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Discussion Questions for Test/Final Actual test questions will be similar to the questions given below. Mix and matching of questions from different chapters are possible. For updated/latest questions check Blackboard and the PowerPoints. You may also get questions from the videos. Make sure to watch ALL VIDEOS before taking the test. Chapter 1: Globalization and International Business 1. Define globalization and explain the forces driving globalization. 2. Define globalization and explain the cost and future of globalization. 3. What is global governance? Explain the role of each institution in Global Governance. 4. What is Globalization Index? Explain the construct and methodology in evaluating the countries. Chapter 2: The Cultural Environments Facing Business 1. Define culture? Why an international business manager should study the culture of a country? 2. Explain how the dynamic interplay of nation, language and religion shapes the culture of a country. 3. Explain the six behavioral practices that affect the business in a country. I may ask you to explain any two or three of them. 4. How can we deal with, adapt to, and influence foreign cultures? Explain. 5. Explain the five cultural values of Hofstede. I may ask you to explain any two or three of them also. Chapter 3: The Political and Legal Environments Facing Business 1. Define political system and explain why a business manager should study the political system of a country. 2. How does democracy differ from totalitarianism? Will the conduct of business be different in the two systems? How? 3. Describe how the political ideologies are changing in the world. How a manager can adapt to such changes? 4. What is political risk? How can we manage political risk? 5. Discuss the Types Legal Systems and their implications in international business. Chapter 4: The Economic Environments Facing Businesses 1. Define “economic freedom” and explain its implication in an economy. 2. What are the three types of economic systems? What criteria can we use to evaluate them? Explain each system using the criteria discussed in class. 3. Discuss the impact of “emerging nations” and explain how they will affect international business. 4. Explain how we can evaluate an economy using traditional and nontraditional (broader) measures of economic performance. 5. Explain the Balance of Payments account of a country with its four subheads. Why is it important to in international business manager? Chapter 5: Globalization and Society 1. Discuss the three approaches in moral reasoning. Which appeals to you most and why? 2. Define cultural relativism and normativism. Explain how the concept can be used by the multinationals in a foreign country. 3. What is corruption? What can we do to combat corruption? Explain. 4. Discuss the legal and ethical dimension of Corporate Social Responsibility in a globalized world. Chapter 6: International Trade and Factor-Mobility Theory 1. Question can be asked to explain one or more theories of trade. For example… a) Explain Porter’s Diamond of International Competitiveness of Nations. b) Elaborate the trade theories of Smith, Ricardo and Heckscher-Ohlin and distinguish their differences. c) Explain International Product Life Cycle Theory (IPLC). 2. Discuss the evolving pattern and future of “trade and factor mobility” in a globalized world. Chapter 7: Governmental Influence on Trade 1. What is protectionism? What are the arguments for and against protectionism? I may ask you to explain any specific rationale (e.g., infant industry argument) 2. How does governments intervene trade with the help of non-tariff barriers? Explain. 3. What are the effects of subsidies (or quotas) on price, production, market, motivation and trade? Explain. 4. What measures firms can take to deal with governmental intervention? Explain. Chapter 8: Cross-National Cooperation and Agreements 1. Define economic integration. What are the three approaches to integration? Explain. 2. Define economic integration. Explain the static and dynamic effects of regional economic integration. 3. Define economic integration. Explain the five different types of regional economic integration. 4. How can we study regional groups? Specifically, explain the role of the matrix we discussed in class. 5. What are the three approaches to integration? Discuss their future in a globalized world. Chapter 9: Global Foreign-Exchange Markets 1. What is a foreign exchange market? Explain the role each institution plays in the FX market. 2. Why U.S. dollar is the most traded currency in the world? 3. Define the following Global Over The Counter (OTC) Foreign Exchange Instruments: spot rate, forward rate, options, futures and swap. 4. Define the following terms and distinguish their differences: bid, offer, spread, and cross rate. 5. How does the fluctuation of exchange rate affect trade? For example, if Yen appreciates against Dollar, how will this affect U.S.-Japan trade? I can ask similar question with any currency. Chapter 10: The Determination of Exchange Rates 1. Discuss the role of IMF in a global economy. 2. What is IMF? What are their goals? How does it manage global monetary stability? 3. What is a peg rate system? Explain the current global pegging exchange rate arrangement. 4. What is convertibility of a currency? How governments intervene FX, and why? Explain. 5. How do we determine the value of a currency? Explain the factors that determine the value of a currency. I may ask you to explain one or more specific factors. Chapter 13: Country Evaluation and Selection 1. What factors should we consider to scan and evaluate a country? Explain. 2. What problems do companies face with international business research and data collection? Explain. 3. What are the common sources for collecting international data? Explain. 4. What is country evaluation grid and opportunity-risk matrix? Explain how they help company strategy. Chapter 14: Export and Import 1. Explain why firms export or import. What are their competitive advantages for export or import? 2. Describe the export-import process and explain the role of various “export documentation” involved in the process. 3. Who are the export/import intermediaries? Explain their role and functions in the export-import process. 