International Business - Topic Discussion Notes

Introduction to Topic Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.

Topics for this Course:

After an Introduction and Overview to International Business and exposing you to the concepts of globalisation, and National Differences (Political, Economic & Legal) in Topic 1, the Course will take you to Topic 2 to review further National Differences of international business, including Culture and CSR, ethics and governance.

Topic 3 will provide you with a comprehensive knowledge of Global Trade and Investment, with emphasise on theories that explain trade patterns and firm and managerial decision-making, as well as the alternatives in Government Policy that influence these processes. This base then extends the course into Foreign Investment and Regional Integration – the subject of Topic 4.

Topic 5 involves the key concepts underpinning the Global Monetary System, including the Foreign Exchange process and Capital Market structures and their movement. Topic 6 will bring us to consider setting Strategy and designing appropriate Organisational Structures for your international operations. The discussion across the various Entry Strategies options follows - in Topic 7.

Finally, Global Supply Chains and International Marketing issues, perceived as International Business Functions are dealt with in Topic 8, culminating in the management of Human Resources - the people - in your international firm or organisation.

Let us now begin with:

Topic 1: Introduction & Overview to International Business & National Differences (Political, Economic & Legal)

  LECTURE OUTLINE 

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide. 

Slides 3-2 through 3-9 Determinants of Economic Development

Differences in economic development across countries are often linked to differences in their political, economic, and legal systems.

Economic development can be measured by gross national income per head of population (GNI) (rather than GNP) and purchasing power parity (PPP) which is GNI per capita adjusted for cost of living. 

The Nobel prize-winning economist Amartya Sen has argued in his theory of social development that development should be assessed less by material output measures such as GNI per capita/GDP per capita and more by the capabilities and opportunities that people enjoy. 

Sen’s influential thesis has been picked up by the United Nations, which has developed the Human Development Index (HDI) to measure the quality of human life in different nations.

Slides 3-10 through 3-13 Political Economy and Economic Progress

A country’s economic development is a function of its economic and political systems. 

Economic freedom associated with a market economy creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy. 

Innovation and entrepreneurship require strong property rights. Without strong property rights protection, businesses and individuals run the risk that the profits from their innovative efforts will be expropriated, either by criminal elements or by the state. 

There is debate on the kind of political system that best achieves a functioning market economy with strong protection for property rights. People in the West tend to associate a representative democracy with a market economic system, strong property rights protection, and economic progress. Building on this, we tend to argue that democracy is good for growth. 

However, some totalitarian regimes have fostered a market economy and strong property rights protection and have experienced rapid economic growth. Four of the fastest-growing economies of the past 30 years—South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth: undemocratic governments! 

While it is possible to argue that democracy is not a necessary precondition for a free market economy in which property rights are protected, subsequent economic growth often leads to establishment of a democratic regime.

Slides 3-14 and 3-15 Geography, Education, and Economic Development

In addition to political and economic systems, geography and education are also important determinants of economic development

Slides 3-16 through 3-20 States in Transition

Two trends are evident: first, during the late 1980s and early 1990s, a wave of democratic revolutions swept the world; second, totalitarian governments collapsed and were replaced by democratically elected governments that were typically more committed to free market capitalism than their predecessors had been.

These changes were most dramatic in Eastern Europe, where the collapse of communism brought an end to the Cold War and led to the breakup of the Soviet Union, but similar changes were occurring throughout the world during the same period. Across much of Asia, Latin America, and Africa there was a marked shift toward greater democracy. 

Another Perspective: To explore the recent changes and ongoing economic and political challenges in the Middle East, consider {http://knowledge.insead.edu/world/middle-east/the-middle-east-challenge-in-2013-2370} and also iGLOBE What Political Models Might Shape The New Libya, Tunisia?

 There are three reasons for the spread of democracy:

First, many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations. 

Second, new information and communication technologies have broken down the ability of the state to control access to uncensored information. 

Third, the economic advances of the past quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms. 

Another Perspective: The U.S. State Department produces a number of reports that are helpful to understanding the conditions in other markets, as well as information regarding visas and other relevant issues.  The site is {http://www.state.gov/}.  

Paralleling the spread of democracy since the 1980s has been the transformation from centrally planned command economies to market-based economies.

Slides 3-21 and 3-22 The Nature of Economic Transformation

These changes have involved:

Deregulation - removing legal restrictions to the free play of markets, and allowing the establishment and operations of private enterprises.  

Privatization - transferring the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction. 

Creation of a legal system to safeguard property rights. 

Markets that were formerly off-limits to Western businesses are now open, and some of these markets have huge potential: China, more than 1.3 billion people; India, more than 1.2 billion people; and Latin America, more than 600 million potential customers.

Slides 3-23 through 3-28 Implications of Changing Political Economy 

Just as the potential gains are large, so, too, are the risks.  Democracy may not thrive in some countries.

Managers need to focus on two broad areas:

First, the political, economic, and legal environment of a country influences the attractiveness of that country as a market and/or investment site. The benefits, costs, and risks associated with doing business in a country are a function of that country’s political, economic, and legal systems. 

Second, the political, economic, and legal systems of a country can raise important ethical issues that have implications for the practice of international business. 

The long-run benefits of doing business in a country are a function of the size of the market, the present wealth of consumers in that market, and the likely future wealth of consumers. 

There are three types of costs involved in international business: political costs, economic costs, and legal costs.

There are three types of risk involved in international business: political risk, economic risk, and legal risk.

Slide 3-29 Overall Attractiveness

The overall attractiveness of a country as a market and/or investment site depends on balancing the likely long-term benefits of doing business in that country against the likely costs and risks. 

Slide 3-30 How Attractive is your Home Town to Investors?

Copyright © 2017 McGraw-Hill Education. 

Adapted for MBA BUSS 5251 International Business

for the purpose of individual study and course preparation.

Introduction to Topic 2 Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.

LECTURE OUTLINE  

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.”  The following provides a brief overview of each Power Point slide.

Slide 4-2 Cultural Differences and International Business

Business success requires cross-cultural literacy.  Managers need an understanding of the culture, or cultures, that prevail in the countries where they do business. 

Slide 4-3 What Is Culture?

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 are abstract ideas about what a society believes to be good, right, and desirable.  Norms are social rules and guidelines that prescribe the appropriate behavior in particular situations.  Society is a group of people who share a common set of values and norms.

The cost of doing business in a country is influenced by culture – different cultures are more or less supportive of the capitalist approach to production.  Culture is dynamic. 

Slide 4-4 Values and Norms

Values and norms are the basic components of culture.  Norms can be further divided into folkways and mores.

Values include attitudes towards concepts like freedom, honesty, loyalty, justice, responsibility, and personal relations including marriage.  Norms shape the actions of people towards one another.  Norms can be divided into folkways and mores.

Slide 4-5 Culture, Society and the Nation-State

While it is possible for a nation-state to have a uniform culture, this is not always the case.  Within a nation-state multiple cultures can exist, and cultures can also cut across national borders. 

Slides 4-6 and 4-7 The Determinants of Culture

Culture is an evolutionary product of a number of factors. 

Political philosophy, economic philosophy, education, dominant language, social structure, and dominant religion are all determinants of culture. 

Slide 4-8 Social Structure

The social structure of a country can be described along two major dimensions: individualism vs. group, and degree of stratification into classes or castes.

Slides 4-9 through 4-10 Individuals and Groups  

A focus on the individual and individual achievement is common in many Western societies.  An emphasis on individual achievement has positive and negative implications.

On the positive side, the dynamism of the United States’ economy owes much to people like Sam Walton, Steve Jobs, and Bill Gates - people who took chances, tried new things, succeeded, and encouraged others to do likewise.  On the other hand, individualism can lead to a lack of company loyalty and failure to gain company-specific knowledge, competition between individuals in a company rather than team building, and a limitation of people's ability to develop a strong network of contacts within a firm. 

In sharp contrast to the Western emphasis on the individual, in many Asian societies the group is the primary unit of social organization. 

While this emphasis on the group may discourage job switching between firms, encourage lifetime employment systems, and lead to cooperation in solving business problems, it tends to suppress individual creativity and initiative. 

Slides 4-12 through 4-14 Social Stratification

All societies have some sort of stratification, where individuals in higher strata or castes are likely to have a better education, standard of living, and work opportunities.

Social structure is linked to the ease with which an individual can move between strata.  Additionally, the social structure created by the strata levels and the social significances of each strata level can have implications for the way business is conducted. 

The significance of the social strata can have important implications for the management and organization of businesses.

In cultures where there is a great deal of consciousness over the class of others, the way individuals from different classes work together (i.e., management and labor) may be very prescribed and strained in some cultures, or have almost no significance in others. 

Slides 4-15 through 4-17 Religious and Ethical Systems

Religion can be defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred. 

Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior.  The ethical practices of individuals within a culture are often closely intertwined with their religion. 

Another Perspective:  The International Business Ethics Institute {http://www.business-ethics.org} promotes ethical business practices around the world.  The site contains a number of articles that can be used to expand a discussion of business ethics in foreign markets, and a “top ten mistakes” list for companies doing business in other countries.

Slide 4-18 Christianity

Christianity, the largest religion, is common throughout Europe, the Americas, and other countries settled by Europeans and has three major branches: Protestant, Roman Catholic, and Eastern Orthodox.  

The "Protestant work ethic" – a focus on hard work, wealth creation, and frugality – is considered the driving force of capitalism.  In the workplace this work ethic translates into a significant emphasis on quality and productivity. 

Slide 4-19 Islam

The world’s second largest religion, Islam has the same underlying roots of Christianity (Christ is viewed as a prophet), and suggests many of the same underlying societal mores.  Islam, however, extends this to more of an all-embracing way of life that governs one's being.  Islam also prescribes many more rules by which people should act and live. 

