Chapter 3

1. Chapter 3 Differences in Culture

2. How Do Cultural Differences Affect International Business? • Understanding and adapting to the local cultural is important international companies • cross-cultural literacy - an understanding of how cultural differences across and within nations can affect the way in which business is practiced • A relationship may exist between culture and the costs of doing business in a country or region

3. What Is Culture? • Culture - a system of values and norms that are shared among a group of people and that when taken together constitute a design for living where • values are abstract ideas about what a group believes to be good, right, and desirable • norms are the social rules and guidelines that prescribe appropriate behavior in particular situations • Society- a group of people who share a common set of values and norms

4. How Are Culture, Society, And The Nation-State Related? • The relationship between a society and a nation state is not strictly one-to-one • Nation-states are political creations • can contain one or more cultures • A culture can embrace several nations • the values and norms of a culture evolve over time

5. What Determines Culture? Determinants of Culture

6. What Is A Social Structure? • Social structure - a society’s basic social organization • A group is an association of two or more people who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior • individuals are involved in families, work groups, social groups, recreational groups, etc.

7. What Is Social Stratification? • All societies are stratified on a hierarchical basis into social categories, or social strata • Social mobility - the extent to which individuals can move out of the strata into which they are born • caste system • class system • The significance attached to social strata in business contacts • class consciousness

8. How Do Religious AndEthical Systems Differ? • Religion - shared beliefs and rituals that are concerned with the realm of the sacred • Christianity • Islam • Hinduism • Buddhism 5. Confucianism influences behavior and culture • Ethical systems - a set of moral principles, or values, that are used to guide and shape behavior

9. What Is The Role Of Language In Culture? • Language - the spoken and unspoken (nonverbal communication such as facial expressions, personal space, and hand gestures) means of communication • Chinese is the mother tongue of the largest number of people • English is the most widely spoken language in the world and is also becoming the language of international business • but, knowledge of the local language is still beneficial, and in some cases, critical for business success • failing to understand the nonverbal cues of another culture can lead to communication failure

10. What Is The Role Of Education In Culture? • Formal education is the medium through which individuals learn many of the language, conceptual, and mathematical skills that are indispensable in a modern society • important in determining a nation’s competitive advantage • Japan’s postwar success can be linked to its excellent education system • general education levels can be a good index for the kinds of products that might sell in a country • ex. impact of literacy rates

11. How Does Culture Impact The Workplace? • Hofstede’s dimensions of culture: • Power distance- how a society deals with the fact that people are unequal in physical and intellectual capabilities • Uncertainty avoidance- the relationship between the individual and his fellows • Individualism versus collectivism- the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity • Masculinity versus femininity -the relationship between gender and work roles

12. Does Culture Change? • Culture evolves over time • changes in value systems can be slow and painful for a society • Social turmoil - an inevitable outcome of cultural change • as countries become economically stronger, cultural change is particularly common • economic progress encourages a shift from collectivism to individualism • globalization also brings cultural change

13. What Do Cultural Differences Mean For Managers? It is important to develop cross-cultural literacy • companies that are ill informed about the practices of another culture are unlikely to succeed in that culture

14. Chapter 4 Ethics in International Business

15. What Is Ethics? • Ethics - accepted principles of right or wrong that govern • the conduct of a person • the members of a profession • the actions of an organization • Business ethics - accepted principles of right or wrong governing the conduct of business people • Ethical strategy - a strategy, or course of action, that does not violate these accepted principles

16. Which Ethical Issues Are Most Relevant To International Firms? • The most common ethical issues in business involve • Employment practices • Human rights • Environmental regulations • Corruption • The moral obligation of multinational companies

17. What Are Ethical Dilemmas? • Ethical dilemmas - situations in which none of the available alternatives seems ethically acceptable • real-world decisions are complex, difficult to frame, and involve consequences that are difficult to quantify • the ethical obligations of an MNE toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut • the right course of action is not always clear

18. Why Do Managers Behave Unethically? • Several factors contribute to unethical behavior including • Personal ethics- the generally accepted principles of right and wrong governing the conduct of individuals • expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture • managers fail to question whether a decision or action is ethical, and instead rely on economic analysis when making decisions

