Slide international business

Globalization Ha Noi, Foreign Trade University Chapter 1 International Business < International Business > Investment Trade Manufacture > < Profit Go Global In tegratio n What is Globalization ? Globa.

Globalization

Ha Noi, Foreign Trade University

Chapter 1

International Business

< International Business >

Investment

Trade

Profit

Go … Global

Globalization refers to the shift toward a more integrated and interdependent world economy

(Charles W Hill)

Globalization 3.0 (from 2000 to the present)

(From Thomas Friedman in The World is Flat)

- Same basic products worldwide

- “German market” or the “American market”,

only the global market

…refers to the merging of historically distinct and separate national markets into one huge global marketplace

Globalization of

Production

…refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of

factors of production like land, labor, and capital

- Companies compete more effectively by

lowering their overall cost structure or

improving the quality or functionality of their product offering

Drivers of Globalization

-The decline in barriers  free flow of goods, services, and capital (GATT, WTO)

- The technological changes (productions, telecom, transportation )

Debate

• Agree or Disagree?

• 8 opinions

• 3 mins/each

- Greater economic growth

- Higher consumer income, and more jobs

… Anti

- Firms collapse, job losses

- Wealth - Poverty gap

- Child, women labor

INTERNATIONAL BUSINESS

FTU – Foreign Trade University

In real estate, the mantra is 'location, location, location.‗For global brand managers, it might be 'localise, localise, localise.‗

There is a balance on the spectrum between ―local‖ and ―global‖ that represents the ―sweet spot‖…[and makes for] ―the race to the middle

— A manager-

The world got flat…[creating] a global, Web-enabled playing field that allows for…collaboration on research and work in real time, without regard to geography, distance or, in the near future, even language

-A journalist-

How global are we?

Semi-Globalization

“There are three ways to add value in a world where differences still matter: 3A strategies

ADAPTATION ,

AGGREGATION and

ARBITRAGE ”

Pankaj Ghemawat

Because…

National Differences in…

Chapter 2

International business (IB)

Political System

= System of Government in a

Nation

The political economy of a nation refers to how the political, economic, and legal systems of a country are interdependent

(Hills.C.W)

Collectivism

Plato (427-347 BC) Greek philosopher

- stresses the primacy of collective goals

over individual goals

- advocate the state ownership of the basic means

of production, distribution, and exchange

- benefit society as a whole, rather than individual

capitalists

- Communism and social democrats

Karl Marx (1818-1883)

Socialism

DEM

OCR

ACY

- Government directly voted by nation citizens

- Pure democracy is based on the belief that citizens should be directly involved in decision making

- Most modern democratic states practice representative democracy where citizens periodically elect individuals to represent them

an individual should have freedom in his own economic and political pursuits

- “ individual diversity and private ownership are desirable”

- democratic political systems  free market economies

Aristotle

(384-322 BC)

Individualism

Totalitarianism

Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties

Communist totalitarianism – the

monopolized by religious principles

Tribal totalitarianism Right-wing totalitarianism

“the rules that regulate behavior along with the processes by which the laws are enforced”

There are three types of legal systems

- Common law - based on tradition, precedent, and custom (UK,USA)

- Civil law - based on detailed set of laws organized into codes (80 countries)

- Theocratic law - based on religious teachings

Legal System?

(*) International Law - Bilateral and

Multilateral treaties)

Question:

Search and give more detail about the Islamic law (especially

applying to the international business)

-Property rights: legal rights over use to which a resource is put and income derived

-Intellectual Property Rights (IP): patents, copyrights, trademarks: major bone of

contention especially in info-based economies

-Product safety and liability: standards protecting consumers

- Enforcement of national and

international laws

Question:

Look for a multinational which troubled which the international legal issues

- Summarize the case

- Give your recommendations

Corruption Perceptions Index 2011

- Local business groups

International Business

Competing in global market

IB Department – Hanoi Foreign Trade University

2

Chapter 3

Economic Environment National Differences in

The totality of economic factors , such as

employment , income , inflation , interest rates ,

productivity of a nation

ECONOMIC ENVIRONMENT

Types of economic system

 Traditional economy: family or community based economy (tribes)

System relies on custom or ritual Decisions made by the elders Eg: Aborigines, Amazon tribes