In Islam people do not own property, but only act as stewards for God and thus must take care of that with which they have been entrusted.  They must use property in a righteous, socially beneficial, and prudent manner; not exploit others for their own benefit; and they have obligations to help the disadvantaged.  Thus, while Islam is supportive of business, the way business is practiced is strictly prescribed. For instance, no interest may be paid on business loans.

Slide 4-20 Hinduism

Hinduism, practiced primarily on the Indian subcontinent, focuses on the importance of achieving spiritual growth and development, which may require material and physical self-denial. 

Since Hindus are valued by their spiritual rather than material achievements, there is not the same work ethic or focus on entrepreneurship found in some other religions.  Likewise, promotion and adding new responsibilities may not be the goal of an employee,

Slide 4-21 Buddhism

Buddhists also stress spiritual growth and the afterlife, rather than achievement while in this world.  Buddhism, practiced mainly in Southeast Asia, does not support the caste system, however, so individuals do have some mobility not found in Hinduism, and can work with individuals from different classes.

Slide 4-22 Confucianism

Confucianism, practiced mainly in China, teaches the importance of attaining personal salvation through right action.  Unlike religions, Confucianism is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife.  The needs for high moral and ethical conduct and loyalty to others are central in Confucianism. 

Three key teachings of Confucianism – loyalty, reciprocal obligations, and honesty – may all lead to a lowering of the cost of doing business in Confucian societies. 

Slides 4-23 and 4-24 Language

Language refers to the spoken and unspoken means of communication, and is one of the defining characteristics of culture. 

While English is clearly the language of international business, knowing at least some of the local language can greatly help when working in another country. 

In some situations knowing even a bit of the local language can be critical for business success.  Such knowledge may be understood as a sign that the businessperson is willing to learn from the local firm.

Unspoken language refers to nonverbal communication such as facial expressions, personal space, and hand gestures.  Managers who fail to understand the nonverbal cues of another culture may experience a breakdown in communication.

Slide 4-25 Education

Formal education is the medium through which individuals learn many of the language, conceptual, and mathematical skills that are indispensable in a modern society. 

Education is part of the social structure of a country and is instrumental in shaping many cultural values and norms.  The knowledge base, training, and educational opportunities available to a country's citizens can contribute to a competitive advantage in the marketplace.

Slide 4-26 Think Like a Manager: Analyze Your School Culture

Slides 4-28 through 4-32 Culture in the Workplace

Geert Hofstede conducted what is probably the most famous study about the connection between culture and values in the workplace.  Hofstede made a study of IBM employees worldwide, and identified four dimensions to describe cultures:  power distance, individualism vs. collectivism, uncertainty avoidance, and masculinity vs. femininity. 

Power distance focuses on how a society deals with the fact that people are unequal in physical and intellectual capabilities.  Individualism versus collectivism focuses on the relationship between the individual and his or her fellows.  Uncertainty avoidance measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity.  Masculinity versus femininity looks at the relationship between gender and work roles.

Hofstede later expanded his study to include a fifth dimension called Confucian dynamism which captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors.

Slide 4-32 Cultural Change

Culture is not a constant, but evolves over time.  As countries become economically stronger, cultural change is particularly common. 

Slides 4-33 and 4-34 Implications for Managers

Managers need to be aware that societies differ because their cultures vary, and cultures vary because of profound differences in social structure, religion, language, education, economic philosophy, and political philosophy. 

Individuals and firms must develop cross-cultural literacy.  International businesses that are ill informed about the practices of another culture are unlikely to succeed in that culture.  One way to develop cross-cultural literacy is to regularly rotate and transfer people internationally. 

Managers need to be aware of ethnocentric behavior, or a belief in the superiority of their own culture. 

Another Perspective: To give students an opportunity to “experience” cultural differences create a mock business meeting.  Executive Planet maintains a web site, {http://www.executiveplanet.com/index.php?title=Main_Page}, with guidelines for doing business in different countries.  The site allows visitors to explore relevant issues in a variety of cultures. A recent article in Entrepreneur magazine provides some strategies on how to avoid cultural missteps when doing business in other countries {http://www.entrepreneur.com/article/22686}. 

The connection between culture and competitive advantage is important because it suggests which countries are likely to produce the most viable competitors, and it has implications for the choice of countries in which to locate production facilities and do business. 

Chapter 5: Ethical Issues in International Business  

• Understand the ethical issues faced by international businesses. 
• Recognize an ethical dilemma. 
• Identify the causes of unethical behaviour by managers. 
• Describe the different philosophical approaches to ethics. 
• Explain how managers can incorporate ethical considerations into their decision making.         

This chapter looks at ethics in international business.   Ethics becomes an issue across nations because of differing political systems, economic systems, legal systems and cultural values. What is acceptable behaviour in one nation may be considered unethical in another. 

First, the chapter explores some of the more common areas where ethical issues arise in international business, such as employment practices, human rights, environmental pollution, corruption, and moral obligations. Then the discussion moves to ethical dilemmas and the roots of ethical and unethical decision-making.  Next, the text examines basic philosophical theories that offer a foundation for ethical decision-making. Finally, the chapter presents the managerial implications of ethical decision-making, including hiring and promotion, organizational culture, sustainability, and corporate social responsibility. 

The opening case explores the danger associated with lead contamination in imported toys. Despite increased safety standards and regulations, studies show that as many as one-third of the toys imported from China contain dangerous heavy metals. The closing case considers the ethical dilemma posed by Bitcoin, a digital currency introduced in 2009. Because bitcoins are not backed by any government and do not have any real value, some economists suggest that they are an unethical means of avoiding taxes and that they promote illegal activity. 

LECTURE OUTLINE  

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point.

Slide 5-2 What Is Ethics?

Ethics refers to accepted principles of right or wrong that govern the conduct of a person,

the members of a profession, or the actions of an organization. 

Slide 5-3 Ethical Issues in International Business

The most common ethical issues in business involve:

• employment practices
• human rights
• environmental regulations
• corruption
• the moral obligations of multinational companies   

Another Perspective: The Carnegie Council on Ethics and International Affairs maintains a very substantive and thought-provoking website at {http://www.carnegiecouncil.org/}.  This site contains publications that comment on many of the ethical issues that surround globalization and international business.

Slides 5-4 and 5-5 Employment Practices

Often employment practices differ among nations.  What is the MNC’s obligation?  Should home standards be followed, even in less developed countries?  Should local standards be embraced?  What is the right basis for employment-related ethical decisions?

 Slides 5-6 and 5-7 Human Rights

The idea of what constitutes human rights varies considerably across national borders.  How can the tensions that this reality fosters be reconciled?

Slide 5-9 Environmental Pollution

Ethical issues arise when environmental regulations in host nations are far inferior to those in the home nation.

The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation.

Another Perspective: Consumers International {http://www.consumersinternational.org/} is dedicated to protecting the rights of consumers worldwide.  In doing so, it promotes ethical behavior on the part of companies.  Go to the site and explore some of the organization’s current efforts.

Slides 5-9 and 5-10 Corruption

The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business.

Slides 5-11 and 5-12 Moral Obligations

Social responsibility refers to the idea that business people should take the social consequences of economic actions into account when making business decisions, and that there should be a presumption in favour of decisions that have both good economic and good social consequences.

Slide 5-13 Ethical Dilemmas

Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable. 

The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut.

Slides 5-14 through 5-17 The Roots of Unethical Behavior

The causes of unethical behavior are complex and reflect:

• Personal ethics
• Decision-making processes
• Organization culture
• Unrealistic performance expectations
• Leadership
• Societal culture 

Business ethics reflect personal ethics (the generally accepted principles of right and wrong governing the conduct of individuals).  The personal ethical code that guides our behavior comes from a number of sources, including our parents, our schools, our religion, and the media. 

Home country managers working abroad in multinational firms may experience more than the usual degree of pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture, and they are psychologically and geographically distant from the parent company. 

Business people sometimes do not realize that they are behaving unethically simply because they fail to ask the relevant question—is this decision or action ethical?

The term organization culture refers to the values and norms that are shared among employees of an organization. 

In a company with an organizational culture that de-emphasizes business ethics, all decisions are reduced to the purely economic.  

When there is pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner, unethical behavior may result. 

Leaders are vital in helping a firm establish its organization culture, and setting examples.  If leaders are not acting ethically, other employees may not act ethically.  Societal culture can also influence behavior. 

Slide 5-18 Philosophical Approaches to Ethics

There are several approaches to ethics including the straw men (the Friedman doctrine, cultural relativism, righteous moralist, and the naïve immoralist), the Utilitarian approach, the Kantian approach, and rights and justice theories.

Slides 5-19 and 5-20 Straw Men

Straw men approaches to business ethics are approaches that are raised by business ethics scholars primarily for the purpose of demonstrating that they offer inappropriate guidelines for ethical decision making in a multinational enterprise.  Four such approaches are the Friedman doctrine, cultural relativism, the righteous moralist, and the naïve immoralist.

Slides 5-21 and 5-22 Utilitarian and Kantian Ethics

In contrast to the straw men, most moral philosophers see value in utilitarian and Kantian approaches to business ethics. The utilitarian approach to business ethics dates back to philosophers such as David Hume, Jeremy Bentham, and John Stuart Mill.  Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences.   An action is judged to be desirable if it leads to the best possible balance of good consequences over bad consequences.

Slide 5-23 Rights Theories

Rights theories recognize that human beings have fundamental rights and privileges that transcend national boundaries and culture.  Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component.

Slide 5-24 Justice Theories

Justice theories focus on the attainment of a just distribution of economic goods and services.  A just distribution is one that is considered fair and equitable.  There is no one theory of justice, and several theories of justice conflict with each other in important ways.  One important and influential theory of justice was set forth by John Rawls who argued that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone’s advantage.

