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150 Cards in this Set
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Gross Domestic Product (GDP)
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-one of the measures of national income and output for a given country's economy
-GDP is defined as the total market value of all final goods and services produced within the country in a given period of time |
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International Business is the primary domain of ________.
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International Trade
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Definition of IB
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Performance of trade and investment activities by firms across national borders.
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What types of activities can be performed in international locations?
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All value-adding activities including sourcing, manufacturing, and marketing
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What are some subjects of cross-border trade?
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products, services, capital, technology, know how, labor
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What are some ways, or, how do firms internationalize?
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through exporting, foreign direct investment, licensing, franchising, and collaborative ventures
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Definition of the globalization of Markets
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The gradual integration and growing interdependence of national economies
Macro concept Allows firms to view the world as an integrated marketplace |
all markets are affected by all other markets
GIGINE |
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What is central to globalization?
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Integration - resulted in the widespread diffusion of products, technology, and knowledge worldwide, regardless of where they originate
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Why do we have globalization?
Five reasons |
Greater integration and interdependency of national economies
Rise of regional economic integration blocs Growth of global investment and financial flows Convergence of consumer lifestyles and preferences Globalization of production |
bloc - group of nations that share common interests and usually act in agreement when dealing with international affairs
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Definition of International Trade
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Exchange of products and services across national borders; typically through exporting & importing.
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Definition of Exporting
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Sale of products or services to customers located abroad, from a base in the home country or a third country
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Definition of Importing/Global Sourcing
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The gain of products or services from suppliers located abroad for consumption in the home country or a third country
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Definition of International Investment
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Transfer of assets to another country or the purchase of assets in that country
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Definition of International Portfolio Investment
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*TYPICALLY short term
The passive ownership of foreign securities such as stocks and bonds for the purpose of generating financial returns |
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Definition of Foreign Direct Investment (FDI)
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*TYPICALLY long term
The internationalization strategy in which the firm establishes a physical presence abroad through acquisition of product assets such as capital, technology, labor, land, plant, and equiptment in other words - asset ownership & long time frame; the ultimate commitment level of internationalization |
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What is growing faster than world GDP?
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Trade countries do with each other, or World Trade.
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Rapid Integration of world economies is fueled by:
Three ways |
the decline of trade barriers (ex: tariffs)
liberalization of markets privatization and the economic (privatization: public/gov't-private ownership/control) vitality of emerging markets |
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Who is able to influence FDI?
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large resourceful companies with substantial international operations
in order to manufacture/assemble products in low-cost labor countries & to invest in western markets, even though they may originate from emerging economies themselves |
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What are the most active cross-border services?
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Banking & Financial services
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What is the explosive growth of global capital markets due to?
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Money
Internalization of banks & other financial institutions |
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What are some differences between international business & domestic businesses?
Risks in dealing in international businesses |
Comes down to RISK
Differences between verbiage/words to specific cultures Cross-cultural risk: situation/event where cultural miscommunication puts some human value at stake Country risk: potentially adverse effects on company opportunities & profitability holes by developments in the policitcal, legal and economic environment in foreign countries Currency risk: adverse unexpected fluctuations in exchange rates - Euro vs. Dollar Commercial risk: firms potential loss or failure from poorly developed/executed business strategies (tactics/procedures) |
4Cs
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Examples of Commercial Risk
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Weak partner
Operational problems Timing of entry Competitive intensity Poor execution of strategy |
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Examples of Country Risk
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Gov't intervention, barriers to trade/investment
Bureaucracy, delays, corruption Lack of legal safeguards Unfavorable legislation Economic failures Unrest or instability |
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Examples of Financial Risk
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Currency exposure
Foreign taxation Inflation |
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Examples of Cross-Cultural Risk
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Cultural differences
Negotiation patterns Decision-making styles Ethics |
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MNE
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MNE - Multinational enterprises - Large companies with substantial resources that performs various business acts through networks
EX: Nokia, Samsung, General Motors, Toyota, Wal-Mart |
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SME
define participation in? influence on IB |
Small & Medium-Sized Enterprises - companies with 500 or fewer employees
90-95% of all firms in most economies Participate more in exporting, licensing & global sourcing DRIVERS for advancement in IB |
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Born Global Firm
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young entrepreneurial company that initiates international business activity very early in its evolution, moving rapidly into foreign markets
EX: Google |
____ ________ company that initiates international business activity ____ _____ in its ______, moving ______ into _______ ________
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NGOs
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Non-governmental Oragnizations - serve special causes, the arts, education, politics, religion & research
EX: Red Cross |
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Why do firms internationalize?