4. What is countertrade? What are the different types of countertrade? Why firms or governments engage in countertrade? Explain. Chapter 15: Direct Investment and Collaborative Strategies 1. What is a collaborative arrangement? Why firms collaborate? Explain their reasons for collaboration. 2. What are the different types of collaborative arrangements we discussed in class? Explain. 3. Explain the criteria for evaluating collaborative strategies. When would a firm opt for licensing over joint venture? Make specific arguments. (Similar questions can also be asked for other strategies, one over the other). Chapter 17: Marketing Globally 1. Define international marketing and explain how it differs from domestic marketing. 2. Explain the standardization adaptation debate in international marketing 3. Explain Product Considerations in international marketing. I may ask you to explain any of the four P’s in marketing. Chapter 18: Global Manufacturing and Supply Chain Management 1. Define and explain the role of “supply chain management” in firm strategy. 2. Explain how the success of a global supply chain strategy depends upon compatibility, manufacturing configuration, and coordination and control. 3. Define global sourcing and explain the role it plays in global supply chain management. International Business Videos for Tests You must watch all videos during the semester. Test questions can be from the videos. Sample questions are given. Actual questions will be similar to these questions. You must watch Video 1-6 before taking Test 1 and Videos 7-12 before taking Test 2. Must Watch for Test 1 –Midterm (Video 1-6) Video 1- Ian Goldin: Navigating our global future (7 minutes) https://www.ted.com/talks/ian_goldin_navigating_our_global_future#t-132547 Read the text, watch the video and explain how globalization is shaping the future of business. Support your arguments with the concepts discussed in the text/video and your own observations. Video 2- What is Economic Freedom? (9 minutes) https://www.youtube.com/watch?v=FjzC1a1evwk Video 3- Milton Friedman on Political and Economic Freedom (3 minutes) https://www.youtube.com/watch?v=ffFZ2T2rw_M Read the text, watch the videos, and explain the role of freedom (both political and economic) in our daily life and in business. Video 4 - Trade War: Trump against the World? (26 minutes) YouTube URL: http://www.youtube.com/watch?v=AKnAktKb1vc How the "trade war" will affect the U.S. and global the economy? Make specific arguments to support your answer. Video 5- India's Economy: The Road Ahead (12 minutes) https://www.youtube.com/watch?v=BqyGaT0RCt0 How will the rise of India affect the global economy and business-explain. Video 6- How China Dominated he World's Top Place (46 minutes) https://www.youtube.com/watch?v=NHhMFmvfYDY How does the rise of China affect US trade competitiveness? Must Watch for Test 2 –Final (Video 7-12) Video 7- A brief history of the European Union (5 minutes) https://www.youtube.com/watch?v=XgnXwrsMBUs Why did Europe want to integrate? What was the primary rationale? Video 8- The Great Euro Crisis BBC Documentary (59 minutes) https://www.youtube.com/watch?v=Z1LCBp0twLE Is European Monetary Union working? Do we need an overhaul? Answer with specific arguments. Video 9- Milton Friedman - Imports, Exports & Exchange Rates (14 minutes) https://www.youtube.com/watch?v=c9STBcacDIM Read the text, watch the video, and answer the following question. If Chinese Yuan/Renminbi appreciates its value by 10%, how will this affect China-U.S.A trade? Will it decrease U.S. trade deficit with China? Explain and make specific arguments. Video 10- Guide to currency markets (15 minutes) https://www.youtube.com/watch?v=djgQS0sk8T8 Write a critique of the video. A critique includes pros, cons and “what else could/should have been included” in the video. Video11-Alibaba Story-Inside China-CNBC International (9 minutes) https://www.youtube.com/watch?v=VAh__GGYJHw Read the text, watch the video and describe the global expansion and achievements of the company. Video 12- Global Market Entry Strategies Explained (8 minutes) https://www.youtube.com/watch?v=GSyYo4ph3hM International Business Sixteenth Edition Chapter 1 Globalization and International Business Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives (1 of 2) 1.1 Relate globalization and international business (IB) to each other and explain why their study is important 1.2 Grasp the forces driving globalization and IB 1.3 Discuss the major criticisms of globalization Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives (2 of 2) 1.4 Assess the major reasons companies seek to create value by engaging in IB 1.5 Define and illustrate the different operating modes for companies to accomplish their international objectives 1.6 Recognize why national differences in companies’ external environments affect how they may best improve their IB performance Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Global Governance-how the world is being governed today •Politics/Peace- United Nations •Trade- World Trade Organization (WTO) •Money/Finance- International Monetary Fund (IMF) •Development- World Bank •Overall- G8 Nations (USA, Canada, UK, France, Germany, Italy, Japan, and Russia) •Other international organizations and bodies 4 Factors in IB Operations Objective 1-1 Figure 1.1 Factors in IB Operations Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Introduction-why study International Business • It is important to study international business because –Most companies are either international or compete with international companies –Global events and competition affect almost all companies, regardless of industry –International companies have more complex environments than domestic firms. –An understanding of IB helps you make better career decisions –An understanding helps you decide what government policies to support Copyright © 2015 Pearson Education, Inc. 1-6 Globalization and International Business 1-7 • Globalization is the widening set of interdependent relationships among people from different parts of a world divided into nations – The term sometimes refers to the elimination of barriers to international movement of goods, services, capital, technology, and people that influence the integration of world