Synopsis-International Business

Globalization
Globalization refers to the shift towards a more integrated and interdependent world economy. The globalization of markets implies that national markets are merging into one huge marketplace. Two factors seem to underlie the trend towards globalization: declining trade barrier and changes in communication, information and transportation technologies. The development of microprocessor and related development in communication have helped firms to link their world wide business operation. In 1960s, the U.S. economy was dominant in the world. Roughly they dominated nearly half the world. By mid 1990s the U.S. share of world output cut into half, shared by western European and Southeast Asian economies Collapse of communism in Eastern Europe created enormous long-run opportunities for international business. China & Latin America is creating opportunities (and threats) for Western international businesses. Benefits and cost of emerging global economy debate focuses on the impact of globalization on jobs, wages, the environment, working conditions and national sovereignty. Managing international business is different the managing domestic business for at least four reasons Countries are different Range of problems in much wider in international business then domestic Managers in an international business must find ways to work within the limits imposed by governments intervention in the international trade and investment system International transaction involve converting money into different currencies

National Differences in Political Economy

Collectivism is an ideology that views the needs of society as being more important then the needs of individual. Collectivism translates into an advocacy for state intervention in economic activity and in the case of communism, a totalitarian editorship. Individualism is an ideology that is built on an emphasis of the primacy of individuals freedoms in the political, economic ad cultural realms. Individual translates into an advocacy for democratic ideals and free market economics. Democracy and Totalitarianism are at different ends of the political system. In democracy: citizens periodically elect individuals to represent them and political freedom is guaranteed by a constitution. In a totalitarian state, political power is monopolized by a party group or individual and basic political freedoms are denied to citizens of the state. Types of Economic System There are broadly three types of Economic System: a market economy, command economy and mixed economy. In a market economy prices are free of control and private ownership is predominant. In an command economy prices are set by central planner, productive assets are owned by the state and private ownership is forbidden. While in a mixed economy elements of both market economy and command economy can be found. Difference in the structure of law between countries can have important implications for the practise of international business. The degree to which property rights are protected can vary dramatically from country to country, as can product safety and product liability legislation and the nature of contract law. State of Transition: Many countries are now in a state of transition. There is a marked shift away from totalitarian government and command or mixed economy systems and toward democratic political institution and free market economic system. Benefits of doing business in a country are a function of the size of market (population), its present wealth (purchasing power) and its future growth perspective.

Risk of doing business in a country tend to be greater in countries that are Politically unstable Subject to economic mismanagement Lacking a legal system to provide adequate safeguard in the case of contract or property rights violation

Difference in Culture
Culture is a complex whole that includes knowledge, beliefs, art, morals, law, customers and other capabilities acquired by people as members of society. Values and norms are the central components of a culture. Values are abstract ideals about what society believes to be good, right and desirable. Norms are social rules and guidelines that prescribe appropriate behaviour in particular situation. Values and norms are influenced by political and economic philosophy, social structure, religion, language and education. Individual and Group: In some societies, the individual is the basic building block of social organization. Such societies emphasize individual achievements above all else. In other societies, the group is the basic building block of social organization. These societies emphasize group achievements above all else. Stratification: All societies are stratified into different classes. Classconscious societies are characterized by low social mobility and a high degree of stratification. Less class-conscious societies are characterized by high social mobility and a low degree of stratification. Religion may be defined as a system of shared beliefs and rituals that is concerned with the realm of the scared. Ethical systems refer to set of moral principle or values that are used to guide and shape behaviour. The value systems of different religious and ethical systems have different implications for business practice. Language is one defining characteristics of a culture. It has both spoken and unspoken dimensions. In countries with more then one spoken language, we tend to find more then one culture.

Education plays an important role in the determination of national competitive advantage. Culture is not a constant: it evolves. Economic progress and globalization seem to be two important engines of cultural change. One danger confronting a company that goes abroad for the first time is being ill-informed. To develop cross-cultural literacy, international businesses need to employ host-country nationals, build a cadre of cosmopolitan executives and guard against the dangers of ethnocentric behaviour. The value systems and norms of a country can affect the cost of doing business in that country.

Ethics in International Business

Ethics: Study of morality or we say that investigation revolving around morality. Business Ethics: A specialized study of Moral right and wrong focusing on business organization are called business ethics. Ethical Dilemmas: Such situations in which none of the available alternatives seems ethically acceptable. Unethical Business Practices: Lying of employees, office nepotism and favouritism, taking credit for other work, receiving or offering kickbacks, stealing from the company, firing an employ for whistle blowing etc. Determinants of Ethical Behaviour: Personal Ethics Organization Culture Unrealistic performance goal Leadership Decision-making processes

Common ethical issues in international business involve employment practices, human rights, environmental regulation, corruption and the moral obligation of multinational corporations. Cultural Relativism contends that one should adopt the ethics of the culture in which one is doing business. Ethical Relativism: A self interest approach: 6

It holds that no universal standards or rules can be used to guide or evaluate the morality of an act that is what is right for you may be wrong for me. Utilitarianism: Consequentiality (result based) approach: An action is judged as right or wrong on the basis of its consequences. An action is morally right if it produces the greatest good for the greatest number of people affected by it. Universalism: A Deontological (duty based) approach: It holds that the means justify the ends of an action, not the consequences. Deontological is derived from a Greek word Deon mean duty. This approach is based upon universal principles such as justice, rights, fairness, honesty and respect. Justice: Procedures, compensation, retribution: The principle of justice deals with fairness and equality. Richard Deterge identifies four types of justice Compensatory justice concerns compensating someone for a past harm Retributive justice means serving punishment to someone who has inflicted harm on another Distributive justice refers to the fair distribution of benefits and burdens Procedural justice designates fair decision practices, procedures and agreement among parties

INTERNATIONAL TRADE THEORY

Mercantilists argued that it was in a countrys best interest to run a balance of trade surplus. They viewed trade as a zero-sum game, in which one countrys gains cause losses for other countries. Absolute advantage suggests that countries differ in their ability to produce goods efficiently. The theory suggest that a country should specialize in producing goods in areas where it has absolute advantage and import goods in area where other countries have absolute advantage. Comparative advantage suggest that it makes sense for a country to specialize in producing those goods that it can produce most efficiently, while buying goods that it can produce relatively less efficiently from other countries. It also suggests that unrestricted free trade brings about increase world production; that is, that trade is a positive sum game. Product life cycle theory suggests those trade patterns are influenced by where a new product is introduced. In an increasingly integrated global economy, the product life cycle theory seems to be less predictive than it once was. New trade theory states that trade allows a nation to specialize in the production of certain goods, attaining scale economies and lowering the cost of producing those goods, while buying goods that it doesnt produce from other nations that are similarly specialized. By this mechanism, the variety of goods available to consumers in each nation is increased, while the average cost of those goods should fall.

Porters theory states that national competitive advantage suggests that the pattern of trade is influenced by four attributes of a nation

Factor endowments Domestic demand conditions Relating and supporting industries Firm strategy, and rivalry

Theories of international trade are important to an individual business firm primarily because they can help the firm decide where to locate its various production activities. Firms involved in international trade can and do exert a strong influence on government policy towards trade. With government support business firms can promote free trade, or trade restrictions.