof) Violent demonstrations - Business costs of crime and violence - Business cost of terrorism 3. Relationship Between Governments Consider 3 levels: ▪Between HOST & HOME country’s governments ▪Between HOST & NEIGHBOURING countries’ governments ▪Between HOST & MAJOR Trading Partners’ countries’ governments - Especially between the host country and the home country - Possibility of foreign invasion or military conflict? E.g. Russia & Ukraine; China & Taiwan? - Tension / instability in the neighbouring countries – influx of illegal immigrants / workers or refugees? E.g. U.S. & Mexico; Thailand & its neighbours Between Host and Home country’s governments e.g. Singapore-China; Singapore-Indonesia; Singapore-Thailand Good relations →friendlier policies easing investment & trade →Government co-operations (e.g. infrastructure projects) →business opportunities to companies in both countries →Signing of Free Trade Agreements Middle Eastern countries cutting ties with Qatar (2017)In Jun 2017, ban all travels, trade, FDI, closure of airspace, harbour etc.In Jan 2021, Saudi Arabia agreed to reopen its land and sea borders and airspace to Qatar. 4. Legal Environment Refers to the legal environment within which businesses operate.This environment is conditioned by: 1. Government intervention in availability of content Public information / data / news (Press Freedom Index, Reporters without borders) 2. Legal system Strength of the courts (Judiciary Independence, World Bank) Protection of property rights and intellectual property (Patents, Copyrights, Trademarks) – International Property Rights Index) Stability, Transparency and Consistency of rules and regulations (Corruption Perception Index by Transparency International) Indicator(s) - Press Freedom Index - Judiciary Independence - International Property Rights Index - Corruption Perception Index Country Analysis using PESTEL Model: Political & Legal Factors 01. Explain the reasons for assessing the economic factor of a country in terms of its impact on the operations and viability of international firms Why Assess Economic Factors? a) Businesses are interested in economic development ▪Refers to the economic well-being, quality of life, general welfare of people ▪Also includes progress on physical health & safety, life expectancy, education and literacy, poverty rate, critical infrastructure, environment sustainability etc. b) Businesses are interested in economic transition ▪Involves changing a nation’s fundamental economic system and creating entirely new free-market institutions ▪Challenges include managing political and social problems, unemployment due to unequal progression, economic integration, stability of investment climate, respect for intellectual property (IP) etc. 02. Evaluate the state of economic factor in the host market and analyse the impact by using relevant economic indicators 4 Economic Considerations a) Potential as a Market b) Potential as a Production Base c) Economic Growth d) Future Economic Development Potential (a) Potential as a Market (Customer) 1) Market Size (Indicator: Population Size)→weakness? luxury products into Somalia (15.9 million) vs Singapore (5.7 million) 2) Spending Power (Indicator: GDP per capita)→weakness? (e.g. India’s GDP per cap = US$1,850 (2022), mthly = US$154 yet they have 764,000 dollar millionaires vs Singapore GDP per cap = US$60,000 (2020), mthly = US$5,000 with 270,000 dollar millionaires)→Income Distribution (% of low, middle & high income) 3) Cost of accessing / servicing market (Indicator: Population Density)→weakness? (does it translate to a lower cost per customer?) (b) Potential as a Production Base (Labour) 1) Size of Labour Force (Indicator: Literacy Rate; Population Median Age)→weakness? (Is the workforce relevantly trained? Is there a mismatch between job roles and qualifications?)(40% of Africa’s population is below the age of 15. Does it translate to an abundant and affordable workforce?) 2) Cost of Labour (Indicator: GDP per capita or Average/Median Wages)→weakness? (is it representative of specific industries or country as a whole? (c) Economic Growth 1) Economic Growth (Indicator: GDP Growth Rate or %)-Singapore 3.8% in 2022 and 2.6% in 2023,Ministry of Trade and Industry (MTI) -Thailand 2.6% in 2022 and 3.9% in 2023,Thailand Economic Planning Agency-Indonesia 5.3% in 2022 and 4.9% in 2023, Department Statistics Indonesia. 2) Price Stability (Indicator: Inflation Rate)-Erodes purchasing power of consumers.-Workers’ demand for increase in wages to counter effects of inflation.-Increase in cost of production →reduce competitiveness in foreign and local markets. 3) Cost of Raising Capital (Indicator: Interest rate) 4) Employment Rate (Indicator: Unemployment Rate) High unemployment rate may be a trigger for social unrest. 