economies • International business consists of all commercial transactions—including sales, investments, and transportation—that take place between two or more countries – increasingly foreign countries are a source of both production and sales for domestic companies Copyright © 2015 Pearson Education, Inc. Factors Driving Globalization • Rise in and application of technology • Liberalization of cross-border trade and resource movements • Development of services that support IB • Growth of consumer pressures • Increase in global competition • Changes in political situations and government policies • Expansion of cross-national cooperation Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 1-9 Costs of Globalization •Threats to national sovereignty –lose freedom to “act locally” •Economic growth and environmental stress –growth consumes nonrenewable natural resources and increases environmental damage •Growing income inequality and personal stress –promotes global superstars at the expense of others Copyright © 2015 Pearson Education, Inc. 1-10 Why Companies Engage in IB • To expand sales –pursuing international sales increases the potential market and potential profits • To acquire resources –may give companies lower costs, new and better products, and additional operating knowledge • To diversify or reduce risks –international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage Copyright © 2015 Pearson Education, Inc. 1-11 Modes of Operations in IB •Merchandise exports • goods that are sent out of a country •Merchandise imports • goods that are brought into a country •Sometimes referred to as visible exports and imports Copyright © 2015 Pearson Education, Inc. 1-12 Modes of Operations in IB • Service exports – provider and receiver of payment • Service imports – recipient and payer of payment • Examples – Tourism and transportation – Service performance ▪ turnkey operations and management contracts – Asset use ▪ licensing and franchising Copyright © 2015 Pearson Education, Inc. 1-13 Modes of Operations in IB • Investments –Foreign Direct Investment (FDI) ▪investor takes a controlling interest in a foreign company –joint venture –Portfolio Investment ▪a non-controlling financial interest in another entity –Mutual funds often include international companies Copyright © 2015 Pearson Education, Inc. 1-14 Modes of Operation in IB • Collaborative arrangements –Joint ventures –Licensing arrangements –Management contracts –Minority ownership –Long-term contractual arrangements • Strategic alliance –companies that work together, but the agreement is critical to at least one partner –an agreement that does not involve joint ownership Copyright © 2015 Pearson Education, Inc. 1-15 Types of International Organizations •Multinational enterprises (MNEs) –take a global approach to markets and production or have operations in more than one country •Sometimes they are referred to as –multinational corporations (MNCs) –multinational companies (MNCs) –transnational companies (TNCs) Copyright © 2015 Pearson Education, Inc. 1-16 Physical and Social Factors • Geographic influences – natural conditions influence business locations • Political policies – countries determine where and how business occurs within their borders • Legal policies – influence how a company operates • Behavioral factors – may require adaptation in to local conditions • Economic forces – explain differences in costs, currency values, market size Copyright © 2015 Pearson Education, Inc. 1-17 The Competitive Environment • Competitive strategy for products –Cost strategy –Differentiation strategy –Focus strategy • Company resources and experience –market leaders have more resources for international operations • Competitors faced in each market –local or international Copyright © 2015 Pearson Education, Inc. 1-18 Future of Globalization •Three major perspectives on the future of international business and globalization –Further globalization is inevitable –International business will grow primarily along regional rather than global lines –Forces working against further globalization and international business will slow down both trends Copyright © 2015 Pearson Education, Inc. 19 Chapter 1: Discussion Questions 1. Define globalization and explain the forces driving globalization. 2. Define globalization and explain the cost and future of globalization. 3. What is global governance? Explain the role of each institution in Global Governance. 4. What is Globalization Index? Explain the construct and methodology in evaluating the countries. Copyright Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. International Business Sixteenth Edition Chapter 2 The Cultural Environments Facing Business Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives 2-1 Explain why culture, especially national culture, is important in IB, but tricky to assess 2-2 Grasp the major causes of national cultural formation and change 2-3 Discuss major behavioral factors influencing countries’ business practices 2-4 Recognize the complexities of cross-cultural communications 2-5 Analyze guidelines for cultural adjustment Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Cultural Factors and the IB Environment FIGURE 2.1 Cultural Factors Affecting IB Operations Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-4 Introduction • What is Culture? – “Sum total” of all learned activities, a way of life-- refers to the learned norms based on values, attitudes, and beliefs of a group of people living in a geographic area, in a society or a nation • Why an international business manager should study the culture of a country? – Culture is an integral part of a nation’s business and operating environment – Companies need to decide how and when to make cultural adjustments – Fostering cultural diversity can offer global competitive advantage Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-5 Cultural Awareness • We need a GLOBAL MINDSET to succeed--managers that educate themselves about other cultures have a greater chance of success. Problem areas that can hinder managers’ cultural awareness… – Subconscious reactions to circumstances (selfreference criterion) – The assumption that all societal subgroups are similar • Cultural collision can occur when a company implements practices that are counters