Slide 25 Think Like a Manager: The Ethics of the Gig Economy

Slides 5-26 through 5-34 Ethical Decision Making

Five things an international business can do to make sure that ethical issues are considered in a business decision are:

(1)  Hire and promote people with a well grounded sense of personal ethics

(2)  Build an organizational culture that places a high value on ethical behavior

(3)  Make sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in manner that is consistent with that rhetoric

(4)  Put decision-making processes in place that require people to consider the ethical dimension of business decisions

(5)  Develop moral courage  

Not only should businesses strive to identify and hire people with a strong sense of personal ethics, but it is also in the interests of prospective employees to find out as much as they can about the ethical climate in an organization.  

To foster ethical behavior, businesses need to build an organization culture that places a high value on ethical behavior.  

Business people need a moral compass to help determine whether a decision is ethical.  

It is important to recognize that employees in an international business may need significant moral courage.  

Managers can also use a five-step process to think through ethical problems. 

To ensure ethical behavior in a business, a number of firms now have ethics officers.  

Slide 5-35 Summary of Decision-Making Steps

Not all ethical dilemmas have an obvious solution.  In the case of a true dilemma, firms must rely on the decision-making ability of their managers, and these managers need to make as balanced a decision as possible. 

Copyright © 2017 McGraw-Hill Education. 

Adapted for MBA BUSS 5251 International Business

for the purpose of individual study and course preparation.

Introduction to Topic 3 Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.

Introduction to Topic 4 Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course. 

Chapter 8: Foreign Direct Investment  

• Recognize current trends regarding foreign direct investment (FDI) in the world economy. 
• Explain the different theories of FDI. 
• Understand how political ideology shapes a government’s attitudes towards FDI. 
• Describe the benefits and costs of FDI to home and host countries. 
• Explain the range of policy instruments that governments use to influence FDI.
• Identify the implications for managers of the theory and government policies associated with FDI. 

The focus of this chapter is foreign direct investment (FDI). The growth of foreign direct investment in the last 25 years has been phenomenal. FDI can take the form of a foreign firm buying a firm in a different country, or deciding to invest in a different country by building operations there.  

With FDI, a firm has a significant ownership in a foreign operation and the potential to affect managerial decisions of the operation.  

The goal of our coverage of FDI is to understand the pattern of FDI that occurs between countries, and why firms undertake FDI and become multinational in their operations as well as why firms undertake FDI rather than simply exporting products or licensing their know-how. 

The opening case describes Volkswagen’s greenfield investment in Russia and the effect of changing oil prices on its profitability. The closing case explores the flow of FDI into Nigeria, particularly as the country began to transition toward a more stable, democratic form of government in the early twenty-first century. Today, Nigeria is one of the leading recipients of FDI in sub-Saharan Africa, although the country still faces a number of obstacles to economic development.   

LECTURE OUTLINE 

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.”  The following provides a brief overview of each Power Point slide. 

Slides 8-2 and 8-3 What Is Foreign Direct Investment?

Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country.  Once a firm undertakes FDI it becomes a multinational enterprise. 

Another Perspective: Each year Fortune magazine publishes a list of the 500 largest global corporations in the world.  Fortune calls its list the "Global 500."  This list can be accessed at {http://fortune.com/global500/}.  The article contains an excellent discussion of the role of global firms in the world economy.                 

 FDI can take the form of a greenfield investment, in which a wholly new operation is established in a foreign country, or it can take place via acquisitions or mergers with existing firms in the foreign country. 

Another Perspective: Another web site that provides an excellent discussion of the role of multinational corporations in the world economy is available at {http://www.oecdobserver.org/news/fullstory.php/aid/446/The_trust_business.html}. 

The flow of FDI refers to the amount of FDI undertaken over a given time period, while the stock of FDI refers to the total accumulated value of foreign-owned assets at a given time.  Outflows of FDI are the flows of FDI out of a country, and inflows of FDI are the flows of FDI into a country.

Slides 8-4 through 8-8 Trends in FDI

There has been a marked increase in both the flow and stock of FDI in the world economy over the past 30 years. 

While the United States remains a top destination for FDI flows, South, East, and Southeast Asia, and particularly China, are now seeing an increase of FDI inflows, and Latin America is also emerging as an important region for FDI. 

Another Perspective: Tanzania has recently been named one of Africa’s top FDI hotspots. To learn more about this trend go to {http://www.dailynews.co.tz/index.php/local-news/17188-dar-named-among-africa-s-top-fdi-hotspots}.

Slides 8-9 and 8-10 The Source of FDI

Since World War II, the U.S. has been the largest source country for FDI.  The United Kingdom, the Netherlands, France, Germany, and Japan are other important source countries. 

Slides 8-11 and 8-12 The Form of FDI: Acquisitions Versus Greenfield Investments

Most cross-border investment is in the form of mergers and acquisitions rather than greenfield investments.

Slides 8-13 and 8-14 Why Choose Foreign Direct Investment?

Why do firms choose FDI instead of exporting or licensing?  Internalization theory (also known as market imperfections theory) suggests that licensing has three major drawbacks.

Slide 8-15 Think Like a Manager: Exporting, Licensing, or FDI?

Slides 8-16 and 8-17 The Pattern of Foreign Direct Investment

Knickerbocker looked at the relationship between FDI and rivalry in oligopolistic industries (industries composed of a limited number of large firms) and suggested that FDI flows are a reflection of strategic rivalry between firms in the global marketplace. 

According to the eclectic paradigm, in addition to the various factors discussed earlier, it is important to consider:

• location-specific advantages - that arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets and
• externalities - knowledge spillovers that occur when companies in the same industry locate in the same area

Slides 8-18 and 8-19 Political Ideology and Foreign Direct Investment

Ideology toward FDI ranges from a radical stance that is hostile to all FDI to the non-interventionist principle of free market economies.  Between these two extremes is an approach that might be called pragmatic nationalism. 

The radical view argues that the MNE is an instrument of imperialist domination and a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries. 

According to the free market view, international production should be distributed among countries according to the theory of comparative advantage.  

Pragmatic nationalism suggests that FDI has both benefits, such as inflows of capital, technology, skills and jobs, and costs, such as repatriation of profits to the home country and a negative balance of payments effect. 

Recently, there has been a strong shift toward the free market stance creating:

• a surge in FDI worldwide
• an increase in the volume of FDI in countries with newly liberalized regimes      

Slides 8-20 and 8-21 Host Country Benefits of FDI

Government policy is often shaped by a consideration of the costs and benefits of FDI. 

There are four main benefits of inward FDI for host countries: resource transfer effects; employment effects; balance of payments effects, and effects on competition and growth.

Slides 8-22 and 8-23 Host Country Costs

There are three mains costs from inward FDI for the host country: the possible adverse effects of FDI on competition within the host nation; adverse effects on the balance of payments; and the perceived loss of national sovereignty and autonomy.

Slide 8-24 Home Country Benefits

The benefits of FDI for the home country include: the effect on the capital account of the home country’s balance of payments from the inward flow of foreign earnings; the employment effects that arise from outward FDI; and the gains from learning valuable skills from foreign markets that can subsequently be transferred back to the home country.

Slides 8-25 and 8-26 Home Country Costs

The home country’s balance of payments can suffer from the initial capital outflow required to finance the FDI; if the purpose of the FDI is to serve the home market from a low cost labor location; and if the FDI is a substitute for direct exports. 

International trade theory suggests that home country concerns about the negative economic effects of offshore production (FDI undertaken to serve the home market) may not be valid.

Slides 8-27 and 8-28 Government Policy Instruments and FDI

Home countries and host countries use various policies to regulate FDI. 

Another Perspective: The World Bank offers information on the business environment in different countries.  To explore the information, go to {http://www.worldbank.org/}, click on “countries”, and select the country in question. 

Governments can both encourage and restrict FDI. 

To encourage inward FDI, governments offer incentives to foreign firms to invest in their countries, while they restrict inward FDI through ownership restraints and performance requirements.

Slide 8-29 International Institutions and the Liberalization of FDI

The World Trade Organization is trying to establish a universal set of rules designed to promote the liberalization of FDI.

Slides 8-30 through 8-32 Implications for Managers

Managers need to consider what trade theory implies, and the link between government policy and FDI. 

The direction of FDI can be explained through the location-specific advantages argument associated with John Dunning.       

 A host government’s attitude toward FDI is an important variable in decisions about where to locate foreign production facilities and where to make a foreign direct investment. 

Chapter 9: Regional Economic Integration 

• Describe the different levels of regional economic integration.
• Understand the economic and political arguments for regional economic integration. 
• Understand the economic and political arguments against regional economic integration. 
• Explain the history, current scope, and future prospects of the world’s most important regional economic agreements.
• Understand the implications for business that are inherent in regional economic integration agreements. 

This chapter discusses regional economic integration, agreements among countries within a geographic region to achieve economic gains from the free flow of trade and investment among themselves.

There are five levels of economic integration. In order of increasing integration, they include free trade area, customs union, common market, economic union, and full political union. 

Integration is not easily achieved or sustained. Although integration brings benefits to the majority, it is never without costs for the minority. Concerns over sovereignty often slow or stop integration attempts. 

The creation of single markets in the EU and North America means that many markets that were formerly protected from foreign competition are now more open. This creates major investment and export opportunities for firms within and outside these regions. 

The free movement of goods across borders, the harmonization of product standards, and the simplification of tax regimes make it possible for firms based in a free trade area to realize potentially enormous cost economies by centralizing production in those locations within the area where the mix of factor costs and skills is optimal. 

The opening case describes the growth of the Mexican auto industry due to a wave of foreign direct investment spurred by regional trade agreements, such as NAFTA. The closing case discusses the complicated case of Mexican tomato growers, U.S. tomato growers, and the pricing structure that was in place once NAFTA went into effect. 

LECTURE OUTLINE 

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide. 

Slide 9-2   Introduction

Regional economic integration refers to agreements between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

Despite the rapid spread of regional trade agreements designed to promote free trade, there are those who fear that the world is moving toward a situation in which a number of regional trade blocks compete against each other. In this scenario of the future, free trade will exist within each bloc, but each bloc will protect its market from outside competition with high tariffs.