5) Consumer Confidence Index Measures level of consumer optimism of the state of health of the economy Provides an indication of future developments of households’ consumption and saving, based upon answers regarding their expected financial situation, their sentiment about the general economic situation, unemployment and capability of savings. >100 = boost in the consumers’ confidence towards the future economic situation, as a consequence of which they are less prone to save, and more inclined to spend money on major purchases in the next 12 months < 100 = pessimistic attitude towards future developments in the economy, possibly resulting in a tendency to save more and consume less (d) Future Economic Development Potential (1) Human Development Index (United Nations) - is a statistical tool used to measure a country's overall achievement in its social and economic dimensions based on: ✓Average income ✓Average lifespan ✓Average education level (2) Economic Freedom Index – tracks three decades of the advancement in economic freedom, prosperity, and opportunities for countries. Which of the following is not a consideration under 4 Economic Considerations ? A: Potential as a Market B: Potential as a Production Base C: Economic Growth D: Economic Transition and Development E: Future Economic Development Potential Quiz Answer: D as Economic Transition and Development is not one of the considerations International Business AnalysisLecture – Country Attractiveness Analysis (Technological Factors) 01. Explain the reasons for assessing technological factor of a country in terms of their impact on the operations and viability of international firms Why Assess Technological Factors? a) Competitive Advantage▪Countries with advanced technology and ecosystems provide innovation opportunities, thus enhancing the competitiveness of international firms operating there. For example, firms can leverage the latest technologies to improve products, processes, and customer experiences. b) Access to R&D▪International firms can benefit from local technological advancements, partnerships with local research institutions, and intellectual property development, which can be critical for staying competitive in the global market. c) Operational Efficiency ▪Technologically advanced countries have better infrastructure for automation & logistics. International firms can leverage these to streamline their operations, reduce costs, and increase productivity. ▪High-speed internet, cloud services, and advanced telecommunications, is vital for firms to manage operations effectively, especially when operating across multiple regions d) Access to Skilled Workforce ▪These same countries tend to have a highly skilled workforce in fields such as software engineering, data science, AI and cybersecurity. This is vital for international firms that need to hire local talent or collaborate with tech professionals for their operations. What is Technology? Referring to technology, intellectual property, infrastructure, logistics, internet, telecommunications, skill of workers required for the operation of businesses in: ▪Research & Development▪Manufacturing & Production ▪Sales & Marketing (e.g. reaching the potential or confirmed customers) ▪After-sales service (e.g. promotion, sale, delivery & after-sale service) ▪Collecting payment (e.g. payment infrastructure – credit facilities, online payment) 02. Evaluate technological factor in the host market and analyse the impact on firms by using relevant technological indicators Indicators to assess “T” World Bank’s Logistic Performance Index Logistic Performance Report | Logistics Performance Index (LPI) OR World Intellectual Property Organization’s Global Innovation Index (GII) GII Global Innovation Index 2023: Innovation in the face of uncertainty OR Global Competitiveness Report, WEF https://prosperitydata360.worldbank.org/ ▪ Infrastructure (quality of overall infrastructure, quality of roads, etc) ▪ ICT adoption Internet users, etc ▪ Advance factors: Skills of current workforce ▪ Innovation (Research institute prominence, R&D expenditures, etc Logistics Performance Index (LPI) The LPI is a benchmarking tool created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance. Indicator(s) - Logistics Performance Index - Global Innovation Index - Infrastructure / mobile connectivity / Skills of workforce / innovation International Business AnalysisLecture – Country Attractiveness Analysis (Socio-cultural & Environmental Factors) 01. Explain the reasons for assessing the socio-cultural factor of a country in terms of its impact on the operations and viability of international firms Why Assess Socio-cultural Factors? a) Businesses deal with people ▪Employees, customers, suppliers, competitors, authorities