a country’s cultural norms Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 6 Understanding Culture • National cultures are dynamic, they evolve over time, change occurs by choice or by imposition. Three features are: • The Nation or Nation-State as point of reference (identity, symbolism, common history) • Language as both a diffuser and stabilizer of culture (expression, sharing, bond) • Religion as a cultural stabilizer (beliefs, ethics, spiritualism) Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-7 Culture and the Nation-State • Historical understanding of a nation state. It is a useful definition of society because similarity among people is a cause and an effect of national boundaries – laws apply primarily along national lines – language and values are shared within borders – rites and symbols are shared along national lines • But then subcultures exist within a nation state Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-8 How Cultures Form and Change • Cultural value systems are established early in life but may change through – choice or imposition ▪ cultural imperialism – contact with other cultures ▪ cultural diffusion ▪ creolization Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-9 Language: Cultural Diffuser and Stabilizer • A common language within a country is a unifying force • A shared language between nations facilitates international business – Native English speaking countries account for a third of the world’s production – English is the international language of business Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-10 Language: Cultural Diffuser and Stabilizer Distribution Of The World’s Major Languages Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-11 Language: Cultural Diffuser and Stabilizer Major Language Groups: Population and Output Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-12 Religion: Cultural Stabilizer • Religion impacts almost every business function • It influences our consumption and expenditure • Centuries of profound religious influence continue to play a major role in shaping cultural values and behavior – many strong values are the result of a dominant religion Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-13 Religion: Cultural Stabilizer Distribution Of The World’s Major Religions Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 14 Behavioral Practices Affecting Business • Social Stratification • Work Motivation • Relationship Preferences • Risk-taking Behavior • Information and Task Processing • Communications Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-15 Social Stratification • Social ranking is determined by – an individual’s achievements and qualifications – an individual’s affiliation with, or membership in, certain groups • Group affiliations can be – Ascribed group memberships ▪ based on gender, family, age, caste, and ethnic, racial, or national origin – Acquired group memberships ▪ based on religion, political affiliation, professional association • Two other factors affecting social stratification are: education and social connections Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-16 Work Motivation • The motivation to work differs across cultures • Studies show – the desire for material wealth is a prime motivation to work ▪ promotes economic development – people are more eager to work when the rewards for success are high – masculinity-femininity index ▪ high masculinity score prefers “to live to work” than “to work to live” Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-17 Work Motivation • Hierarchy of needs theory – Individuals will fill lower-level needs before moving to higher level needs • The ranking of needs differs among cultures Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-18 Work Motivation The Hierarchy of Needs and Need-Hierarchy Comparisons Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-19 Relationship Preferences • Relationship preferences differ by culture • Power distance – high power distance implies little superior-subordinate interaction ▪ autocratic or paternalistic management style – low power distance implies consultative style • Individualism versus collectivism – high individualism – welcome challenges – high collectivism – prefer safe work environment Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-20 Risk Taking Behavior • Risk taking behavior differs across cultures – Uncertainty avoidance ▪ handling uncertainty – Trust ▪ degree of trust among people – Future orientation ▪ delaying gratification – Fatalism ▪ attitudes of self-determination Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-21 Information and Task Processing • Cultures handle information in different ways – Perception of cues – Obtaining information ▪ Low context versus High context cultures – Information processing – Monochronic versus Polychronic cultures – Idealism versus Pragmatism Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-22 Communications • Cross border communications do not always translate as intended • Spoken and written language • Silent language – – – – – Color Distance Time and punctuality Body language Prestige Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-23 Communications Body Language Is Not A Universal Language Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-24 Dealing with Cultural Differences • Do managers have to alter their customary practices to succeed in countries with different cultures? • Must consider – Host society acceptance – Degree of cultural differences ▪ cultural distance – Ability to adjust ▪ culture shock and reverse culture shock – Company and management orientation Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-25 Dealing with Cultural Differences • Three company and management orientations – Polycentrism ▪ business units abroad should act like local companies – Ethnocentism ▪ home culture is superior to local culture ▪ overlook national differences – Geocentrism ▪ integrate home and host practices Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-26 Strategies for Instituting Change • Change and resistance to change process – Unfreezing, Change, Refreezing • Points to consider – – – – – – – – Value Systems Cost-Benefit Analysis of change Resistance to too much change Participation Reward Sharing Opinion