 Market Economy: a free-market (capitalistic) economy built upon

the private ownership and control of the factors of production

System relies on consumption choices (Demand – supply principle) Eg: USA, Japan…

 Command Economy: a centrally-planned economy built upon

government ownership and control of the factors of production

System relies on Government decision Eg: Cuba, North-Korea

 Mixed Economy: an economy in which economic decisions are

largely market-driven and ownership is largely private, but

significant government intervention is still evident Eg: Most –

modern Economies

Stages of economic development

 Preindustrial countries: incomes < USD 400, limited

industrialization, low literacy rates, high birth rates, heavy reliance

on foreign aid, political instability

 Less developed countries: income between USD 401 and USD

1,635 Early stages of industrialization, growing domestic market

 Developing countries: income (USD 1,636 - USD 5,500) Decrease in

percentage of agricultural workers, industrialization, rising wages, high literacy rates

 Industrialized countries: income (US$ 5,501 and US$ 10,000), post

industrialization, high standard of living

 Advanced countries: income > USD 10,000, post industrialization,

knowledge based - less machine based

GDP & GNI

‐ GNI: measures the income generated by both total

domestic production and the international production

activities of national companies

‐ Per capita income: GNI is transformed by the number of

people living in a country

‐ GDP: is the total value of all goods and services produced

within a nation’s borders

2001 2002 2009 2010

Source: World bank (2012)

7

• voluntary exchange coordinated by markets;

• freedom to enter and compete in markets; and

• protection of persons and their property from aggression by others

Source: Heritage.org

Purchasing Power Parity

‐ number of units of a country’s currency required to buy the same amounts of goods and services in the domestic market that one unit of income would buy in the other country

‐ Big Mac Index – Big Mac theory

• If a Big Mac costs €3.38 in countries that use the euro and $3.73

in the US, then the implied PPP rate is 3.38/3.73 = 0.91

• If the actual exchange rate for the euro is lower that the implied PPP rate, the Big Mac theory suggests that the value of the euro might go up until it reaches the implied PPP rate

• If the actual exchange rate is higher, then you might expect the euro to go down until it hits the implied PPP rate

Human Development Index (HDI)

‐ Developed by Pakistan economist Mahbub Ul Haq (1990)

‐ measures the average achievements in a country on three dimensions

• Longevity: life expectancy at birth

• Knowledge: adult literacy rate

• Standard of living: GNI per capita

• Vietnam (HDI – 2010) = 0.590 (113/187)  0.593 (2011)128/187

• International medium HDI = 0.630, East and Asia Pacific = 0.671

• Thailand = 0.682 (103/187), Philippines = 0.644 (112/187)

• Pakistan = 145/187, India = 134/187

(1934 – 1998)

Green issues of development

‐ Growing concern for the ecological welfare of the world spurs calls for green measures of GNP

‐ Pollution, climate change

‐ Recycling

‐ Green products

‐ Corporate social responsibility

Gross National Happiness (GNH)

‐ developed in an attempt to define an indicator that

measures quality of life or social progress in more

holistic and psychological

terms than GDP

‐ coined in 1972 by Bhutan’ s fourth Dragon former King

Jigme Singye Wangchuck, who has opened Bhutan to the age

of modernization

‐ Vietnam: 96 (2010)

Implication for managers

‐ Inflation/deflation: price index and cost of living

‐ Unemployment: civilian labor force, labor regulations

‐ Debt: internal and external debt

‐ Income distribution/inequality: globally, within the country, GINI index, urban vs rural

‐ Poverty, Labor costs, Productivity

‐ Balance of Payments

‐ The euro (€) zone breaks up

‐ The global economic recession

‐ Public debt spirals out of control

Activity

By your own opinion, argue this following statement

“the wide variation and the different of economic development level is one of some significant reasons for the current struggles of EURO zone”

19

Culture Environment

National Differences

FTU – Foreign Trade University

Perceptions of each other

Telling the truth

Queuing

Transportation

Child

Senior’s daily life

Noise level inside a restaurant

Connections and Contacts

Punctuality

Boss

and many others…

EAST - WEST CULTURAL DIFFERENCES

“Culture is more often a source of conflict than of synergy Cultural differences are a nuisance at best and often a disaster”

Prof Geert Hosftede

3,000 languages and as many as 10,000 dialects worldwide

LANGUAGE

Language can be a competitive weapon

Language serves at the window to the culture of a society

Verbal or non-verbal is a very important skill for Business people

4 Main religious: Christianity, Islam, Hinduism, Buddhism

“Master Kong”: 551 – 478 BC

Confucianism is not a religion, but influences behavior and shapes culture in many parts of Asia

Activity 1

Give some examples of cultural differences in the interpretation

of body language What is the role of such nonverbal

communication in business relationships?