etc b) Need to understand cultures ▪International companies face a greater challenge when working with people from different cultures ▪Many failures overseas are attributed to poor HR and ignorance of local attitudes and cultural values ▪Technical competence alone is NOT enough What is Culture? ▪Culture can be defined as an integrated system of learned patterns of behaviours that are characteristic of the members of a given society. ▪A set of values and norms shared by a group of persons which collectively distinguishes them from other groups. It gives the group their “identity”. ▪Society is composed of people living within their cultural frameworks. Understanding society requires learning about its culture. ▪Culture cannot be observed directly but we learn about it by observing the social world in which it exists →Socio + cultural Importance of Culture in International Business From a marketing point of view: ▪Product (e.g. Halal or non-Halal) ▪Packaging design (e.g. symbolism of colours – red is auspicious for Chinese) ▪Service (the need for personal space e.g. Walmart’s failure in S Korea) From negotiations & interactions point of view: ▪With business partners (e.g. Guanxi or “relationship” in China) ▪With customers and suppliers (e.g. after work entertainment for bonding) ▪With media and government officials From a human resource & motivation point of view: ▪Leadership style is influenced by culture (e.g. open door policy in Western culture) ▪Employees behaviours are influenced by culture (e.g. prefer team effort in traditional Asian context) From a production and procurement point of view: ▪Willingness to accept new production methods (e.g. innovation vs traditional) ▪Procurement process (e.g. relationship based or open-tender transparency) Product (Halal or non-Halal)Tesco store in London (2015) where one of their aisles displayed Smokey Bacon Flavour chips with the message Ramadan Mubarak (means “blessed” in Arabic).Bacon? Muslim? Big mistake!The store is not far from Whitechapel's East London Mosque, one of the largest Muslim places of worship in Europe. Amused Muslim shoppers saw the display and immediately sent out messages across the Twitter universe. Packaging Design The brand’s cartons were adorned with a photo of a stern-looking Adolf Hitler dressed in a brown blazer. It demonstrated not only a lack of education in terms of European history but also a lack of sensitivity with its “Made in India Hitler Ice-cream” (2015) Product and Concept Wal-Mart had relied on its proven business model in the USA and its strategy in offering low prices for products. However, low prices alone were insufficient to make a successful business case in South Korea. South Koreans have different consumer preferences than Americans do. For instance, South Koreans like fresh vegetables and fresh food rather than dry products and the type of clothing that Wal-Mart sells. South Korean culture is also very tied into its markets; they are one of the largest countries that are deeply involved in local markets. South Koreans do not distinguish between discounts and normal prices. Thus, they may not see a compelling reason to shop at Wal-Mart. Service South Koreans are also visually-oriented customers. They tend to purchase products not just because of the product itself, but also because of its appearance or the service the customer receives in the store. In fact, some South Korean ladies do not like the warehouse-like atmosphere of Wal-Mart, which the American consumers seem not to mind since the products are still cheap. They prefer the department store-like, neat, clean, and sophisticated atmosphere. 02. Identify and explain the cultural differences between home and host countries by using the Hofstede’s cultural dimensions Various Elements of Culture a) Language b) Religion & Beliefs c) Manners & Customs d) Aesthetics a) Language Language is an important key to unlocking culture. Without understanding it, you find yourself locked out of communication. Both spoken (verbal) and unspoken (non-verbal) language is crucial in international business interaction. Unspoken Language Even if business people learn the spoken language, they may not be able to communicate effectively. In high context culture, (such as the Middle Eastern, Asian culture, South American culture), the meaning of communication is conveyed through the unspoken language and often not by the words they say. High Context Establish social trust firstPersonal relations & goodwill are valued Open disagreement is frowned upon Agreements emphasize trust (less legalistic) Negotiations are slow & ritualisticFace is important, protocol conscious Low Context Get down to business first Expertise & performance valued Task oriented – disagreement usu. not personal Agreements emphasize