International Business

MBA 2017-19
Term – V
Globalization
• Globalization refers to the shift toward a more integrated and
interdependent world economy.
• Globalization Facets:
• Globalization of Markets and
• Globalization of Production.
Factors in International Business Operations
Drivers of Globalization
• Declining Trade and Investment Barriers
• The Role of Technological Change
• Microprocessors and Telecommunications
• Moore’s Law
• The Internet and World Wide Web
• Transportation Technology
• Implications for the Globalization of Production
• Implications for the Globalization of Markets
Emergence of Global Institutions
• General Agreement on Tariffs and Trade (GATT)
• and its successor, the World Trade Organization (WTO);
• International Monetary Fund (IMF) and its sister institution, the
World Bank; and the United Nations (UN)
• These institutions were created by voluntary agreement between
individual nation-states, and
• Their functions are enshrined in international treaties
The Changing Demographics
of the Global Economy
The Changing World Output and World Trade Picture
The Changing Foreign Direct Investment Picture
The Changing Nature of the Multinational Enterprise
The Changing World Order

• Communism to Liberalism
• Dictatorship to Democracy
The Global Economy of 21st Century

• Rise of Developing Economies

• Changing Nature of Multinational Enterprises
• Non-U.S. Multinationals & Mini Multinationals
• Case of India’s Software Sector
The Globalization Debate
• Anti-Globalization Protests
• Globalization, Jobs & Income Inequality
• Globalization, Labour Policies & the Environment
• Globalization and National Sovereignty
• Question of Local Objectives & Policies
• Question of Small Economies’ Overdependence
• Question of Cultural Heterogeneity
• Globalization and the World’s Poor
Level of Globalization Currently
Globalization Level:
Globalization: WhatVs.
Perception doReality
you think?
Internet Penetration in 2012
Telegraphic Lines in 1910
Differences across Nations

Major aspects
• Political system
• Economic system Political Economy of a Nation
• Legal system
• Social & Culture
Political Systems
• Collectivism Vs Individualism
• Socialism
• Communists
• Social Democrats
• Individualism (Free/Liberal Society)
• Democracy and Totalitarianism
• Communist Totalitarianism (e.g. China, North Korea)
• Theocratic Totalitarianism (e.g. Iran)
• Tribal Totalitarianism (e.g. Kenya)
• Right-wing Totalitarianism (e.g. Germany & Italy 1930s & 40s)
Economic Systems

• Market Economy
• Command Economy
• Mixed Economy
 Legal Systems
• Three types of Legal Systems
• Common Law
• Civil Law
• Theocratic Law
• Differences in Contract Law
• UN Convention on Contracts for the International Sale of Goods (CIGS)
• Property Rights and Corruption
• Private Action
• Public Action and Corruption
• The Protection of Intellectual Property
• Product Safety and Product Liability
Political Economic Analysis
Economic Aspects
• Macro-economic Variables
• Income
• Level, Distribution & Purchasing Power
• Growth
• Inflation
• Fiscal Health
• Demographic issues
• Labour Policies
• Workforce & Employment Level
• Labour Cost
• Education
 A Glance at
Economic & Political
Situation of World
 Gross
National
Income
(GNI)
Per Capita
in 2009
 Gross
National
Income
(GNI PPP)
Per Capita
in 2009
Growth
Rate in
GDP
Per Capita
from
1999-2009
Income Distribution/Inequality
Income Distribution/Inequality
Economic
Freedom
Economic Data for Selected Countries
Political
Freedom
(2010)

No. of 2012
Countries
Free 90 (46% N, 43% P)
Partly Free 58 (30% N, 23% P)
Not Free 47 (24% N, 34%P)
Political Systems in the World (2008)
Political Freedom
 Broader Concept of Development