Slides 9-3 through 9-6 Levels of Economic Integration

The five levels of economic integration are: free trade area, customs union, common market, economic union, and political union. 

The most enduring free trade area in the world is the European Free Trade Association. EFTA currently joins four countries--Norway, Iceland, Liechtenstein, and Switzerland. Other free trade areas include the North American Free Trade Agreement (NAFTA). 

Another Perspective: A site with information and additional links on NAFTA is available at {http://www.fas.usda.gov/itp/Policy/NAFTA/nafta.asp}.  The site includes downloadable power point presentations on the benefits of NAFTA. 

Another Perspective: To find out more about EFTA, go to {http://www.efta.int/}, and click on “EFTA AELE.”  From here you can click on several icons to get quick facts, more in-depth reports, information on the European Economic Area, and many other issues related to EFTA. 

Customs unions around the world include the current version of the Andean Pact (between Bolivia, Colombia, Ecuador, and Peru). 

Currently, Mercosur, the South America grouping that includes Brazil, Argentina, Paraguay, and Uruguay, is aiming to eventually establish itself as a common market.

The European Union (EU) is an economic union, although an imperfect one since not all members of the EU have adopted the euro, the currency of the EU, and differences in tax rates across countries still remain.

Slide 9-7 The Economic and Political Case for Integration 

Regional economic integration can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international agreements such as the WTO.  

The political case for integration has two main points: (1) by linking countries together, making them more dependent on each other, and forming a structure where they regularly have to interact, the likelihood of violent conflict and war will decrease, and (2) by linking countries together, they have greater clout and are politically much stronger in dealing with other nations.

Slide 9-8 Impediments to Integration 

There are two main impediments to integration:

• although a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose 
• concerns over national sovereignty 

Whether regional integration is in the economic interests of the participants depends upon the extent of trade creation as opposed to trade diversion.  Trade creation occurs when low cost producers within the free trade area replace high cost domestic producers.  Trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers.  A regional free trade agreement will only make the world better off if the amount of trade it creates exceeds the amount it diverts.

Slides 9-9 and 9-10 Regional Economic Integration in Europe 

There are two trade blocks in Europe:

• the European Union (EU)
• the European Free Trade Association 

The EU is by far the more significant, not just in terms of membership, but also in terms of economic and political influence in the world economy. 

Slides 9-11 and 9-12 Evolution of the European Union  

The EU is the product of two political factors:

• devastation of two world wars on Western Europe and the desire for a lasting peace
• European nations’ desire to hold their own on the world’s political and economic stage. 

The forerunner of the EU was the European Coal and Steel Community, which had the goal of removing barriers to trade in coal, iron, steel, and scrap metal formed in 1951. 

The EEC was formed in 1957 at the Treaty of Rome.  While the original goal was for a common market, progress was generally very slow. 

Another Perspective: The EU web site is {http://europa.eu/index_en.htm}.  The site contains a broad array of information about the historical role and current activities of the EU in the global economy. 

The Single European Act called for the removal of border controls, mutual recognition of standards, open public procurement, a barrier free financial services industry, no currency exchange controls, free and open freight transport, and freer and more open competition. 

Slide 9-13   Political Structure of the European Union 

The main institutions of the EU are:

• the European Council (ultimate controlling authority within the EU)
• the European Commission (responsible for implementing aspects of EU law and monitoring member states to ensure they are complying with EU laws)
• the European Parliament (debates legislation proposed by the commission and forwarded to it by the council)
• the Court of Justice (the supreme appeals court for EU law).

Slides 9-14 and 9-15 The Establishment of the Euro   

The Treaty of Maastricht, signed in 1991, committed the EU to adopt a single currency, the euro, by January 1, 1999.  The euro is used by 17 of the 27 member states. It was never adopted by Britain. More recently, with the Brexit vote (UK exit from the EU) in 2016, the future for the EU seems uncertain. By adopting the euro, the EU has created the second largest currency zone in the world after that of the U.S. dollar.  

Since its establishment January 1, 1999, the euro has had a volatile trading history with the U.S. dollar.  Initially, the currency fell in value relative to the dollar, but has since strengthened. 

Another Perspective: The European Union has a web page devoted to the euro {http://ec.europa.eu/economy_finance/euro/index_en.htm}.  Students can explore the site and click on the pages to see pictures of the coins and notes, the advantages of participating in the euro zone, and frequently asked questions about the euro.  

Another Perspective: The European Central Bank maintains a web site with current information on the euro.  The site is available at {http://www.euro.ecb.int/}.

Another Perspective: At one point in time, joining the Euro Zone had been the goal of many Eastern European countries.  Now however, given the recent financial crises that is threatening the future of the euro, many are rethinking their plans.  To learn more, go to {http://www.businessweek.com/magazine/content/11_27/b4235017725502.htm}.

Slide 9-16 Enlargement of the European Union 

Several countries, particularly from Eastern Europe, have applied for membership in the EU.  In December of 2002, the EU formally agreed to accept the applications of 10 countries, and they joined on May 1, 2004.  Today, membership is up to 28 countries, with Croatia joining in July of 2013. And of course more recent, the exit of the UK, known as Brexit!

Slides 9-17 and 9-18 Regional Economic Integration in the Americas

The North American Free Trade Agreement (NAFTA) is the most significant attempt at economic integration in the Americas.  Other efforts include the Andean group and Mercosur.  In addition, there are plans to establish a hemisphere wide Free Trade Area of the Americas (FTAA.)

Slides 9-19 through 9-22 The North American Free Trade Agreement 

The free trade agreement between the United States, Canada, and Mexico became law January 1, 1994. 

Another Perspective: More on NAFTA can be found at {http://www.fas.usda.gov/itp/Policy/NAFTA/nafta.asp}.

Following approval of NAFTA by the U.S. Congress a number of other Latin American countries indicated their desire to eventually join NAFTA. Currently the governments of both Canada and the U.S. are adopting a wait and see attitude with regard to most countries.  

Another Perspective: Many organizations are anxious to take advantage of the opportunities offered by NAFTA.  The NAFTA Register {http://www.naftaregister.com/}is a directory of export management companies, export service providers, and trading companies that want to profit from NAFTA by helping buyers and selling take advantage of NAFTA related opportunities.

Slide 9-23 Think Like a Manager: NAFTA

Slide 9-24 The Andean Community  

The Andean Pact, originally formed in 1969, was based on the EU model, but was far less successful in achieving its stated goals.  In 1990, the Andean Pact was re-launched, and now operates as a customs union. 

Another Perspective: To see new developments with the Andean Community go to {http://www.comunidadandina.org/endex.htm}.

Slide 9-25 Mercosur 

In some industries Mercosur is trade diverting rather than trade creating, and local firms are investing in industries that are not competitive on a worldwide basis. 

Another Perspective: Mercosur's website, which includes a broad array of useful information, can be accessed at {http://www.sice.oas.org/trade/mrcsr/mrcsrtoc.asp}. 

Slide 9-26 Central American Trade Agreement Market and CARICOM 

There are two other trade pacts in the America, the Central American Trade Market and CARICOM, although neither has made much progress as yet.

Slide 9-27 Free Trade of the Americas 

If the FTAA is established, it will have major implications for cross-border trade and investment flows within the hemisphere. The FTAA would create a free trade area of 850 million people.

Another Perspective: Additional information on the Free Trade of the Americas can be found at {http://www.ftaa-alca.org/alca_e.asp}.

Slide 9-28 Regional Economic Integration In Asia 

Several efforts have been made to integrate in Asia

One of the most successful is the Association of Southeast Asian Nations (ASEAN)

 Slides 9-29 and 9-30 Association of Southeast Asian Nations  

Formed in 1967, ASEAN currently includes Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and, most recently, Vietnam, Myanmar, Laos, and Cambodia.  The basic objectives of ASEAN are to foster freer trade between member countries and to achieve some cooperation in their industrial policies.

Slides 9-31 and 9-32 Asia-Pacific Cooperation 

APEC currently has 21 members including such economic powerhouses as the United States, Japan, and China.  The stated aim of APEC is to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region.                                                                     

Another Perspective: For more on APEC, go to its web site at {http://www.apec.org/}. 

Slide 9-33 Regional Trade Blocks in Africa 

There are nine trade blocs on the African continent however progress toward the establishment of meaningful trade blocs has been slow.   

Slide 9-34 Implications for Managers 

The EU and NAFTA currently have the most immediate implications for business. 

The greatest implication for MNEs is that the free movement of goods across borders, the harmonization of product standards, and the simplification of tax regimes, makes it possible for firms to realize potentially enormous cost economies by centralizing production in those locations where the mix of factor costs and skills is optimal.  Through specialization and shipping of goods between locations, a much more efficient web of operations can be created. Just as the emergence of single markets in the EU and North America creates opportunities for business, so it also presents a number of threats.

Copyright © 2017 McGraw-Hill Education. 

Adapted for MBA BUSS 5251 International Business

for the purpose of individual study and course preparation.

Introduction to Topic 5 Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.

Learning objectives 

LECTURE OUTLINE  

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide. 

Slides 12-3 and 12-4 Why Do Global Capital Markets Exist?

The rapid globalization of capital markets facilitates the free flow of money around the world. Traditionally, national capital markets have been separated by regulatory barriers. 

Global capital markets, while providing many of the same functions of domestic markets, offer some benefits not found in domestic capital markets. 

Capital markets bring together investors (corporations with surplus cash, individuals, and non-bank financial institutions) and borrowers (individuals, companies, and governments).

Slides 12-5 through 12-7 Attractions of the Global Capital Market

Borrowers benefit from the global capital market’s lower cost of capital and greater investment options.

Slides 12-8 through 12-11 Growth of the Global Capital Markets

Since 1990, the stock of cross-border bank loans has grown from just $3,600 billion to $33,913 billion in late 2012. The international bond market shows a similar pattern of growth. 

The two factors behind the growth are advances in information technology and deregulation of the financial services industry. 