specific, legalistic contract Negotiations are as efficient as possible (b) Religion & Beliefs For international business, the most followed religions are Christianity, Islam, Hinduism, Buddhism. Awareness and respect for religious belief can help companies tap on world wide opportunitiesIn the past, Germany-based Haribo (www.haribo.com) missed out on potentially US$2 billion annually in the Jewish & Muslim market. Today, Halal gummy bears are made in Turkey to reach the Jewish & Muslim around the world.Heineken produces non-alcoholic malt drink – Fayrouz for Islamic mkt (c) Manners & Customs Manners: Appropriate ways of behaving, speaking, and dressing in a culture are called manners (For example: Punctuality, Mannerism at work, Greetings) Customs: Habits or ways of behaving in specific circumstances that are passed down through generations in a culture (For example: eating habits, nap habits) Gift giving & entertainment in business context is often a confusing aspect in many international managers' lives. What is acceptable to one culture may be totally unacceptable to another. (For example: In Japan, people never visit a home/customer empty handed and without wrapping their gifts) (d) Aesthetics Refers to what a culture considers “good taste” in the arts, the images, symbols, colors, and so on (For example: In the Middle East, big is considered beautiful)Important when a company does business in another culture. The selection of colors for advertising, product packaging and even work uniforms can increase the odds of success. How to assess Host Country’s Cultural Environment? Hofstede’s 5 Cultural Dimensions for study of workplace culture Compare cultures using Hofstede Dimension Score 1. Power Distance This dimension conveys the degree to which a society accepts inequality among its people.In high power distance culture, people understand and accept “their place” in the organization. Workplace: Hierarchical, respect and compliance expected by bosses, relationship between bosses and workers is formal. Top-down decision making is likely. Customer Service: Customer is always right” policy, customers expect to be treated as “kings” and “queens”. 2. Individualism This dimension identifies the extent to which a culture emphasizes the individual versus a group. Individualism: Societies in which ties between individuals are loose; person identifies himself or herself as an individual loosely related to others. Individual achievement and freedom is important Collectivism: Societies in which people from birth onwards are integrated into strong, cohesive in-groups; person identifies himself/ herself fundamentally with a group (family, company, village, etc). Recognition and approval by the group is important In low Individualism (Collectivism) workplace: loyalty, teamwork is easier, team goals and team reward might be more effective than individual goals and reward system. Marketplace: Collectivism marketing strategies to focus on appealing to potential customers' sense of belonging/ loyalty to the in-groups they are in. E.g. family themed restaurants / holidays, exclusive privileges for members of certain clubs (e.g. SAFRA club). 3. Uncertainty Avoidance This dimension identifies the extent to which a culture avoids uncertainty and ambiguity. High uncertainty avoidance = has high tendency to avoid uncertainty and ambiguity. Workplace: need for clearly defined rules, goals and instructions otherwise workers feel “lost” or insecure. May be less open to risk taking and differences in opinions. Marketplace: Customers require proof / evidence, information before making a purchase decision. 4. Masculinity This dimension captures the extent to which a culture emphasizes masculinity versus felinity. It refers to a society’s orientation based on traditional male and female values. Traditional Masculine values: assertive & decisive, competitive, achievement oriented, work more important than leisure. Traditional Feminine values: tender & caring, consultative, quality of life is important.Societies that are high in masculinity = people (males and females) are generally more competitive, achievement oriented, more focused on career advancement and earning money Societies that are low in masculinity (Feminine) = people (males and females) generally emphasize nurturing roles, importance of relationships, caring for the less fortunate and quality of life. In high masculinity society Workplace: Type of jobs: certain jobs traditionally held by males: politicians, leaders in a company, engineers, military etc; certain jobs traditionally held by females: teachers, nurses, homemakers etc. Type of Leadership style: Management style: Leaders / managers expected to be strong, decisive, to give direction. Promotion and appointment: female in supervisory position with all male subordinates in traditionally male-dominated occupation Marketplace: Advertising of major big ticket purchases (e.g. house, cars) target at men (head of the household) as they are most likely to be the decision maker. 