• Amartya Sen’s approach of human capability and opportunities

• Expand real freedom
• Major impediments
• poor economic opportunities
• systematic social deprivation
• neglect of public facilities as well as
• the intolerance of repressive states
• UN developed HDI to measure the actual human development
 Human
Development
Index
2010
How to achieve Economic Prosperity?
Innovation and Entrepreneurship
• Innovation
• Any new processes, organizations, management practices or strategies
• Innovation & Entrepreneurship are the engines of Growth
• It requires
• Market Economy
• Strong Property Rights
• Conducive Political System
• Economic Progress begets Democracy
World (Business) – At Transition

• Spread of Democracy (last 25 years)

• No. of democracies increased from 69 to 117 between 1987 to 2012
• Global Terrorism
• Spread of Market-based System
• Through
• Deregulation
• Privatization
Country Attractiveness Analysis
• Self-study the case of “Vodafone Tax Woes in India”
Cultural & Social aspects of
International Business
What is Culture & Society?
• Culture is a system of values and norms that are shared among a
group of people and that when taken together constitute a design for
living
• Values mean abstract ideas about what a group believes to be good, right,
and desirable. Put differently, values are shared assumptions about how
things ought to be.
• Norms are the social rules and guidelines that prescribe appropriate behavior
in particular situations.
• Society to refer to a group of people who share a common set of
values and norms.
• While a society may be equivalent to a country, some countries harbor
several societies (i.e., they support multiple cultures), and some societies
embrace more than one country.
How the Culture & Society impact IB?
• Case of Walmart
• An American professional company in the German culture
• Failed Ad campaign in Saudi Arab
How to analyze the Culture & Society?
• Values and Norms
• Values form the bedrock of a culture.
• They provide the context within which a society's norms are established and
justified.
• They may include a society's attitudes toward such concepts as individual freedom,
democracy, truth, justice, honesty, loyalty, social obligations, collective responsibility, the role
of women, love, sex, marriage, and so on.
• Norms are the social rules that govern people's actions toward one another.
• two major categories: Folkways and Mores
• Folkways are the routine conventions of everyday life or Rituals & symbols. such as the
appropriate dress code in a particular situation, good social manners, eating with the correct
utensils, neighborly behavior. Violation of them is not normally a serious matter.
• Mores are norms that are seen as central to the functioning of a society and to its social life.
Mores include such factors as indictments against theft, adultery, incest, and cannibalism.
They have much greater significance than folkways. Accordingly, violating mores can bring
serious retribution.
The Determinants of Culture
 Social Structure

• Social structure refers to its basic social organization.

• Two dimensions
i) Basic unit of the Social organization: Individual or Group
ii) Degree of Social Stratification: Caste or Class
• Social strata are typically defined on the basis of characteristics such as family
background, occupation, and income.
• Important Concern: Mobility across Castes or Classes
• Cases of India, Britain, China
Religions

• Religion may be defined as a system of shared beliefs and rituals that

are concerned with the realm of the sacred.
• Four Major religions:
• Christianity with roughly 1.9 billion adherents,
• Islam with around 1.2 billion adherents,
• Hinduism with 750 million adherents (primarily in India), and
• Buddhism with 350 million adherents
• and Confucianism (in China, Korea & Japan)
Language (Spoken)
Language (Unspoken)
Culture and the Workplace

• Any society's culture affects the values found in the workplace

• Geert Hofstede’s famous study and its dimensions
• power distance
• individualism versus collectivism
• uncertainty avoidance
• masculinity versus femininity
Cultural Change

• Cross-cultural literacy
• Ethnocentrism is a belief in the superiority of one's own ethnic group or
culture.
• Cultural Convergence
• Increasing Fundamentalism
• Culture and Competitive advantage
Ethics of International Business
Ethical Issues in International Business

• Employment Practices
• Case of Making Apple’s iPod
• Human Rights
• Case of Unocal in Myanmar
• Environmental Pollution
• Tragedy of Commons
• Corruption
• Case of Daimler
• Moral Obligations
• Social Responsibility
The Determinants of Ethical Behaviour
 Ethical Dilemmas
• Imagine that a visiting American executive finds that a foreign
subsidiary in a poor nation has hired a 12-year-old girl to work on a
factory floor. Appalled to find that the subsidiary is using child labor
in direct violation of the company's own ethical code, the American
instructs the local manager to replace the child with an adult.