Another Perspective: McKinsey & Company have been following the growth of the global capital markets.  Detailed analysis can be found at {http://www.mckinsey.com/insights/global_capital_markets/mapping_global_capital_markets_2011}.

Slide 12-12 Global Capital Market Risks

A key risk of an unregulated capital market and looser control on cross-border capital flows is that individual nations may be more vulnerable to the destabilizing effects of speculative capital flows.

Slide 12-13 The Eurocurrency Market

A Eurocurrency is any currency banked outside of its country of origin. 

Slides 12-14 through 12-17 Genesis and Growth of the Eurocurrency Market

The Eurocurrency market began in the 1950s when the Eastern bloc countries were afraid the United States might seize their holdings of dollars. Today, London is the center of the market.

Slides 12-18 through 12-20 Attractions of the Eurocurrency Market

The Eurocurrency market is attractive to depositors and borrowers because it is not regulated by governments.

Slide 12-21 Drawbacks of the Eurocurrency Market

The Eurocurrency market has two drawbacks. First, because the Eurocurrency market is unregulated, there is a higher risk of bank failure. Second, companies borrowing Eurocurrencies can be exposed to foreign exchange risk.

Slides 12-22 and 12-23 The Global Bond Market

There are two types of international bonds:

1. Foreign bonds are sold outside the borrower’s country and are denominated in the currency of the country in which they are issued.

2. Eurobonds are underwritten by a syndicate of banks and placed in countries other than the one in whose currency the bond is denominated.

Slide 12-24 Attractions of the Eurobond Market

The Eurobond market is attractive because:

• It lacks regulatory interference
• It has less stringent disclosure requirements than domestic bond markets
• It is more favorable from a tax perspective

Slides 12-25 and 12-26 The Global Equity Market

The largest equity markets are in the United States, Britain, and Japan.

Slide 12-27 Foreign Exchange Risk and the Cost of Capital

While it may initially seem attractive to borrow foreign currencies, when the exchange rate risk is factored in, that situation can change.

Slide 28 Think Like a Manager: Seeking Global Capital

Slides 12-29 and 12-30 Implications for Managers

Firms can often borrow in global capital markets at a lower cost than in the domestic capital market. Firms must balance the foreign exchange risk associated with borrowing in foreign currencies against the costs savings that may exist.

Copyright © 2017 McGraw-Hill Education. 

Adapted for MBA BUSS 5251 International Business

for the purpose of individual study and course preparation.

Introduction to Topic 6 Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.

LECTURE OUTLINE

 The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point. 

Slides 13-2 through 13-4 Strategy and the Firm

How can firms compete more effectively internationally? 

A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm.

Slides 13-5 through 13-7 Value Creation

If consumers perceive the value of a good to be much higher than the actual cost of producing that good, profit margins will be higher. Porter emphasizes two basic strategies to create value and attain competitive advantage: low cost strategy and differentiation strategy.

Slides 13-8 through 13-9 Strategic Positioning  

Not all positions on the efficiency frontier are viable. Firms must choose a strategic position that is viable. 

Another Perspective: Firms often face resistance when they change their strategic course.  To learn how to stay on track, consider {http://www.businessweek.com/managing/content/aug2010/ca20100810_373428.htm}.

Slides 13-10 through 13-12 Operations and Value Creation

A firm’s operations are like a value chain composed of a series of value-creation activities. Activities include primary activities (production, research and development, marketing and sales, and customer service) and support activities (information systems, logistics, and human resources management). 

Slides 13-12 and 13-14 Global Expansion, Profitability, and Profit Growth

Expanding globally allows firms to increase their profitability and rate of profit growth in ways not available to purely domestic enterprises.

Slides 13-15 and 13-16 Expanding the Market: Leveraging Products and Competencies

The success of firms that expand internationally depends on the goods or services they sell, and on their core competencies (skills within the firm that competitors cannot easily match or imitate).

Slides 13-17 and 13-18 Location Economies

Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity.

Slides 13-19 through 13-22 Experience Effects

Experience effects are systematic reductions in production costs over the life of the product.  The speed with which a firm moves down the experience curve will determine how much advantage it has over its competitors

Slide 13-23 Leveraging Subsidiary Skills

A global corporation can find vital skills developed in one foreign subsidiary and leverage them in another part of the world.  In order to take advantage of subsidiary skills the company must have sophisticated processes that identify new skills that could be of interest.  Once these skills are identified, managers must have the capability to transfer them elsewhere. 

Managers need to keep in mind the complex relationship between profitability and profit growth when making strategic decisions about pricing.

Slides 13-23 through 13-26 Cost Pressures and Pressures for Local Responsiveness

Firms that compete in the global marketplace typically face two types of competitive pressures:

• pressures for cost reductions
• pressures to be locally responsive

Slide 13-27 Pressures for Cost Reduction

International businesses often face pressures for cost reductions because of the competitive global market.

Slides 13-28 and 13-29 Pressures for Local Responsiveness

Pressure for local responsiveness comes from differences in consumer tastes, infrastructure, distribution channels, or host government demands.

Slide 13-30 Think Like a Manager: Determine Your Strategy

Slides 13-31 through 13-36 Choosing a Strategy

There are four basic strategies to compete in the international environment:

• global standardization
• localization
• transnational
• international 

The global standardization strategy focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. 

The localization strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets.                               

The transnational strategy tries to simultaneously:

• achieve low costs through location economies, economies of scale, and learning effects
• differentiate the product offering across geographic markets to account for local differences
• foster a multidirectional flow of skills between different. 

The international strategy involves taking products first produced for the domestic market and then selling them internationally with only minimal local customization. 

Slides 13-37 and 13-38 The Evolution of Strategy

Strategy is an evolutionary process. Firms need to change their strategic approach as the environment changes.

Chapter 14: The Organization of International Business  

• Explain what is meant by organizational architecture. 
• Describe the different organizational choices that can be made in an international business. 
• Explain how organization can be matched to strategy to improve the performance of an international business. 
• Discuss what is required for an international business to change its organization so that it better matches its strategy. 

This chapter identifies the organizational architecture that international businesses use to manage and direct global operations. The core argument outlined in this chapter is that superior enterprise profitability requires three conditions: 

First, the different elements of a firm’s organizational architecture must be internally consistent. 

Second, the organizational architecture must match or fit the strategy of the firm—strategy and architecture must be consistent. 

Third, the strategy and architecture of the firm must be consistent with competitive conditions prevailing in the market place. 

The opening case explores the reorganization and streamlining of U.S. household products conglomerate Procter & Gamble, which began under the guidance of CEO Alan “A.G.” Lafley in 2014. The closing case explores the evolution of Koninklijke Philips NV’s structure. Since World War II, the company has moved from its national organizational approach to one in which three global divisions are responsible for product strategy, global marketing, and production systems. 

LECTURE OUTLINE 

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point. 

Slides 14-2 through 14-6 What Is Organizational Architecture?

Organizational architecture refers to the totality of a firm’s organization, including formal organization structure, control systems and incentives, processes, organizational culture, and people. 

Three conditions must be satisfied for an organization to deliver profitability: architecture must be internally consistent; strategy and architecture must be consistent; and strategy and architecture together must be consistent with the competitive environment of the firm. 

Organizational structure refers to:

• the formal division of the organization into subunits
• the location of decision-making responsibilities within that structure (centralized versus decentralized)
• the establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams or pan-regional committees 

Control systems measure and evaluate managerial performance and the performance of subunits. Incentives connect to control systems, and processes need to be consistent with the strategic objectives of the organization. Efforts to shape values and norms in an organization are intricately linked to human resource practices, especially at the selection and recruitment stages.

Slide 14-7 Dimensions of Organizational Structure

Organizational structure has three dimensions:

1. Vertical differentiation - the location of decision-making responsibilities within a structure

2. Horizontal differentiation - the formal division of the organization into subunits

3. The establishment of integrating mechanisms - the mechanisms for coordinating subunits

Slides 14-8 and 14-9 Vertical Differentiation: Centralization and Decentralization

Vertical differentiation determines where decision-making power is concentrated.

Slides 14-10 through 14-13 Horizontal Differentiation: The Design of Structure 

Horizontal differentiation is concerned with how the firm decides to divide itself into subunits. 

The typical entrepreneurial firm begins with no formal structure. As the firm grows, when the decision load becomes too intense for one person to handle, the firm is split into functions representing value creation activities. If growth continues, eventually the complexities of size push for the restructuring of the firm into a divisional form.

Slides 14-14 through 14-20 Global Expansion

When firms expand internationally, they often group all of their international activities into an international division. 

Many firms that continue to expand will abandon their international division structure and move to either a:

 Worldwide product division structure - tends to be adopted by diversified firms that have domestic product division

• Worldwide area  structure - tends to be adopted by undiversified firms whose domestic structures are based on functions

Slides 14-21 and 14-22 Global Matrix

The global matrix structure is an attempt to minimize the limitations of the worldwide area structure and the worldwide product divisional structure.

Slides 14-23 through 14-26 Integrating Mechanisms

Regardless of the type of structure, firms need a mechanism to integrate subunits. 

The simplest formal integrating mechanism is direct contact between subunit managers, followed by liaisons. The next level of formal integration is temporary or permanent teams composed of individuals from each subunit. Finally, the matrix structure allows for all roles to be integrating roles.   

Many firms are using informal integrating mechanisms. A knowledge network is a network for transmitting information within an organization that is based not on formal organization structure, but on informal contacts between managers within an enterprise and on distributed information systems.

Slides 14-27 and 14-28 Control Systems

A firm’s leaders need to ensure that the actions of subunits are consistent with the firm’s overall strategic and financial objectives. This is achieved through control and incentive systems.  

There are four main types of control systems:

1. Personal controls – control by personal contact with subordinates

2. Bureaucratic controls – control through a system of rules and procedures that directs the actions of subunits

3. Output controls – setting goals for subunits to achieve and expressing those goals in terms of relatively objective performance metrics

4. Cultural controls – exist when employees “buy into” the norms and value systems of the firm

Slide 13-29 Incentive Systems

Incentives are the devices used to reward behavior. Incentives are usually closely tied to performance metrics used for output controls.