19. Why Do Managers Behave Unethically? • Decision-making processes- the values and norms that are shared among employees of an organization • organization culturethat does not emphasize business culture encourages unethical behavior • Organizational culture- organizational culture can legitimize unethical behavior or reinforce the need for ethical behavior • Unrealistic performance expectations- encourage managers to cut corners or act in an unethical manner

20. Why Do Managers Behave Unethically? • Leadership- helps establish the culture of an organization, and set the examples that others follow • when leaders act unethically, subordinates may act unethically, too • Societal culture– firms headquartered in cultures where individualism and uncertainty avoidance are strong are more likely to stress ethical behavior than firms headquartered in cultures where masculinity and power distance rank high

21. Why Do Managers Behave Unethically? Determinants of Ethical Behavior

22. How Can Managers Make Ethical Decisions? • Hire and promote people with a well grounded sense of personal ethics • Build an organizational culture that places a high value on ethical behavior • Make sure that leaders within the business articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric • Put decision making processes in place that require people to consider the ethical dimensions of business decisions

23. How Can Managers Make Ethical Decisions? • In the end, there are things that an international business should do, and there are things that an international business should not do • ethics officers can help ensure all employees are trained in ethics, ethics is considered in the decision-making process, and the company’s code of conduct is followed • But, not all ethical dilemmas have a clean and obvious solution and firms must rely on the decision making ability of managers

24. Chapter 5 International Trade Theory

25. Why Is Free Trade Beneficial? • Free trade - a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country • trade theory shows why it is beneficial for a country to engage in international trade even for products it is able to produce for itself

26. Why Is Free Trade Beneficial? • International trade allows a country • to specialize in the manufacture and export of products and services that it can produce efficiently • import products and services that can be produced more efficiently in other countries • limits on imports may be beneficial to producers, but not beneficial for consumers

27. What Is Smith’s Theory Of Absolute Advantage? • Adam Smith (1776) argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it • countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for goods produced by other countries

28. What Is Ricardo’s Theory Of Comparative Advantage? • David Ricardo asked what happens when one country has an absolute advantage in the production of all goods • The theory of comparative advantage (1817) - countries should specialize in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries • even if this means buying goods from other countries that they could produce more efficiently at home • Trade is a positive sum game

29. What Is The Heckscher-Ohlin Theory? • Eli Heckscher (1919) and Bertil Ohlin (1933) - comparative advantage arises from differences in national factor endowments • the more abundant a factor, the lower its cost • Heckscher and Ohlin predict that countries will • export goods that make intensive use of locally abundant factors • import goods that make intensive use of factors that are locally scarce

30. Does The Heckscher-Ohlin Theory Hold? • Wassily Leontief (1953) theorized that since the U.S. was relatively abundant in capital compared to other nations, the U.S. would be an exporter of capital intensive goods and an importer of labor-intensive goods. • However, he found that U.S. exports were less capital intensive than U.S. imports • Since this result was at variance with the predictions of trade theory, it became known as the Leontief Paradox

31. What Is New Trade Theory? • New trade theory suggests that the ability of firms to gain economies of scale (unit cost reductions associated with a large scale of output) can have important implications for international trade • Countries may specialize in the production and export of particular products because in certain industries, the world market can only support a limited number of firms • new trade theory emerged in the 1980s • Paul Krugman won the Nobel prize for his work in 2008

32. What Are The Implications Of New Trade Theory For Nations? • Nations may benefit from trade even when they do not differ in resource endowments or technology • a country may dominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good • Governments should consider strategic trade policies that nurture and protect firms and industries where first mover advantages and economies of scale are important

33. What Is Porter’s Diamond Of Competitive Advantage? • Michael Porter (1990) tried to explain why a nation achieves international success in a particular industry • Porter identified four attributes that promote or impede the creation of competitive advantage • Factor endowments • Demand conditions • Relating and supporting industries • Firm strategy, structure, and rivalry

34. What Is Porter’s Diamond Of Competitive Advantage? Determinants of National Competitive Advantage: Porter’s Diamond

35. Does Porter’s Theory Hold? • Government policy can • affect demand through product standards • influence rivalry through regulation and antitrust laws • impact the availability of highly educated workers and advanced transportation infrastructure. • The four attributes, government policy, and chance work as a reinforcing system, complementing each other and in combination creating the conditions appropriate for competitive advantage • So far, Porter’s theory has not been sufficiently tested to know how well it holds up

