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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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2-10
Language:
Cultural Diffuser and Stabilizer
Distribution Of The World’s Major Languages
Copyright © 2015 Pearson Education, Inc.
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2-11
Language:
Cultural Diffuser and Stabilizer
Major Language Groups: Population and Output
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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
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2-13
Religion: Cultural Stabilizer
Distribution Of The World’s Major Religions
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14
Behavioral Practices Affecting
Business
• Social Stratification
• Work Motivation
• Relationship Preferences
• Risk-taking Behavior
• Information and Task Processing
• Communications
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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
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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”
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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
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2-18
Work Motivation
The Hierarchy of Needs and Need-Hierarchy Comparisons
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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
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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
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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
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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
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2-23
Communications
Body Language Is Not A Universal Language
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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The Political Spectrum
Objective 3-2
Figure 3.2 The Political Spectrum
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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
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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
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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
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Figure 2: Freedom Status
Freedom Status
Number of Countries
70
60
50
40
Not
Free
30
Partly
Free
20
Free
10
0
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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
•
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Democracy vs. Totalitarian
Table 3.1 Prominent Types of Democracies
Table 3.2 Prominent Types of Totalitarianism
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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
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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.
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Current Political Systems
Objective 3-3
Table 3.3 Types and Characteristics of Political Systems in the World
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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
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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?
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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)
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Types of Political Risk
Objective 3-4
Figure 3.4 Classes and Characteristics of Political Risk
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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
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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
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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
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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.
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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
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3-29
Trends in Legal Systems
The Worldwide Practice of the Rule of Law
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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
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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.
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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.
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Copyright
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International Business
Sixteenth Edition
Chapter 4
The Economic
Environments Facing
Business
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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
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Economic Factors Affecting Business
Objective 4-1
Figure 4.2 Economic Factors Affecting International Business Operations
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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
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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
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Types of Economic Environments
• Types of economics and their characteristics
– Developed
– Developing
– Economies in transition
• Degrees of development-How we differentiate
these economies
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Emerging Economies
Objective 4-2
Map 4.1 Emerging Economies of the World
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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
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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
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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).
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Forces Affecting Degrees of Development
Objective 4-1
Table 4.2 Moderators of Economic Development
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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.
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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.
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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
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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
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Chart Explaining Economic Systems
Objective 4-4
Figure 4.5 Types of Economic Systems
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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
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Key Components of Economic Analysis
Objective 4-6
Table 4.8 Key Components of Economic Analysis
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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
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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
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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
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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.
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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)
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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
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