Slides 14-30 and 14-31 Performance Ambiguity

The key to understanding the relationship between international strategy, control systems and incentive systems is performance ambiguity, which exists when the causes of a subunit’s poor performance are not clear. 

The costs of controlling transnational firms are higher than the costs of controlling firms pursuing other strategies.

Slide 14-32 Processes

Processes refer to the manner in which decisions are made and work is performed.

Slides 14-33 through 14-35 Organizational Culture

Organizational culture is a social construct, a system of values and norms shared among people.  

Organizational culture comes from:

• founders and important leaders
• national social culture
• the history of the enterprise
• decisions that resulted in high performance. 

Organizational culture can be maintained through:

• hiring and promotional practices
• reward strategies
• socialization processes
• communication strategies. 

Managers in companies with a “strong” culture share a relatively consistent set of values and norms that have a clear impact on the way work is performed. 

Another Perspective: A recent Microsoft study reveals that the use of social media tools increases employee productivity. To learn more, go to {http://www.networkworld.com/community/blog/microsoft-study-shatters-myth-says-social-media-use-increases-work-productivity}. 

Another Perspective: Toyota’s legendary corporate culture enabled the company to become a leader in the global auto industry. To learn more about the company’s strong culture and how it helped the company through its recent quality problems go to {http://www.businessweek.com/managing/content/jun2011/ca20110624_657612.htm}.   

Slide 36 Think Like a Manager: Transmitting an Organizational Culture

Slides 14-37 through 14-41 Synthesis of Strategy and Architecture

What is the interrelationship between the four basic strategies (localization, international, global standardization, transnational). 

Firms pursuing a localization strategy focus on local responsiveness, do not have a high need for integrating mechanisms, have low performance ambiguity and control costs. 

Firms pursuing an international strategy create value by transferring core competencies from home to foreign subsidiaries. They have moderate needs for control and integrating mechanisms. Performance ambiguity is relatively low and so is the cost of control.  

Firms pursuing a global standardization strategy focus on the realization of location and experience curve economies. Headquarters maintains control over most decisions, the need for integrating mechanisms is high, and strong organizational cultures are encouraged. 

Firms pursuing a transnational strategy focus on simultaneously attaining location and experience curve economies, local responsiveness, and global learning. Some decisions are centralized and others are decentralized, coordination needs are high, and an array of formal and informal integrating mechanisms are used.

Slide 14-42 Environment, Strategy, Architecture, and Performance

For a firm to succeed, two conditions must be met:

1. the firm’s strategy must be consistent with the environment in which the firm operates

2. the firm’s organization architecture must be consistent with its strategy 

Firms need to change their architecture to reflect changes in the environment in which they are operating and the strategy they are pursuing.

Slides 14-43 and 14-44 Implementing Organizational Change

There are three basic principles for successful organization change:

1. Unfreeze the organization through shock therapy

2. Move the organization to a new state through proactive change in architecture

3. Refreeze the organization in its new state 

Sources of inertia include:

• the existing distribution of power and influence
• the current culture
• senior managers’ preconceptions about the appropriate business model or paradigm
• institutional constraints.

                                           Copyright © 2017 McGraw-Hill Education. 

                                    Adapted for MBA BUSS 5251 International Business

                               for the purpose of individual study and course preparation.

Introduction to Topic 7 Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.

 Chapter 15: Entry Strategy and Strategic Alliances

Learning objectives

 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter, when to enter those markets, and on what scale. 

 Compare and contrast the different modes that firms use to enter foreign markets. 

 Identify the factors that influence a firm’s choice of entry mode. 

 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. 

 Evaluate the pros and cons of entering into strategic alliances.

 This chapter is concerned with three closely related topics: the decisions of which markets to enter, when to enter those markets, and on what scale.

When a firm that wishes to enter a foreign market, it has several options, including exporting, licensing or franchising to host country firms, setting up a joint venture with a host country firm, or setting up a wholly owned subsidiary in the host country to serve that market. Each of these options has its advantages and each has its disadvantages.

Strategic alliances have become more frequent. They may be seen as one way for firms to enter into cooperative agreements between actual or potential competitors. The term "strategic alliances" is often used rather loosely to include a wide range of arrangements between firms, including cross-share holding deals, licensing arrangements, formal joint ventures, and informal cooperative deals.

The magnitude of the advantages and disadvantages associated with each entry mode are determined by a number of different factors, including transport costs and trade barriers, political and economic risks, and firm strategy.

The opening case explores the entry strategy used by Starbucks, the popular Seattle-based coffee company, to enter markets in Europe and Asia. The closing case explores how General Motors focused on China as its next growth market. The company used a joint venture strategy in the market and by 2010 sold more cars in China than in the United States. As of 2015, China remains GM’s largest market in terms of vehicles sold.

LECTURE OUTLINE

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point.

Slide 15-2 Basic Entry Decisions

Firms expanding internationally must decide which markets to enter, when to enter them and on what scale, and which entry mode to use. Entry modes include exporting, licensing or franchising to a company in the host nation, establishing a joint venture with a local company, establishing a new wholly owned subsidiary, or acquiring an established enterprise.

Slide 15-3 What Influences the Choice of Entry Mode?

Several factors affect the choice of entry mode including transport costs, trade barriers, political and economic risks, costs, and firm strategy.

Slides 15-5 and 15-6 Which Foreign Markets?

The choice of foreign markets will depend on their long-run profit potential.

Slides 15-6 through 15-8 Timing of Entry

Once attractive markets are identified, the firm must consider the timing of entry. Entry is early when the firm enters a foreign market before other foreign firms, and late when the firm enters the market after firms have already established themselves in the market.

First-mover advantages are the advantages associated with entering a market early. First-mover disadvantages are disadvantages associated with entering a foreign market before other international businesses.

Slide 15-9 Scale of Entry and Strategic Commitments

After choosing which market to enter and the timing of entry, firms need to decide on the scale of market entry. Large-scale entry may keep rivals out and may stimulate indigenous competitive response. Small-scale entry allows time to learn about the market and reduces risk exposure.

Slide 15-10 Which Way Is Best?

There are no “right” decisions when deciding which markets to enter, and the timing and scale of entry, just decisions that are associated with different levels of risk and reward.

Slide 15-11 Think Like a Manager: Analyze Jollibee’s Entry Strategy

Slides 15-12 through 15-14 Entry Modes The six entry modes are exporting, turnkey projects, licensing, franchising, joint ventures, and wholly owned subsidiaries.

Slide 15-15 Exporting

Exporting avoid costs of investing in new location and may help achieve experience curve and location economies. Exporting faces challenges from tariff barriers, transportation costs, control over marketing, and local low-cost manufacturers.

Another Perspective: The Small Business Administration {http://www.sba.gov/category/navigation-structure/exporting-importing} provides information companies should know before they begin exporting. Students can click on the various topics to learn more about export financing, export plans, dealing with risk, and so on.

Slide 15-16 Turnkey Projects

Turnkey projects allow a company to get a return on knowledge assets and are less risky than conventional FDI. The disadvantages are that there is not long-term interest in the location, the project may create a competitor, and if process technology is involved, the firm may be selling a competitive advantage.

Slide 15-17 Licensing

Licensing does not bear the costs and risks of investment and avoids political/economic restrictions in a country.

Slide 15-18 Franchising

Franchising reduces costs and risks, avoids political and economic restrictions, and allows for quicker expansion. Disadvantages include loss of control over quality.

Slides 15-19 and 15-20 Joint Ventures

Joint ventures benefit from the local partner's knowledge, shared costs, and reduced risk.

Disadvantages include loss of control over technology and conflict between partners.

Slide 15-21 Wholly Owned Subsidiaries

Wholly owned subsidiaries offer the most control and the highest level of risk and cost.

Slide 15-22 Selecting an Entry Mode

The optimal choice of entry mode involves trade-offs.

Slide 15-23 Core Competencies and Entry Mode

The optimal choice of entry mode for firms pursuing a multinational strategy depends to some degree on the nature of their core competencies.

Slide 15-24 Pressures for Cost Reductions and Entry Mode

When pressure for cost reductions is high, firms are more likely to pursue some combination of exporting and wholly owned subsidiaries.

Slides 15-25 and 15-26 Greenfield Ventures or Acquisitions

Firms can establish a wholly owned subsidiary in a country through a greenfield strategy (building a subsidiary from the ground up) or through an acquisition strategy.

Slide 15-27 Pros and Cons of Acquisitions

Pros: quick, preemptive, possibly less risky. Cons: disappointing results, overpay, optimism/hubris, culture clash, failure of synergies

Slide 15-28 Pros and Cons of Greenfield Ventures

Greenfield ventures allow the firm to build the subsidiary it wants, but it is slow, risky, and may involve preemption by competitors. Acquisition is quicker, so a consideration if there are competitors ready to enter.

Slide 15-29 Strategic Alliances

Strategic alliances refer to cooperative agreements between potential or actual competitors.

Slide 15-30 The Advantages of Strategic Alliances

Strategic alliances facilitate entry into a foreign market, allow firms to share the fixed costs (and associated risks) of developing new products or processes, bring together complementary skills and assets that neither partner could easily develop on its own, and can help a firm establish technological standards for the industry that will benefit the firm.

Strategic alliances can give competitors low-cost routes to new technology and markets, but unless a firm is careful, it can give away more than it receives.

The firm must be certain that the partner is one that can help the firm achieve its goals and not act opportunistically to exploit the alliance purely for its own ends.

Another Perspective: Virgin Atlantic and Delta Airlines have formed a strategic alliance to help Virgin Atlantic achieve its growth objectives. To learn more, see {http://news.delta.com/index.php?s=43&item=1822}.

Slides 15-31 through 15-31 Making Alliances Work

The success of an alliance is a function of partner selection, alliance structure, and manner in which the alliance is managed.