Leadership Timing Learning Abroad Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-27 The Future of National Cultures • Scenario 1: New hybrid cultures will develop and personal horizons will broaden • Scenario 2: Outward expressions of national culture will continue to become homogeneous while distinct values will remain stable • Scenario 3: Nationalism will continue to reinforce cultural identity • Scenario 4: Existing national borders will shift to accommodate ethnic differences Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 28 Hofstede’s Five Cultural Values • Individualism/collective index (IDV): Refers to preference of behavior that promotes one’s self interest. Higher score (e.g., USA) means high on individualism. • Power distance index (PDI): Measures the tolerance of social inequality, i.e., inequality between superiors and subordinates within a social system. Higher score (e.g., Arab countries) means more hierarchical. • Uncertainty avoidance index (UAI): Refers to the intolerance of ambiguity and uncertainty among members of a society. Higher score (e.g., Greece) means less tolerance for uncertainty. • Masculinity/feminity (MAS): Refers to one’s desire for achievement and entrepreneurial tendencies. Higher score (e.g., Latin culture) means more assertiveness and masculinity. • Future orientation: Refers to the future or long-term orientation of the society Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 29 Chapter 2: Discussion Questions 1. Define culture? Why an international business manager should study the culture of a country? 2. Explain how the dynamic interplay of nation, language and religion shapes the culture of a country. 3. Explain the six behavioral practices that affect the business in a country. I may ask you to explain any two or three of them. 4. How can we deal with, adapt to, and influence foreign cultures? Explain. 5. Explain the five cultural values of Hofstede. I may ask you to explain any two or three of them also. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 2-30 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the Copyright © 2015 Pearson Education, Inc. United States of America. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. International Business Sixteenth Edition Chapter 3 The Political and Legal Environments Facing Business Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives 3-1 Explain how politics and laws influence business 3-2 Appraise the principles and practices of the political environment 3-3 Discuss the contemporary state of political freedom 3-4 Interpret political risk 3-5 Appraise the principles and practices of the legal environment 3-6 Describe key legal issues facing international companies 3-7 Relate the ideas of politics, law, and the business environment Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Political and Legal Forces Objective 3-1 Figure 3.1 Political and Legal Factors Influencing IB Operations Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-4 The Political Environment • Every country has its own political and legal environment • Companies must determine where, when, and how to adjust their business practices to succeed – Managers evaluate, monitor, and forecast political environments – A country’s political system refers to the structural dimensions and power dynamics of its government that specify institutions, organizations, and interest groups, and define the norms that govern political activities Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-5 Individualism vs. Collectivism • Our political system emanates from our philosophical belief or orientation, our thought process, how we want to govern ourselves – Individualism: primacy of the rights and role of the individual – Collectivism: primacy of the rights and role of the community Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-6 Political Ideology • Why should we study the political system or the political ideology of the ruling parties of a country? What are the implications for business? • A political ideology stipulates how society ought to function and outlines the methods by which it will do so. It affects government spending, trade, and investment. • Most modern societies are pluralistic – different groups champion competing political ideologies, examples: Democrats vs. Republicans in the United States Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-7 Spectrum Analysis • A political spectrum outlines the various forms of political ideology • Political freedom measures – the degree to which fair and competitive elections occur – the extent to which individual and group freedoms are guaranteed – the legitimacy ascribed to the general rule of law – the freedom expression Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. The Political Spectrum Objective 3-2 Figure 3.2 The Political Spectrum Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-9 Democracy • In a democracy(a government “of the people, by the people and for the people”) – all citizens are politically and legally equal – all are equally entitled to freedom of thought, opinion, belief, speech, and association – all equally command sovereign power over public officials • Prominent types of democracy include – – – – Representative Multiparty Parliamentary Social Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Change in the State of Political Freedom: Modern History of Democracy 10 • Before World War I • After World War II – A decline in colonial empires – Rise of democratic nation states – Cold War • Fall of Berlin Wall, 1989-democratic governments and institutions are on the rise • 1990-2012 – Democracy in Latin America, Asia, Africa – Arab Spring-over? • Is democracy universal-Western vs. Eastern Models Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Evolution, Democracy and the (Hegelian) Dialectic Thesis Synthesis (Thesis) Synthesis (Thesis) Antithesis Antithesis Figure 1: Freedom Over the Years Freedom Over the Years 68 Average Score 66 64 62 60 58 Political Rights Civil Liberties 56 54 52 Economic Freedom (Heritage) 50 Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Figure 2: Freedom Status Freedom Status Number of Countries 70 60 50 40 Not Free 30 Partly Free 20 Free 10 0 Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Figure 3 Global Competitiveness Index and Political Rights Plot of gci*pr$country. G l o b a l C o m p e t i t i v e n e s s I n d e x s c a l e 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 Symbol used is '*'. | | USA + * SG SWE* + DK *GE + FI *NL + CA *JP + AU * U + * BY ATW*NO + * QA NZ *FR + * UAE * MY SKA + * SA IL *CZ + * CN CL *SI + * TH EE * + * TN OM * BH * KW SP PT + SAF LT*IT + JO * AZ IN * ID CR *PA + * RU * TR MX * BR HU *PL + * KZ CO * BW RNA* LV UY * + * VN EG * ALG * MA SLK * GT UA * MK EL * BG CRO * + * LY PH * HN PE* AR GR + * SY * GE * SN JM * DO + * AM * NG * KE * AL SER + TZ * PK EC * BD * BJ + CM * CAM VE * UG * BA ZM * PY GH * + KG * CI * ET * NI MW * BO * MON + MG TJ + * BF * MZ * ML + + + * CHA + * ZW | ---+-------------+-------------+-------------+-------------+-------------+-------------+-14.29 28.57 42.86 57.14 71.43 85.71 100.00 Political Rights-scale of 100 43 obs 3 label characters hidden. Copyright © hidden. 