36. What Are The Implications Of Trade Theory For Managers? • Location implications - a firm should disperse its various productive activities to those countries where they can be performed most efficiently • First-mover implications - a first-mover advantage can help a firm dominate global trade in that product • Policy implications - firms should work to encourage governmental policies that support free trade

37. What Is The Balance Of Payments? • A country’s balance of payments accounts keep track of the payments to and receipts from other countries for a particular time period • The current account records transactions of goods, services, and income, receipts and payments • current account deficit • current account surplus • The capital account records one time changes in the stock of assets • The financial account records transactions that involve the purchase or sale of assets

38. Chapter 6 The Political Economy of International Trade

39. What Is The Political Reality Of International Trade? • Free trade occurs when governments do not attempt to restrict what citizens can buy from another country or what they can sell to another country • many nations are nominally committed to free trade, but intervene to protect the interests of politically important groups

40. How Do Governments Intervene In Markets? • Governments use various methods to intervene in markets including • Tariffs • specific tariffs • ad valorem tariffs • Subsidies • Import Quotas • tariff rate quotas • quota rent

41. How Do Governments Intervene In Markets? • Voluntary Export Restraints • Local Content Requirements • Administrative Polices • Antidumping Policies aka countervailing duties • dumping

42. Why Do Governments Intervene In Markets? • There are two main arguments for government intervention in the market • Political arguments - concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers) • Economic arguments - concerned with boosting the overall wealth of a nation – benefits both producers and consumers

43. What Are The Political Arguments For Government Intervention? • Protecting jobs - the most common political reason for trade restrictions • Protecting industries deemed important for national security - industries are often protected because they are deemed important for national security • Retaliation for unfair foreign competition - when governments take, or threaten to take, specific actions, other countries may remove trade barriers • Protecting consumers from “dangerous” products – limit “unsafe” products

44. What Are The Political Arguments For Government Intervention? • Furthering the goals of foreign policy - preferential trade terms can be granted to countries that a government wants to build strong relations with • Protecting the human rights of individuals in exporting countries– through trade policy actions • Protecting the Environment– international trade is associated with a decline in environmental quality

45. What Are The Economic Arguments For Government Intervention? • The infant industry argument - an industry should be protected until it can develop and be viable and competitive internationally • Strategic trade policy - first mover advantages can be important to success

46. When Should Governments Avoid Using Trade Barriers? • Paul Krugman argues that strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry are beggar-thy-neighbor policies that boost national income at the expense of other countries • countries that attempt to use such policies will probably provoke retaliation • Krugman argues that since special interest groups can influence governments, strategic trade policy is almost certain to be captured by such groups who will distort it to their own ends

47. How Has The Current World Trading System Emerged? • Until the Great Depression of the 1930s, most countries had some degree of protectionism • After WWII, the U.S. and other nations realized the value of freer trade • General Agreement on Tariffs and Trade (GATT) - a multilateral agreement to liberalize trade • In the 1980s and early 1990s protectionist trends emerged • The Uruguay Round of GATT negotiations began in 1986 focusing on • Services and intellectual property • The World Trade Organization (WTO)

48. How Has The Current World Trading System Emerged? • The WTO encompassed GATT along with two sisters organizations • the General Agreement on Trade in Services (GATS) • working to extend free trade agreements to services • the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) • working to develop common international rules for intellectual property rights

49. How Has The Current World Trading System Emerged? • The WTO has emerged as an effective advocate and facilitator of future trade deals, particularly in such areas as services • 153 members in 2011 • so far, the WTO’s policing and enforcement mechanisms are having a positive effect • most countries have adopted WTO recommendations for trade disputes • a magnet for various groups protesting free trade

50. What Is The Future Of The World Trade Organization? • The current agenda of the WTO focuses on • the rise of anti-dumping policies • the high level of protectionism in agriculture • the lack of strong protection for intellectual property rights in many nations • continued high tariffs on nonagricultural goods and services in many nations