Another Perspective: The Association of Strategic Alliance Professionals {www.strategic-alliances.org/} is an organization devoted to the formation of successful strategic alliances. The organization is supported by a number of well-known global companies and provides information on the involvement of the companies in strategic alliances.

 Chapter 16: Exporting, Importing and Countertrade

Learning objectives

 Explain the promises and risks associated with exporting. 

 Identify the steps managers can take to improve their firm’s export performance. 

 Identify information sources and government programs that exist to help exporters. 

 Recognize the basic steps involved in export financing. 

 Describe how countertrade can be used to facilitate exporting. 

Previous chapters have presented exporting as just one of a range of strategic options for profiting from international markets. This chapter looks more at the nuts and bolts of how to export.

Exporting is not just for large enterprises; many small firms have benefited significantly from the moneymaking opportunities of exporting.

The volume of export activity in the world economy is increasing as exporting has become easier. The gradual decline in trade barriers under the umbrella of GATT and now the WTO (see Chapter 5) along with regional economic agreements such as the European Union and the North American Free Trade Agreement (see Chapter 8) have significantly increased export opportunities. At the same time, communication and transportation technologies have alleviated the logistical problems associated with exporting.

Firms are increasingly using the Internet and international air express services to reduce the costs of exporting. Consequently, it is no longer unusual to find small companies that are thriving as exporters.

The opening case follows the experiences of LuLu’s Desserts, a company in Torrance, California, that expanded its business to international markets in an effort to grow the company. The closing case explores the experiences of Two Men and a Truck, a U.S.-based moving company that has found global success through franchising.

LECTURE OUTLINE 

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide.

Slides 16-2 and 16-3 Why Export?

Exporting firms need to

 identify market opportunities

 deal with foreign exchange risk

 navigate import and export financing

 understand the challenges of doing business in a foreign market 

Slide 16-4 The Problems and Pitfalls of Exporting

Exporting offers the opportunity to take advantage of a bigger market, and the economies of scale that come with producing for a bigger market. However, it is also a more complex market.

Common pitfalls include poor market analysis, poor understanding of competitive conditions, a lack of customization for local markets, a poor distribution program, poorly executed promotional campaigns, problems securing financing, a general underestimation of the differences and expertise required for foreign market penetration, and an underestimation of the amount of paperwork and formalities involved.

Slide 16-5 Improving Export Performance

There are various ways to gain information about foreign market opportunities and avoid the pitfalls associated with exporting.

Another Perspective: The UK Trade and Investment office is devoted to helping companies develop their export business. The web site is available at {http://www.ukti.gov.uk/home.html?guid=none}. Click on “Business Opportunities” to see a sample of a trade lead, or click on “Country Report” to see the types of information available in a typical report on a specific country.

Slide 16-6 Getting Information

A big impediment to exporting is the simple lack of knowledge of the opportunities available. To overcome ignorance firms need to collect information.

Another Perspective: Your students may wonder how firms U.S. firms find buyers in foreign countries. To find foreign customers, exporters often use “trade leads” that are provided by organizations dedicated towards the activity of matching “buyers” and “sellers” in an international context. An example of a site that provides trade leads is the Export.gov at {http://www.export.gov/index.asp}.

The U.S. Department of Commerce is the most comprehensive source of export information for U.S. firms.

Another Perspective: Students may want to explore the U.S. Department of Commerce’s web site {http://www.commerce.gov/} and click on “Trade Opportunities for U.S. Businesses.”

Another Perspective: The Small Business Administration (SBA) also has an extensive web site {http://www.sba.gov/} with information about exporting to different countries, contacts and leads, and so on.

Slides 16-7 and 16-8 Utilizing Export Management Companies

Export management companies (EMCs) are export specialists that act as the export marketing department or international department for client firms.

Another Perspective: The FITA Directory of Export Management Companies web site {http://fita.org/} provides information on export management companies, and also trade leads and international market research.

Slide 16-9 Reducing the Risk of Exporting

Firms can reduce risk by carefully choosing their export strategy, and following some basic guidelines.

Firms should

 hire an EMC or export consultant to help identify opportunities and navigate through the tangled web of paperwork and regulations so often involved in exporting

 focus on one, or a few markets at first

 enter a foreign market on a fairly small scale in order to reduce the costs of any subsequent failures

 recognize the time and managerial commitment involved

 develop a good relationship with local distributors and customers

 hire locals to help establish a presence in the market

 be proactive

 consider local production. 

Another Perspective: A great web site to visit to determine whether a company is ready to export is the International Trade Centre, run by UNCTAD/WTO. If you go to the site {www.intracen.org} you can use the market analysis tools to gauge export readiness. Click on “Market Info & Tools,” then on “Market Analysis Tools” to access online tools.

Slide 16-10: Think Like a Manager: Compete with 3M

Slides 16-11 and 16-12 Export and Import Financing

Firms engaged in international trade face a problem—they have to trust someone who may be difficult to track down if they default on an obligation. Including a third party in a transaction adds an element of trust to the relationship.

Another Perspective: For more information on the challenges of export and import financing for small businesses, consider {http://smallbiztrends.com/2012/02/small-business-news-reveals-opportunities-challenges.html}.

Slide 16-13 Letter of Credit

A letter of credit is issued by a bank at the request of an importer and states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.

Slides 16-14- and 16-15 Drafts

A draft is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.

Slide 16-16 Bill of Lading

The bill of lading is issued to the exporter by the common carrier transporting the merchandise.

Slide 16-17 A Typical International Trade Transaction

The typical international trade transaction involves 14 steps.

Slides 16-18 and 16-19 Export Assistance

There are two forms of government-backed assistance available to exporters:

1. Financing aid is available from the Export-Import Bank

2. Export credit insurance is available from the Foreign Credit Insurance Association

The Export-Import Bank (Ex-Im Bank) is an independent agency of the U.S. government that provides financing aid to facilitate exports, imports, and the exchange of commodities between the U.S. and other countries.

Export credit insurance protects exporters against the risk that the importer will default on payment. In the U.S., export credit insurance is provided by the Foreign Credit Insurance Association (FICA).

Slide 16-20 Countertrade

Countertrade refers to a range of barter-like agreements that facilitate the trade of goods and services for other goods and services when they cannot be traded for money.

Countertrade began in the 1960s primarily in the Soviet Union and Eastern bloc countries. Its popularity increased during the 1980s when many developing countries that were short of hard currencies used countertrade instead. More recently, its use increased after the 1997 Asian financial crisis.

Slides 16-21 through 16-24 Types of Countertrade

There are five distinct versions of countertrade:

1. barter

2. counterpurchase

3. offset

4. compensation or buyback

5. switch trading

Slides 16-25 and 16-26 Pros and Cons of Countertrade

The main attraction of counter trade is that it gives a firm a way to finance an export deal when other means are not available.

Countertrade is unattractive because it may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably.

Copyright © 2017 McGraw-Hill Education. 

Adapted for MBA BUSS 5251 International Business

for the purpose of individual study and course preparation.

Introduction to Topic 8 Discussion Notes

The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.

Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. 

In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.

Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.

LECTURE OUTLINE 

The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide. 

Slide 19-2 What Is HRM?

Human resource management (HRM) refers to the activities an organization carries out to utilize its human resources effectively. 

The four major tasks of HRM are

1. staffing
2. management training and development
3. performance evaluation
4. compensation policy

Slides 19-3 through 19-5 The Strategic Role of International HRM

Firms need to ensure there is a fit between their human resources practices and strategy.

Slides 19-6 and 19-7 Staffing Policy

A firm’s staffing policy is concerned with the selection of employees who have the skills required to perform a particular job. 

Slides 19-8 through 19-11 Types of Staffing Policy

Three staffing policy choices at the international level are:  ethnocentric, polycentric, and geocentric. 

1. The ethnocentric approach to staffing fills key management positions with parent-country nationals

2. The polycentric staffing policy recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters

3. The geocentric staffing policy seeks the best people, regardless of nationality, for key jobs

Slides 19-12 through 19-16 Expatriate Managers

Expatriate failure is the premature return of an expatriate manager to his or her home country. Expatriate failures impact the company, as do near-failures. 

Another Perspective: Until the advent of the Internet, expatriates often felt isolated.  Today numerous sites exist where expatriates can communicate with each other and share their experiences. One example of this type of site is {http://www.expatexchange.com/}.  Students can explore the site, or it can be an in-class activity to see some of the issues facing expatriates.  

Four dimensions that predict expatriate success are:

• Self-orientation: Expatriate’s self-esteem, self-confidence, and mental well-being

• Others-orientation: The ability to interact effectively with host-country nationals
• Perceptual ability: The ability to understand why people of other countries behave the way they do
• Cultural toughness: The ability to adjust to the posting

Slide 19-17 Think Like a Manager: Expatriate Selection

Slide 19-18 The Global Mindset

A global mindset may be the fundamental attribute of a global manager.

Slide 19-19 Training and Management Development

Training focuses upon preparing the manager for a specific job. 

Management development is concerned with developing the skills of the manager over his or her career with the firm.

Slide 19-20 Training for Expatriate Managers

Cultural training (seeks to foster an appreciation for the host country's culture), language training (an exclusive reliance on English diminishes an expatriate manager's ability to interact with host country nationals), and practical training (helps the expatriate manager and her family ease themselves into day-to-day life in the host country), all help reduce expatriate failure. 

Another Perspective: Numerous companies offer expatriate training services. One great example is Kwintessential {http://www.kwintessential.co.uk/cultural-services/articles/expat-cultural-training.html}. The company’s web site includes a wealth of information on the expatriate process, country profiles, and even an online quiz on cultural awareness. Consider using the site in-class, or asking students to explore it on their own.

Slide 19-21 Repatriation of Expatriates

HRM needs to develop good programs for re-integrating expatriates back into work life within their home country organization once their foreign assignments are over and for utilizing the knowledge they acquired while abroad.  