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Growth - Seek opportunities for growth through market diversification
Profits - Earn higher margins & profits Innovation - Gain new ideas about products, services, and business methods Service - Better serve key customers that have relocated abroad Sourcing - Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products Cheap labor - Gain access to lower cost/better value factors of production Develop economies of scale in sourcing, production, marketing Competition - Confront international competitors more effectively or thwart the growth of competition in the home market Build relationships - invest in a potentially rewarding relationship with a foreign partner *Fundamental changes in the business landscape |
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Two mega-trends changing IB
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Globalization of markets/economies
Technological advances |
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Consequences of Market Globalization for firms
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Business opportunities
New risks Rivalry from foreign competitors More demanding buyers who source form suppliers worldwide Greater emphasis on proactive internationalization |
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Value Chain - Definition
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the sequence of value adding activities performed by the firm in the process of developing, producing, marketing & servicing a product
AKA activities/services that add value to a firm |
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How does Market Globalization influence on firm's Value Chain?
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It compels firms to reconfigure activities which add value on a global scale.
EX: sourcing, manufacturing, marketing must be modified Reasons to reconfigure: potential cost savings inputs labor technology opportunity to utilize foreign partner capabilities |
forces firms to do what?
why? |
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Stages in Internationalizing Value Chain
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Research & Development - gain scientific talent from other countries
Sourcing - data entry Manufacturing - low cost factories Distribution - retail stores abroad to target customers Sales & Service - customer service abroad to meet customer requirements |
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T/F Globalization is a new phenomenon.
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False
"all roads lead to Rome" - global goes back to ancient times |
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What are the phases of Globalization?
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the growth of globalization from the 1830s to the present
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First Phase of Globalization
1830s - late 1800s |
Peaked in 1880
Triggers: Introduction of railroads & ocean transport Key Characteristics: Rise of Manufacturing Cross-border trade of commodities Trading companies |
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Second Phase of Globalization
1900 - 1930 |
Trigger: Rise of electricity & steel production
Key Characteristics: Early multinational enterprises in manufacturing, extractive, and agricultural industries |
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Third Phase of Globalization
1948 - 1970s |
Triggers:
Formation of GATT - General Agreement on Tariff & Trade Conclusion of WWII Marshall Plan to reconstruct Europe Key Characteristics: Western countries combined their efforts towards gradually reducing trade barriers Rise of multinational companies from Japan Cross-border trade of branded products Cross-border flow of money paralleling the development of global capital markets |
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Fourth Phase of Globalization
1980s to present |
Triggers:
Advances in information communication, manufacturing & consultation technologies Privatization of state-owned enterprises in transition countries Economic growth in emerging markets Key Characteristics: Unprecedented rate of growth in cross-border trade of products, services & capital Participation in international business of small & large companies originating from many countries Focus on emerging markets for export, FDI & sourcing activities |
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Drivers of Market Globalization
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WW reduction of trade & investment barriers
-facilitated by WTO (World Trade Organization) Market Liberalization & Adoption of Free Markets - transition of command economies-->market driven economies leads to greater economic efficiency-->attracts foreign capital Industrialization, Economic Development & Modernization -low value-adding -->higher-value products Integration of World Financial Markets -enables firms to pay suppliers & collect payments from customers worldwide Technology - provides the MEANS for internationalization of firms -reduces costs -aids in coordination or WW activities - |
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Trade blocs & Economic Unions
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Trade Bloc - A free-trade area established by two or more countries through multiple tax, tariff, and trade agreements, designed to reduce or eliminate barriers to cross-border trade and investment.