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. NOTE: 22 obs had missing values. 3-15 Totalitarianism • A totalitarian system subordinates the individual to the interests of the collective – monopolization of power by a single agent--opposition is neither recognized nor tolerated. – dissent is eliminated through indoctrination, persecution, surveillance, propaganda, censorship, and violence • Prominent types of totalitarianism include – Authoritarianism – Fascism – Secular – Theocratic • Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Democracy vs. Totalitarian Table 3.1 Prominent Types of Democracies Table 3.2 Prominent Types of Totalitarianism Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-17 The Standard of Freedom • Freedom House, and independent watchdog organization, assesses political and civil freedom around the world • Freedom House recognizes three types of political systems – Free – Partly free – Not free Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. The State of Political Freedom Objective 3-3 Map 3.2 Map of Freedom Source: Freedom House, “Map of Freedom 2015,” at https://freedomhouse.org/report/freedom-world/freedom-world-2015. Used by permission of Freedom House. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Current Political Systems Objective 3-3 Table 3.3 Types and Characteristics of Political Systems in the World Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-20 Third Wave of Democratization • Third Wave of Democratization – number of democracies doubled in two decades • Engines of Democracy – The failure of totalitarian regimes to deliver economic progress – Improved communications technology – Economic dividends of increasing political freedom Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-21 Democracy: Recession and Retreat • Democracy’s retreat – just 26 of the world’s democracies are full democracies • Engines of Authoritarianism – Political economy of growth – Rhetoric vs. Reality - Inconsistencies – Economic problems – Who defines Democracy? Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-22 Political Risk • Political risk refers to the risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment • Types of Political Risk: Systemic, Procedural, Distributive, Catastrophic • Political Risk may involve Nationalization by the State (Confiscation, Expropriation, and Domestication) Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Types of Political Risk Objective 3-4 Figure 3.4 Classes and Characteristics of Political Risk Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 24 Managing Political Risks • Be a good corporate citizen (example: participate in development projects, literacy etc.) • Expand power bases through business relationships (example: joint venture, licensing, political payoffs etc.) • Study government attitude and participate government incentive programs • Maintain good relationship with political allies, other embassies in the country Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Political Risk Map Objective 3-2 Map 3.1 Map of Political Risk, 2015 Source: Based on Marsh Political Risk Map 2015; and AON Political Risk, http://www.aon.com/2016politicalriskmap Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-26 The Legal Environment • The legal system is the mechanism for creating, interpreting, and enforcing the laws in a specified jurisdiction. • Types: – Common law [based on precedent, traditions] – Civil law [based upon a set of laws that comprise a code] – Theocratic law [based upon religious precepts] – Customary law [local customs and practices, exampleindigenous societies] – Mixed systems Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Types of Legal Systems Objective 3-5 Map 3.4 The Wide World of Legal Systems Source: University of Ottawa, “World Legal Systems,” retrieved February 15, 2016, from http://www.juriglobe.ca/eng/index.php. Used by permission. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-28 Trends in Legal Systems • What is the basis of rule in a country? – The rule of man ▪ legal rights derive from the individual who commands the power to impose them ▪ associated with a totalitarian system – The rule of law ▪ systematic and objective laws applied by public officials who are held accountable for their administration ▪ associated with a democratic system Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-29 Trends in Legal Systems The Worldwide Practice of the Rule of Law Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 3-30 Implication for Managers • Operational concerns/issues – Starting a business – Making and enforcing contracts – Hiring and firing local workers – Closing down the business • Strategic concerns/issues – Country Characteristics – Product safety and liability – Legal jurisdiction – Intellectual property Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Ranking of Doing Business in Various Countries Objective 3-7 Table 3.5 Easy Here, Hard There: Doing Business In Various Countries Source: Doing Business 2016. The World Bank. Retrieved May 15, 2016. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 32 Chapter 3: Discussion Questions 1. Define political system and explain why a business manager should study the political system of a country. 2. How does democracy differ from totalitarianism? Will the conduct of business be different in the two systems? How? 3. Describe how the political ideologies are changing in the world. How a manager can adapt to such changes? 