The benefits from foreign assignments can be lost by firms if they are not careful in the repatriation of the expatriates.

Slide 19-22 Management Development and Strategy

Management development is often used as a strategic tool to build a strong unifying culture and informal management network, both of which are supportive of a transnational and global strategy.

Slide 19-23 Performance Appraisal

Evaluating expatriates can be especially complex. 

Typically, both host nation managers and home office managers evaluate the performance of expatriate managers. Both types of managers are subject to unintentional bias.

Slide 19-24 Guidelines for Performance Appraisal

Firms need to seek ways to reduce bias in performance appraisals.

Slide 19-25 Compensation

Should executive pay in different countries reflect the standards in each country or be equalized on a global basis?  How should expatriates be paid?

Slides 19-26 and 19-27 National Differences in Compensation

Slides 19-28 through 19-30 Expatriate Pay

An expatriate’s compensation package is made up of:

1. base salary

2. a foreign service premium

3. various allowances

4. tax differentials

5. benefits

Slide 19-31 International Labor Relations

The key issue in international labor relations is the degree to which organized labor is able to limit the choices available to an international business. 

Another Perspective: The International Labor Organization (ILO) supports worker issues throughout the world. To see some of the issues the ILO is currently involved in, go to {http://www.ilo.org/}.

Slide 19-32 The Concerns of Organized Labor

The bargaining power of unions comes from their ability to threaten to disrupt production by striking or protesting.

Slide 19-33 Strategy of Organized Labor

Organized labor has responded to the increased bargaining power of multinational corporations by:

• setting-up their own international organizations
• lobbying for national legislation to restrict multinationals
• trying to achieve regulation of multinationals through international organization such as the United Nations.

However, none of those efforts has been very successful. 

Another Perspective: India’s issues strict policies regarding labor have implications for multinational companies.  To learn more, go to {http://www.businessweek.com/news/2011-01-11/lingerie-beats-boxers-in-india-as-laws-discourage-manufacturers.html}. 

Slide 19-34 Approaches to Labor Relations

Many firms are recognizing that the way in which work is organized within a plant can be a major source of competitive advantage.

Copyright © 2017 McGraw-Hill Education. 

Adapted for MBA BUSS 5251 International Business

for the purpose of individual study and course preparation.

REFERENCES - Journal Articles for Optional Reading in the Course

Please note that PDFs of all articles are available through the e-Library for this Course.

1. Ahammad, M.F., Tarba, S.Y., Liu, K., Glaister, K.W., & Cooper, C.L. (2016) “Exploring factors influencing the negotiation process in cross-border M&A”, International Business Review, Volume 25 Issue 2, pp. 445-457.
2. Bamiatzi, V., Bozos, K., & Lambertides, N. (2016) ‘Mapping the trading behavior of the middle class in emerging markets: Evidence from the Istanbul Stock Exchange’, International Business Review, Vol 25, No. 3 pp. 679-690.  
3. Bangara, A., Freeman, S. & Schroder (2012) ‘Legitimacy and Accelerated Internationalisation: An Indian Perspective’, Journal of World Business, Vol. 47, No. 4, pp. 623-634
4. Barkema, H.G., Chen, X-P., George, G., Luo, Y., Tsui, A.S. (2015) “West meets east: New concepts and theories”, Academy of Management Journal, Volume 58 Issue 2, pp. 460-479.
5. Cavanagh, A., & Freeman, S. (2012) ‘The Development of Subsidiary Roles in the Motor Vehicle Manufacturing Industry’, International Business Review, Vol 21, No. 4 pp. 602-617. 
6. Cavusgil, S.T. & Buckley, P.J. (2016) “Interdisciplinary perspectives on the middle-class phenomenon in emerging markets”, International Business Review, Volume 25 Issue 3, pp. 621-623.
7. Child, J., & Marinova, S. (2014) “The role of contextual combinations in the globalization of Chinese Firms”, Management and Organization Review, Volume 10 Issue 3, pp. 347-371.
8. Chuang, A., Hsu, R. S., Wang, A. C., & Judge, T. A. (2015) “Does West “fit” with East? In search of a Chinese model of person–environment fit”, Academy of Management Journal, Volume 58 Issue 2, pp. 480–510.
9. Dan, W., Feng, T., Freeman, S., Fan, D., & Zhu, C.J. (2014) “Unpacking the ‘‘skill – cross-cultural competence’’ mechanisms: Empirical evidence from Chinese expatriate managers”, International Business Review, Vol 23, pp. 530-541.
10. Felzensztein Jimenez, C., Benson-Rea, M., Stringer, C. & Freeman, S., (2014) “International marketing strategies in industrial clusters: insights from the southern hemisphere”, Journal of Business Research (Available online 27 July 2013)
11. Freeman, S., Daniel, L. & Murad, W. (2012) ‘Knowledge and Network Development for Service Firm Entry into Emerging Asian Markets, Asian Business and Management, (Special Issue) Volume 11, No. 1, pp. 101–122.
12. Freeman, S., Deligonul, Z. & Cavusgil, T.S. (2013) Strategic re-structuring by born-globals using outward and inward-oriented activity International Marketing Review (Special Issue: SME Internationalization Patterns) Issue 2, Vol. 30 Issue 2, pp. 156-182.
13. Freeman, S., Giroud, A., Kalfadellis, P. & Ghauri, P. (2012) Psychic Distance and Environment: Impact on Increased Resource Commitment, European Business Review.  Vol. 24, No. 4, pp. 351-373. http://dx.doi.org/10.1108/09555341211242150
14. Freeman, S., Hutchings, K., & Chetty, S. (2012) ‘Born-globals and Culturally Proximate Markets’, Management International Review, Vol. 52, No. 3, pp. 425-460.
15. Hoang, H.T, Rao Hill, S., Freeman, S., Lu, V., & Imrie, B., (2015) “Developing service climate in local versus foreign firms in smaller Asian emerging markets: A resource-based and social exchange perspective”, International Human Resource Management, (10.1080/09585192.2015.1119707)
16. Kandogan, Y., & Johnson, S.D. (2016) ‘Role of economic and political freedom in the emergence of global middle class’, International Business Review, Vol 25, No. 3 pp. 711-725. 
17. Kardes, I. (2016) “Reaching middle class consumers in emerging markets: Unlocking market potential through urban-based analysis”, International Business Review, Volume 25 Issue 3, pp. 703-710.
18. Kristin Hah & Freeman, S., (2013) “Multinational enterprise subsidiaries and their CSR: a conceptual framework of the management of CSR in smaller emerging economies”, Journal of Business Ethics, Vol 122 No 1, pp:125-136
19. Li, J., & Jiang, F., & Shen, J. (2016) “Institutional distance and the quality of the headquarters-subsidiary relationship: The moderating role of the institutionalization of headquarters’ practices I subsidiaries”, International Business Review, Volume 25 Issue 2, pp. 589-603.
20. Li, J., Li, P., & Wang, B. (2016) ‘Do cross-border acquisitions create value? Evidence from overseas acquisitions by Chinese firms’, International Business Review, Vol 25, No. 2 pp. 471-483. 
21. Liu, J. (2016) ‘Covered in gold: Examining gold consumption by middle class consumers in emerging markets’, International Business Review, Vol 25, No. 3 pp. 739-748. 
22. Lui, Y. & Almor, T. (2016) “how culture influences the way entrepreneurs deal with uncertainty in inter-organizational relationships: The case of returnee versus local entrepreneurs in China”, International Business Review, Volume 25 Issue 1, Part A, pp. 15-27.
23. Lyles, M., Li, D., & Yan, H. (2014), Chinese outward foreign direct investment performance: The role of learning. Management & Organization Review, Volume 1 Issue 3, pp. 411-437.
24. Martineau, C. & Pastoriza, D. (2016) “International involvement of established SMEs: A systematic review of antecedents, outcomes and moderators”, International Business Review, Volume 25 Issue 2, pp. 458-470.
25. Ozdemir, O., & Upneja. (2016) ‘The role of internationalization on the IPO performance of service firms: Examination of initial returns, long-runs, and survivability’, International Business Review, Vol 25, No. 5 pp. 997-1009. 
26. Ozturk, A. (2016) “Examining the economic growth and the middle-income trap from the perspective of the middle class”, International Business Review, Volume 25 Issue 3, pp. 726-738.
27. Smans, M., Freeman, S., & Thomas, J., (2014) “Immigrant entrepreneurs: The identification of foreign market opportunities”, International Migration, Vol 52, No 4, pp. 144–156.
28. Song, J., Cavusgil, E., Li, J. & Luo, R. (2016) “Social stratification and mobility among Chinese middle class households: An empirical investigation”, International Business Review, Volume 25 Issue 3, pp. 646-656.
29. Tran, Y., Yonatany, M. & Mahnke, V. (2016) “Crowdsourced translation for rapid internationalization in cyberspace: A learning perspective”, International Business Review, Volume 25 Issue 2, pp. 484-494.
30. Trudgen, R. &, Freeman, S. (2014) “Measuring the Performance of Born-global firms throughout their Development Process: The Roles of Initial Market Selection and Internationalisation Speed”, Management International Review, Volume 54, Issue 4, pp. 551-579
31. Wang, D., Freeman, S., & Zhu, C. J, (2013) “Personality traits and cross-cultural competence of Chinese expatriate managers: A socio-analytic and institutional perspective”, International Human Resource Management, Vol. 24, No. 20, pp. 3812-3830 
32. Zhang, X., Ma, X., Wang, Y., Li, K. & Huo, D. (2016) “What drives the internationalization of Chinese SMEs? The joint effects of international entrepreneurship characteristics, network ties, and firm ownership”, International Business Review, Volume 25 Issue 2, pp. 522-534.

See the following International Business related JOURNALS:

Journal of International Business Studies

Journal of World Business

International Business Review

Management International Review

International Marketing Review

Journal of International Marketing

Journal of Business Ethics

Journal of Business Research

International Human Resource Management

Asia Pacific Journal of Management