5. Long Term Orientation This dimension indicates a society's perception of time and its attitudes about overcoming obstacles with time, if not with will and strength. It attempts to capture the differences between the Eastern and Western cultures (based on Confucian Dynamism) Long-term orientation societies – people value actions and attitudes that affect the future: persistence / perseverance, thrift and saving for the future, saving face, relationship building. East Asian countries such as Japan, Hong Kong and Thailand scored high on long-term orientation, while nations such as Australia, USA and UK scored low Short-term orientation societies – values connected to the present are stronger; high consumption patterns, demand instant results, task oriented In short term orientation societies (low in long term orientation), Workplace: employees may sacrifice long term gains for immediate benefit. Marketplace: customers in short term orientated societies have propensity to spend and demand instant results. 03. Explain the reasons for assessing environmental factors in the foreign market Why Assess Environmental Factors? a) Environmental Regulations ▪Countries have varying environmental laws that can impact how businesses operate. Companies must ensure that their practices comply with local regulations regarding waste disposal, carbon emissions, and sustainable practices. b) Resource Availability ▪Access to natural resources, energy, and raw materials is a critical factor, especially for manufacturing businesses. Assessing resource availability helps businesses plan their supply chains and production processes effectively. c) Natural Disasters & Climate Changes ▪Markets in certain regions are more susceptible to natural disasters, like hurricanes or earthquakes. Understanding the geographical environment helps businesses assess risk and prepare for emergencies. What is Environmental (the other “E” in PESTEL)? In this context, we are looking more at the impact of weather changes on the country. These include: ▪Natural Disasters: Earthquakes, Hurricane, Flood, Heat waves etc. Natural disasters often called ‘Acts of God’ – Is it really? Or the result of climate change? ▪Climate Change: Global warming, Where are we now and where are we heading? ▪Pollution: Haze, Smog, etc Impact on Business Operations cases Japan Earthquake, Tsunami & Nuclear Crisis 2011 (World Costliest) Economic costs @ $360 billion with post disaster reconstruction costs totalling 4% of Japan’s GDP Reconstruction activity is an important economic stimulus in the aftermath of disasters. However, it can exert pressure on the country’s current account. It reduces resources available for productive investment, further tightens limited government budgets, and creates higher debt risk. Haze crisis 2015 Economic and human costs? The haze blanketed the region, resulting in widespread loss of lives, health problems and economic woes across South-east Asia. The dust, smoke and moisture from these fires caused difficulties in seeing and breathing. Over 100,000 deaths could have been prevented.The episode was said to have cost Singapore $1.83 billion due to adverse health impact, losses in business, tourism and productivity, and the costs of mitigation and adaptation, according to research by NTU. The Impact on Business Operations ▪Tourism (e.g. ski resorts in Europe, beach resorts in Maldives, etc). ▪Change in sources of food (some African countries’ agricultural yield to reduce by 50% in 2020). ▪Increase in social unrest, civil war and wars due to poverty, famine caused by extreme weather changes. ▪Extreme weather patterns might change sea or air routes →increasing cost of transportation of goods. Increase in diseases, illness and deaths. ▪Businesses may be required to comply with tougher environmental safeguards imposed by governments resulting in increase in business costs.. ▪Companies deemed not environmentally friendly might risk being boycotted by green groups (e.g Greenpeace against Lego & Shell). Impact on Business Operations →Opportunities? ▪Shortage of water →water desalination companies ▪Greater emphasis of green/clean energy →businesses (Toyota’s hydrogen cars) in green/clean technology or bio fuels (ethanol, hydrogen, etc). ▪Places previously unattractive might become attractive for tourism or for agricultural production as a result of climate change.▪Emissions’ Trading Indicators to assess “E” - Global Climate Risk Index (GCRI) - Climate Change Performance Index - Environmental Vulnerability Index (EVI)