EX: NAFTA, APEC Economic Union: A single market with a common currency - advanced stage of economic integration ONLY EX: Euro |
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Dimensions of Market Globalization
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Integration and interdependence of national economies
-Gov't contribute by lowering trade & investment barriers -Gov'ts harmonize monetary & fiscal policies within trade blocs (EX: EU) -supranational institutions - transcend national borders & involve cooperation to reduce barriers (EX: United Nations) Rise of Regional Trading Blocs & Economic Unions Growth of Global Investment & Financial Flows -free movement of capital --> interconnectedness -commercial & investment banking --> global industry Convergence of Consumer Lifestyles & preferences -MTV & youtube -Standardization vs. loss of tradition Globalization of Production -economies of scale - global competition factor -services shirt - firms establishing offshore facilities & relationships |
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Information Technology's influence
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-Cost is falling each year immensely
-IT into firms' value-chain activities -Smaller firms - utilize IT to undercut cross-national competition |
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T/F Manufacturing is low-scale and high cost.
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FALSE.
Manufacturing & Transportation technologies are both low-scale AND low cost. Technology has allowed the cost of manufacturing & transportation to drop dramatically. EX: planes, factories, machines, etc. |
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Global Benchmarking or World Class
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Positive societal consequence - Globalization has opened the world to innovations & progress while increasing performance standards
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Negative Societal Consequences of Market Globalization
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The transition to an increasingly single, global marketplace poses challenges to individuals, organizations & government
-Poverty makes it difficult for lower-income nations to integrate with the global economy -Although new jobs & opportunities have arose around the world due to Globalization, it has also COST many people their jobs |
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Positive Outcomes of Market Globalization
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Higher standards of living
Efficient utilization of resources Greater access to technology & products -In particular, economic freedom enhances income levels in many countries - INCOME GROWTH |
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Loss of National Sovereignty - MG
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UNINTENDED consequence of Market Globalization
Sovereignty -the ability of a nation to govern its own affairs -one country's laws cannot be applied/enforced in another MNE activities - interfere with the sovereign ability of gov'ts to control their own economies, social structures & political systems -EX: Wal-Mart's total revenue is larger than the GDP of most nations |
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Public Scrutiny of Business Conduct - MG
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UNINTENDED consequence of Market Globalization
Solution: to obtain benefits of MG, gov'ts should strive for an open economic system -freedom to enter/compete in markets -protection of persons & intellectual property -rule of law -voluntary exchange forced by markets instead of through political process |
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Offshoring & the Flight of Jobs - MG
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UNINTENDED consequence of Market Globalization
Offshoring -the relocation of manufacturing & other value-chain activities to cost-effective destinations abroad Multinationals - center of criticism -runaway or footloose corporations -quick to relocate production to countries that offer better comparative advantages Advantages -economies of scale -->centralizing production locations -low cost labor advantages -knowledge-sharing Countries favorable to offshoring -those with low cost inputs & more favorable business environments -EX: China, Mexico, Brazil etc. Good for firms -->leads to corporate survival -facing intense competition -shrinking profit margins -unfavorable industry trends |
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Effect on the Poor - MG
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UNINTENDED consequence of Market Globalization
-results in job losses due to raising of wages & creation of better jobs (EX: India - hand-woven textiles -->Industry) -MNEs criticized for paying low wages, exploiting workers & child labor -sweatshops etc. -living wage vs. minimum wage other options? -low paying job is better than no job -eliminating child labor does not force them to go to school |
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Effect on Natural Environment - MG
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UNINTENDED consequence of Market Globalization
-promoting increased manufacturing -->pollution, habitat destruction, deterioration of the ozone layer -corporate social responsibility |
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Effect on National Culture - MG
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UNINTENDED consequence of Market Globalization
-opens door to foreign companies, global brands, unfamiliar products, new values -^homogenation of technology & production methods -norms, values & behaviors homogenizing over time Criticism -cultural colonization -McDonalds-ization, Coca-Colonization Gov'ts try to block CULTURAL IMPERIALISM and prevent the erosion of local traditions |
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CULTURAL IMPERIALISM is offset by the opposite trend of ________.