4. What is political risk? How can we manage political risk? 5. Define the Types Legal Systems and their implications in international business. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Copyright Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. International Business Sixteenth Edition Chapter 4 The Economic Environments Facing Business Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives 4-1 Explain the value of economic analysis 4-2 Differentiate the types of economic environments 4-3 Explain the idea of economic freedom 4-4 Differentiate the types of economic systems 4-5 Interpret indicators of economic development, performance, and potential 4-6 Profile elements of economic analysis Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Economic Factors Affecting Business Objective 4-1 Figure 4.2 Economic Factors Affecting International Business Operations Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 4-4 Why a manager should study the economic environment of a country • Countries have different types of economic systems • It is important to understand the history, development, growth and interconnectedness of a nation’s economy • Economic environment and institutions affect consumption, market, business, trade etc. • Policy decisions affect business…everyday life of the citizens Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 4-5 International Economic Analysis • A universal assessment of economic environments is difficult because of: – System Complexity-Identifying proper indicators is difficult – Market Dynamism-New economic circumstances – Market Interdependence-Markets influence each other Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Types of Economic Environments • Types of economics and their characteristics – Developed – Developing – Economies in transition • Degrees of development-How we differentiate these economies Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Emerging Economies Objective 4-2 Map 4.1 Emerging Economies of the World Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 4-8 Economic Freedom • Economic freedom – people have the right to work, produce, consume, save, and invest the way they prefer – measured across business freedom, monetary freedom, fiscal freedom, investment freedom, freedom from corruption, property rights, trade freedom, government size, financial freedom, and labor freedom • Economic Freedom Index-Heritage Foundation, Fraser Institute Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 4-9 Economic Freedom: Value and Trend • Economic freedom affects: Growth rates, Productivity, Income levels, Inflation, Employment, Life expectancy, Literacy, Political openness, Environmental sustainability • The trend toward increased economic freedom is no longer certain – The legitimacy of free markets has been questioned – The benefits of more state control Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Map of Economic Freedom Objective 4-3 Map 4.2 The Presence and Prevalence of Economic Freedom Source: Terry Miller and Kim Holmes, 2016 Index of Economic Freedom, (Washington, DC: The Heritage Foundation and Dow Jones & Co., Inc., 2016). Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Forces Affecting Degrees of Development Objective 4-1 Table 4.2 Moderators of Economic Development Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Chart on Economic Freedom and Standard of Living Objective 4-3 Figure 4.4 Economic Freedom and the Standard of Living Source: Adapted from Terry Miller and Anthony Kim, “Why Economic Freedom Matters | 2015 Index of Economic Freedom Book.” 2016. Accessed April 15. http://www.heritage.org /index/book/chapter-2. Used by permission. Note: GDP is adjusted for PPP. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Economic Freedom Classifications Objective 4-3 Table 4.4 Economic Freedom: Classification and Characteristics Source: Adapted from “Methodology | 2015 Index of Economic Freedom Book.” Accessed December 8, 2015. http://www.heritage.org/index/book/methodology. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 4-14 Types of Economic Systems • An economic system refers to the mechanism that deals with the production, distribution, and consumption of goods and services • Three types of economic systems – Market Economy: a free-market (capitalistic) economy built upon the private ownership and control of the factors of production – Command Economy: a centrally-planned economy built upon government ownership and control of the factors of production – Mixed Economy: an economy in which economic decisions are largely market-driven and ownership is largely private, but significant government intervention is still evident Copyright © 2015 Pearson Education, Inc. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 15 Evaluating Market, Mixed and Command Economy Criteria Market Mixed Command Degree of economic freedom Ownership of means of production Role of price in the system Role of government Trade and investment policy Fiscal and monetary policy Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Chart Explaining Economic Systems Objective 4-4 Figure 4.5 Types of Economic Systems Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Assessing Economic Development, Performance, and Potential • Ways to measure an economy (monetary) ▪ GNI (Gross National Income) ▪ GDP (Gross Domestic Product) ▪ GNP (Gross National Product) • Other economic analytics – Rate of economic growth – Population size – Purchasing Power Parity • Shadow economies • International Competitiveness of Nations-GCI and other measures Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Key Components of Economic Analysis Objective 4-6 Table 4.8 Key Components of Economic Analysis Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Purchasing Power Parity • PPP is the number of units of a country’s currency required to buy the same amounts of goods and services in the domestic market that $1 would buy in the United States. • The relative price index makes the difference. Example: The price of tomato in USA and India is $2.00 and $0.20 respectively. If an Indian earns $3000 per year, how much an American will have to earn to buy the