Business Warnings Summary PDF

# Country Differences ## Global Business & Country Differences Globalization: shift towards a more integrated and interdependent world economy ↳ self-contained interdependent **Drivers:** - Lower barriers to trade - Entire world as market, instead of single countries - Production in opti...

# Country Differences ## Global Business & Country Differences Globalization: shift towards a more integrated and interdependent world economy ↳ self-contained interdependent **Drivers:** - Lower barriers to trade - Entire world as market, instead of single countries - Production in optimal location - Foreign firms might also attack home markets - Lower transport costs - Through technological progress - Lower communication costs - Through technological progress China, USA and Germany world's leading exporters + importers. China & USA most represented in global 500 firms. ## Institutions - Rules of the game in a society / - Humanly devised constraints that shape human interaction. **Types of Institutions:** a) Political institutions: elections, political system, etc. b) Economic institutions: production, allocation / distribution, process of goods/services, markets, etc. c) Legal institutions: legal system, property rights, etc. d) Social institutions: access to health, education, social security, etc. **Role of Institutions:** - Reduce uncertainty & give guidelines - Reducing transaction & opportunistic behaviour - Not static but evolving - Conduct economic policy - Manage, regulate & police the global marketplace - Promote multinational treaties - Help avoid prisoner's dilemma situations - GATT, WTO, WHO, UN, etc. ## Political Systems **Types of Political Systems:** - Totalitarianism (mainly collectivism) - Communist: government controls society / economy based on communism - Theocratic: religious leader / beliefs - Tribal: power concentrated in the hands of one group/tribe - Right-wing: strict control over society; often promoting nationalism - Democracy (mainly individualism) - Ruled by the people ## Economic Systems **Types of Economic Systems:** - Market economy: (mainly democracy) - Productive enterprises are privately owned. - Production is determined by supply and demand. - Consumers are sovereign. - Command economy: (mainly totalitarianism) - Government plans goods produced, quantity & prices. - All businesses are state-owned. - Also mixed economies are possible ## Legal Systems - Rules that regulate behaviour. - Influenced by the prevailing political system. **Types of Legal Systems:** - Common law - Tradition - Civil law - Laws organized into codes - Theocratic law - Religious teachings **Important for business:** - (rights, obligations, contracts). ## Culture - System of values and norms shared in a society. **Types of Culture:** - Values: abstract ideas of what is good/bad - Norms: social rules/guidelines in particular situations. **Types of Norms:** - Folkways: routine conventions like manners, dresscode, etc. - Little moral significance. - Mores: serious standards of behaviour like not stealing/murdering **Influences on Culture:** - Religion, political/economic philosophy, education, language, social structure. **Relationship between Culture and the Nation-State:** - One nation can contain several cultures. - One culture can embrace several nations. **Levels of Culture:** - National, business, occupational, organizational culture **Measurement of Culture:** - Context approach, cluster a., dimension a. - **Hofstede's Cultural Dimensions:** - Culture: collective programming of the mind which distinguishes the members of one human group from another. - Power distance: unequal distribution of power. - Uncertainty avoidance: extent to which uncertainty is tolerated. - Individualism: extent to which people feel independent. - Masculinity: achievement, materialism - Femininity: good quality of life, caring for others. - Long-Term orientation. - Indulgence: individual happiness, leisure. ## Economic and Human Development - **Human Development Index (HDI)** - Life expectancy - Education - Standard of living # Methods of International Comparisons: Description ## Why Compare Business Systems and Countries? - Contextual description and classification: reduces complexity - Hypothesis testing: (elimination of rival explanations and generalization of theories/concepts) - Prediction (for the future / other countries) ## Gini Coefficient - **G = 0:** income equally distributed. - **G = 1:** income unequally distributed. - **G = (2i-n-1) * x / (n * Σx)** where: - **i:** the index of the cumulative income - **n:** the number of income earners - **x:** income of each person - **Lorenz Curve:** Graphical representation of the Gini coefficient. ## How to Compare Business Systems and Countries? - **More countries:** more reliable results. - **Few country studies:** countries differ in characteristic of interest, similar in the others. - **MDSD (Most Different Systems Design) studies:** countries similar in one characteristic, but different in all others. Only MDSD allows generalization. | Feature I | Country 1 | Country 2 | Country 3 | | ----------- | ----------- | ----------- | ----------- | | A | A | A | A | | B | B | B | B | | **X** | **X** | **X** | **Not X** | | Y | Y | Y | **Not Y** | | Feature I | Country 1 | Country 2 | Country 3 | | ----------- | ----------- | ----------- | ----------- | | A | A | C | E | | B | B | D | F | | **X** | **X** | **X** | **X** | | Y | Y | Y | Y | **MSSD Examples:** | | Spain | South Africa | Japan | Chile | USA | | ---------- | ----- | ------------ | ------ | ----- | --- | | HDI | 0.905 | 0.713 | 0.925 | 0.855 | 0.321 | | UR (%) | 14.8 | 14.8 | 5.4 | 5.4 | 3.4 | | PD | 57 | 49 | 54 | 63 | 40 | | UA | 86 | 49 | 92 | 86 | 46 | | TEA | 5.36 | 8.47 | 6.35 | 27.01 | 19.19 | **MDSD Examples:** | | Spain | Greece | Romania | USA | Poland | | -------- | ----- | ------ | -------- | --- | ------ | | UR (%) | 14.8 | 14.8 | 5.4 | 5.4 | 3.4 | | PD | 57 | 60 | 90 | 40 | 68 | | VA | 86 | 112 | 50 | 46 | 93 | | TEA | 5.96 | 4.85 | 8.25 | 19.19 | 1.56 | ## Strengths and Weaknesses of Single Country Studies **Strengths:** - Intensive, ideographic, path-dependent, and configurative analysis. - Six types: atheoretical, interpretative, hypothesis-generating, theory-confirming, theory-infirming. - Deviant systems. **Weaknesses and Challenges:** - Insecure inferences. - Selection bias. - Choice of countries. - Choice of historical account. - Language training. - Field research. ## Strengths and Weaknesses of Few Country Studies **Strengths:** - Control by selecting. - Most similar systems design. - Most different systems design. - Good for theory-building. - Intensive, less variable oriented. - Avoid "conceptual stretching". - Thick description. - Area studies. - Configurative analysis. - Macro history. **Weaknesses and Challenges:** - Less secure inferences. - Selection bias. - Choice of countries. - Choice of historical account. - Language training. - Field research. # Methods of International Comparisons: Testing ## Comparing Many Countries ## Statistical Basics **Scale of Measurement:** - **Nominal Scale:** - Rank order (x) - Numerical value / relationship of numbers (x) - **Examples:** nationality, language. - **Ordinal Scale:** - Rank order (✓) - Relative degree of difference between data (x) - **Examples:** development status of a country. - **Cardinal scale:** - Rank order (✓) - Relative degree of difference between data (✓) - **Examples:** GDP, years of schooling **Statistical Methods:** - Arithmetic mean (✓) - Median (✓) - Minimum (✓) - Maximum (✓) - Standard deviation (✓) - Range (✓) ## Hypothesis Testing **One Sample Test:** - **Ho:** mean level of entrepreneurial activity is 10% (μ = 10) - **H1:** mean level of entrepreneurial activity is more than 10% (μ > 10) - **p-value:** smallest significance level at which you can reject Ho. - The smaller the p-value, the less likely it is to make a mistake when rejecting Ho. - **Significance level:** maximum tolerable probability of rejecting Ho, given that Ho is true. - If p < significance level, reject Ho. - If p > significance level, don't reject Ho. ## Simple Linear Regression Analysis - Regression line is as close as possible to the observed data. - Method: Ordinary Least Squares: - **Yi = Bo + B1x + Ui** where: - **Yi:** the dependent variable - **Bo:** the intercept - **B1:** the slope - **Xi:** the independent variable - **Ui:** the error term - **Ho:** B1 = 0 (no relationship between the 2 variables) - **H1:** B1 ≠ 0 (statistically significant relationship between the 2 variables) - **t-statistic:** reject Ho at 5% significance level if |t| ≥ 2: - **t = coefficient / standard error ** ## Strengths and Weaknesses of Hypothesis Testing **Strengths:** - Statistical control - Limited selection bias - Extensive scope - Strong inferences and good for theory-building - Identify deviant systems **Weaknesses and Challenges:** - Invalid measures - Data availability - Too abstract/high level of generality - Time-consuming - Mathematical and computer training # Application 1 ## Becker's Concept of Human Capital - Economic value of a person's skills, knowledge, experience, and abilities which contribute to their productivity and potential to generate income. - Education & training often lead to higher productivity and economic growth. ## Fischbein's Formula: - **TK - Ho / Σ (1+r)^t > Co + Fo** where: - **TK:** income with an additional year of education - **Ho:** income without an additional year of education - **Co:** direct cost of education - **Fo:** opportunity costs of education (missed income) - The higher the corruption (CPI), the lower the education level. - Advanced economies spend more on education than developing economies. # Application 2 ## UN Sustainable Development Goals - **Aim:** addressing global challenges to create a more sustainable, fair & prosperous world. - **SDG-level:** in democratic countries is higher than in other regimes. - The higher the PD in a country, the lower the SDG index. # Application 3 ## Management Practices - Structured methods/procedures organizations implement to improve productivity, profitability & performance. - Help firms by optimizing resources, innovation & ensuring adaptability across different market conditions. - **Example:** performance tracking, rewarding high performance. - If a firm is family-owned, then the average management score is lower.