WORKING IN CROSS CULTURAL WORKPLACE

Power distance

“The extent to which the less

powerful members of institutions and organizations within a country expect and accept that power is distributed unequally”

High power distance

• Minimize the inequalities among people

• Interdependence between less and

more powerful people

• Flat hierarchy pyramid

• Power decentralization

• Narrow salary range

• Subordinated expect to be consulted

• The ideal boss is a resourceful democrat

• Privileges and status are disapproved

• Inequalities among people are both expected and desired

• Less powerful people should be depended on the more powerful

• Slope hierarchy pyramid

• Power centralization

• Wide salary range

• Subordinated expect to be told what to

India France Italy Japan Spain Argentina

US Germany

UK Denmark Israel Austria

Example

• A company from Austria (low power distance) is considering entering the

Vietnam (high power distance) market

Communication tips for the Austrian manager:

1) Give clear and explicit directions to those working with him

2) Deadlines should be highlighted and stressed

3) Do not expect subordinates to take initiative

4) Be more authoritarian in his management style

5) Show respect and deference to those higher up the ladder

Uncertainty avoidance –

“The extent to which members of a

society feel threaten by uncertain

or unknown situations”

• Uncertainty: normal feature of life and

each day is accepted as it comes

• Low stress – subjective feeling of

well-being

• Aggression and emotions must not be

shown

• Comfortable in ambiguous situations

and with unfamiliar risk

• There should not be more rules than

Australia Canada

US

UK India Denmark Singapore

Example

 A company from France (high uncertainty avoidance) is considering investing in

Denmark (low uncertainty avoidance)

Communication tips for the French manager:

1) Try to be more flexible or open in his approach to new ideas than he may be used to

2) Be prepared to push through agreed plans quickly as they would be expected to be

realized as soon as possible

3) Allow employees the autonomy and space to execute their tasks on their own; only

guidelines and resources will be expected of him

• Relationship employer- employee is

perceived in moral terms, like a family

• Hiring and promotion decisions take

employees’ ingroup into account

• Management is management of

groups

• Relationship prevails over task

• Individuals learn to think in terms of

“I”

• Diplomas increase economic worth and/or self- respect

• Relationship employer-employee is a contract based on mutual advantage

• Hiring and promotion are supposed

to be based on skills and rules only

• Management is management of individuals

• Task prevails over relationship

Low individualism

Communication tips for the UK manager:

1) Note that individuals have a strong sense of responsibility for their family

2) Remember that praise should be directed to a team rather than individuals

3) Understand that rewards depend upon seniority and experience

4) Be aware that the decision making process will be rather slow, as many members

across the hierarchy need to be consulted

Masculinity

“The tendency within a society to emphasize traditional gender roles”

• Sympathy for the weak

• In family, both fathers and mothers

deal with facts and feelings

• Stress on equality, solidarity , and

quality of work life

• Managers use intuition and strive

for consensus

• Resolution of conflicts by

compromise and negotiation

• Dominant values: material success and progress

• Money and things are important

• Sympathy for the strong

• In family, fathers deal with facts and mothers with feelings

• Stress on equity, competition among colleagues and performance

• Managers are expected to be decisive and assertive

• Resolution of conflicts by fighting them out

Low masculinity

High

Low

Japan Mexico Germany

UK

US Arabia France Korea Portugal Denmark Sweden

Example

 A company from Denmark ( low masculinity) is considering investing in Mexico

Communication tips for the Danish manager :

1) Be aware that people will discuss business anytime, even at social gatherings

2) Avoid asking personal questions in business situations

3) Take into account that people are not interested in developing closer friendships 4) Communicate directly, unemotionally and concisely

5) In order to assess others use professional identity, not family or contacts

Long- term orientation

“A basic orientation towards time that values patience”