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Nationalism
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Three types of participants in IB
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The Focal Firm
Distribution Channel Intermediary Facilitator |
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The Focal Firm - definition
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initiator of IB transaction, includes MNEs and SMEs
MNEs as focal firms - can be retailing (EX: Gap) and services (EX: Citibank) -Non-traditional INTERNET-mediated businesses that deliver knowledge-based offerings like music, movies & online software (EX: Amazon, Netflix) SME as focal firm -can be more flexible & quicker to respond to international opportunities -limited resources can prevent them from engaging in FDI -excel in exporting, licensing & franchising Born Global as a Focal Firm -currently make up the fastest growing segment of exporters in most countries |
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Distribution Channel Intermediary
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defined as a specialist firm providing logistics & marketing services in the international supply chain
characteristics -specialize in physical distribution & marketing service -connect the focal firm with the end user in the foreign market -assist the focal firm by providing logistics services |
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Facilitator
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a firm providing special expertise in legal advice, banking, customs clearance, market research & similar areas
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IB Participants - organized by the Value Chain
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Participants are involved in one or more critical value-adding activity
-procurement, manufacturing, marketing, transportation, distribution & support (across several countries) EX: In the the VC, for marketing: -SALES REPRESENTATIVES are seen as a DISTRIBUTION CHANNEL INTERMEDIARY because the activities that a SALES REP participates in adds value to a firm by marketing their product -CONSULTANTS with an expertise in marketing can aid in how a firm can market their product better |
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EX of Value Chain Activities
-Dell -upstream & downstream -read over - will help with comprehension |
Upstream Activities: activities that lead towards production
Market Research - Dell interacts with customers every day to research their their needs Research & Development - Dell combines knowledge from engineers in Taiwan with US to update notebooks; completely redesigned every 12 months Sourcing - Notebook parts are sourced worldwide Production: Notebooks are assembled and software is downloaded at one of six worldwide countries Downstream Activities: activities after production Marketing - Market for notebooks is worldwide, but mainly in US Distribution - transports by air globally, usually is shipped to destination in less than two weeks After-Sales Service - employs technical support in four nations |
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Characteristics of a Born Global Firm
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more innovative, adaptable, can better leverage the internet
limited resources --> minimize fixed costs & outsource flourish on private knowledge developed through networks & international social capital formed by technically inclined, market-oriented business people with entrepreneurial drive universal appeal in given product category often associated with significant product/process breakthrough or innovation products often involve advanced technology, substantial added value, superior quality & differentiated design internationalization typically via exporting & facilitated through network relationships heavy use of advanced IT & communication technologies EX: Google |
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Trade (export & import)
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Cross-Border Transaction
-implies a home-based operation where independent partners in the foreign market are engaged to provide local services |
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Contractual Exchanges
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Cross-Border Transaction
-includes licensing, franchising, service contracting, turnkey operations & project-based partnerships |
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Licensor
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EX of Focal Firm involved in CONTRACTUAL EXCHANGE
focal firm grants the right to the foreign partner to use certain intellectual property in exchange for royalties (EX: Disney signed agreement giving Mega Bloks (SME) the right to produce toys featuring Disney characters) |
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Franchisor
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EX of Focal Firm involved in CONTRACTUAL EXCHANGE
focal firm grants the right to the foreign partner to use an entire business system in exchange for fees & royalties (EX: Subway, KFC) |
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Turnkey Contractor
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EX of Focal Firm involved in CONTRACTUAL EXCHANGE
Provide engineering, design, and architectural services in the construction of airports, hospitals, oil refineries and other types of infrastructure -typically awarded on the basis of open bidding by the sponsor |
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Build-own Transfer
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EX of Focal Firm involved in CONTRACTUAL EXCHANGE
venture- an increasingly popular type of turnkey contract in the developing economies where contractors acquire an ownership in the facility for a period of time until it is turned over to the client |