same amount of tomato? • As we evaluate an economy, the purchasing power parity should also be taken into consideration Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 20 The Balance of Payments • Reports the total of all money flowing into a country less all money flowing out of that country to any other country during a given period of time • Records a country’s international transactions amongst companies, governments, and/or individuals • Concept of trade surplus and trade deficit Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 21 Balance of Payments (BOP) Account A. Current Account C. International Reserve Gold, Silver, and Precious Metals Foreign Currency Special Drawing Rights (SDR) Merchandise Trade Services Unilateral Transfer B. Capital Account Portfolio Investment Direct Investment Short term loans D. Net Statistical Discrepancy Equation: A+B = C+D BOP Account must balance Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. The Ten Largest Economies Objective 4-5 Table 4.7 The 10 Largest Economies, GDP Adjusted for Purchasing Power Parity, 2014 Source: World Bank Development Indicators 2015. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Sustainability in Economies • Green Economies • Sustainability – Net National Product (NNP) – Genuine Progress Indicators (GPI) – Human Development Index (HDI) • Happynomics – YBLI (Your Better Life Index) – GNWI (Gross National Wellness Index) – HPI (Happy Planet Index) Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 24 Chapter 4: Discussion Questions 1. Define “economic freedom” and explain its implication in an economy. 2. What are the three types of economic systems? What criteria can we use to evaluate them? Explain. 3. Discuss the impact of “emerging nations” in a globalized world. 4. Explain how we can evaluate an economy using traditional and nontraditional(broader) measures of economic performance. 5. Explain the Balance of Payments account of a country with its four subheads. Why is it important to in international business manager? 24 Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Copyright Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
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Running head: INTERNATIONAL BUSINESS

International Business

Students Name
Institution

1

INTERNATIONAL BUSINESS

2
International Business

Chapter 1
Globalization is the global integration of international trade, the investments
technology, culture and information technology. The key forces driving globalization include
rapid growth in technology, resources and markets, production issues, political aspects and
the industrial organization.
The costs of globalization include the fact that free trade induces unhealthy
competition especially for the developing nations. Additionally, causes environmental costs,
labor drain, tax competition and tax avoidance and further less cultural diversity. The future
of globalization varies based on regions. In the East and the developing nations, globalization
continues to take a rapid course. On the other hand, in the West there is a significant backlash
in globalization due to harsh economic conditions. An expansion in economic growth and
technological growth justifies an expansion in globalization.
Global governance refers to the movement towards the political cooperation
especially among the transnational nations with the objective negotiation of responses to
problems that affect more than one state. The institutions in global governance include
international criminal court which offers justice in the international community. World Trade
Organization which offers rules for trade between nations in the international market.
Regional human rights courts also targets to facilitate justice execution while United Nations
targets at promotion of peace and security.
The globalization index is a measure of the degree of globalization of a nation based
on the economic, political and social welfare of the nation. Economic globalization is
measured using flows of trade, foreign investment and portfolio investment. Social

INTERNATIONAL BUSINESS

3

globalization is the measure of the spread of information, people ideas and images while
political is the degree of political cooperation.
Chapter 2
Culture refers to the collection of ideas, customs, and social behaviour of a specific
group of people. In the international business culture study is important as it helps to analyse
the market structure based on the needs and wants of the target population.
Religion is an essential segment that influences the individual sociology and
psychology and thus shapes the culture of the nation. On the hand language is a key variable
that helps to establish communication and develop relations within the citizens of a nation
and thus facilitating shaping of the national culture. Other dynamics that shape the culture
includes food habits, social relationships, dress, and customs among others.
In the international market, culture differences are a common attribute. The approach
to deal with culture differences from the foreign nations is through integration and acceptance
which helps to facilitate adaptations and adjustments to suit the interests of the different
cultures in the society. Through market research one is able to learn the cultural differences
and thus facilitating the room for integration of other cultures.
The cultural dimensions explained by Hofstede include the power distance index,
individualism versus collectivism, masculinity Vs Femininity, programmatic vs normative
and indulgence vs restraint. The power distance index refers to the extent of the inequality
that exists and accepted between the people with power and without power. The analysis of
individualism and collectivism helps to establish the ties that people have to others in a
community set up. On the hand, masculinity vs femininity is the distribution of roles based on
gender.

INTERNATIONAL BUSINESS

4

Chapter 3
A political systems refers to the collection of the legal institutions that constitute of
the government or the state. The business operators ought to learn the political system of a
nation as it potentially influences the business through the tariffs, taxes, trade laws,
regulations and deregu...


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