• The local manager dutifully complies. The girl, an orphan, who is the
only breadwinner for herself and her 6-year-old brother, is unable to
find another job, so in desperation she turns to prostitution. Two
years later she dies of AIDS. Meanwhile, her brother takes up
begging.

• If you were the local manager, how would you handle the situation?
Philosophical Approaches to Ethics

• Straw Men Theories

• The Friedman Doctrine
• Cultural Relativism
• The Righteous Moralist
• The Naïve Immoralist
• Utilitarian Approach
• Rights Theories
• Justice Theories
Why does trade happen across Nations?
International Trade Theories
Early Theories

• Mercantilism
• 16th & 17th Centuries
• Based on Gold & Silver reserves
• Viewed as Zero-sum Game
• David Hume (1752) pointed an inherent inconsistency
Absolute
Advantage
Theory
(Adam Smith)

Gains from Trade

=> Positive-sum Game
Absolute
Advantage Production Possibility Frontier (PPF)
Theory
Comparative
Advantage
Theory
(David
Ricardo)

Gains from Trade

=> Positive-sum Game
Comparative
Advantage
Theory
Based on several Assumptions

• Only Two Countries and Two Goods

• Transportation costs between countries considered Zero
• No differences in the prices of resources in different countries
• resources can move freely from the production of one good to
another within a country
• Constant returns to scale
• Fixed stock of resources and that free trade does not change the
efficiency with which a country uses its resources
• No effects of trade on income distribution within a country
Extensions of Ricardian Models

• Immobile Resources
Production Possibility Frontier (PPF
• Diminishing Returns
• Dynamic Effects & Economic Growth
• Increased supply of labour & Capital from abroad
• Efficiency Increase
• The Samuelson Critique
• Heckscher-Ohlin Theory
• Factor Endowments
• The Leontief Paradox
The Product
Life-cycle
Theory
New Trade Theory

• Increasing Product Variety

• Reducing Cost
• Economies of Scale,
• First-Mover Advantages &
• Pattern of Trade
Porter’s Diamond: National Competitive Advantage
 Politics (or Reality)
of International Trade
Barriers to Trade
• Tariffs
• Specific Tariffs
• Ad Valorem Tariffs
Government & Domestic Producers Gain; Consumers loose
• Non-tariff Barriers
• Export Subsidies
• Import Quotas & Voluntary Export Restraints (VERs)
• Tariff rate quota
• Rules of Origin (Local Content Requirements)
• Regulatory Requirements (Administrative Policies)
• Health & Safety Standards
• Anti-Dumping Laws
Should Government intervene in International Trade?
• Political Arguments
• Protecting Jobs and Industries
• National Security
• Retaliation
• Protecting Consumers
• Furthering Foreign Policy Objectives
• Protecting Human Rights
• Economic Arguments
• The Infant Industry Argument
• Strategic Trade Policy
• To reap First Mover Advantage
• To support Second Movers
Will too much Govt intervention can harm Trade?
• Retaliation and Trade War
• Domestic Policies
 How to strengthen
the International Trade,
if trading partners lack
trust on each other?
Development of the World Trading System
• From Smith to the Great Depression
• 1947-1979: GATT, Trade Liberalization, and Economic
Growth
• 1980-1993: Protectionist Trends
• The Uruguay Round and the WTO
• WTO: Experience to Date
• WTO as Global Police
• Expanding Trade Agreements
• Unresolved Issues and the Doha Round
• Antidumping Actions
• Protectionism in Agriculture
• Protecting Intellectual Property
• Market Access for Non-agricultural Goods and Services