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Equity Ownership
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Cross-Border Transaction
-accomplished through FDI which can be implemented through acquisition or greenfield investment |
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International Collaborative Venture (ICV)
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partners pool their resources and share the cost and risks of the new venture
-through an ICV, firm can exploit partner's complementary technologies & expertise, avoid trade barriers, connect with customers abroad, and configure value chains more effectively -ICV represents the middle ground between FDI & exporting; firm externalizes value adding activities such as R&D or manufacturing -EX: Apple & AT&T |
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Two Types of ICVs
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Joint Venture: focal firm creates and jointly owns a new legal entity together with foreign partners
Project-Based Collaborative Venture: Focal Firm collaborates with foreign partners on a project with a relatively narrow scope and a well-defined timetable, without creating a new legal entity |
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Pros & Cons of International Joint Ventures
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Advantages:
share costs & risks, gain access to needed resources, gain economies of scale & pursue long-term strategic goals Disadvantages: knowledge loss, future competition, free riders |
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Distributor - DCI
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TYPE of DISTRIBUTION CHANNEL INTERMEDIARY
takes title to the exporter's goods & performs marketing functions such as sales, promotion, and after sales services -serves as the extension of the firm in the foreign market -duties such as arranging for local transportation, clearing products through customs, advising focal firm about product adaptation, promotion & pricing. |
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Agent - DCI
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TYPE of DISTRIBUTION CHANNEL INTERMEDIARY
(aka broker) -does not take title to goods -works on commission to bring buyer & seller together -under contract for a period of time, represents either a buyer or seller |
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Manufacturer's Representative - DCI
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TYPE of DISTRIBUTION CHANNEL INTERMEDIARY
-under contract by exporter to represent and sell its merchandise in designated territories -acts as contracted salesperson in designated territory |
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Retailer - DCI
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TYPE of DISTRIBUTION CHANNEL INTERMEDIARY
-Larger focal firms in consumer products may choose to sell directly to retailers, bypassing distributors (wholesalers) -provides access to end users/customers |
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Role of Trading Companies in IB
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TYPE of DISTRIBUTION CHANNEL INTERMEDIARY
-based in home country -intermediary-->deals with imports & exports of a variety of products -high volume, low margin (minimum profit) resellers -EX: Mitsubishi |
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Export Management Company (EMC)
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TYPE of DISTRIBUTION CHANNEL INTERMEDIARY
-acts as an export agent on behalf of the focal firm -more common in US -EMC finds export customers, negotiates terms of sale, and arranges for international shipping, typically for smaller exporters |
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Online Intermediaries
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TYPE of DISTRIBUTION CHANNEL INTERMEDIARY
Disintermediation: bypassing traditional intermediaries - made possible due to widespread use of the Internet to reach customers globally EX: Amazon, eBay Negative outcome: -easy for dishonest marketers to reach customers with fake products such as fake pharmeceuticals |
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Logistics Service Provider
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TYPE of FACILITATOR
-transportation specialist that arranges for physical distribution and storage for the focal firm -FedEx, UPS: examples of facilitators that virtually cover the entire planet |
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Custom Brokers
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TYPE of FACILITATOR
-specialists that arrange for clearance of products through customs on behalf of the focal firm |
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International trade lawyers
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TYPE of FACILITATOR
-help navigate international legal environments: laws and regulations of target nations (import licenses, trade barriers, IP concernts), and the most appropriate means for international activity in the legal/regulatory context |
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Insurance companies
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TYPE of FACILITATOR
-provide coverage against commercial & political risk |
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Tax accountaints
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TYPE of FACILITATOR
-advise companies on minimizing tax obligations resulting from multi-county operations |
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Market research firms
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TYPE of FACILITATOR
-potential key resource for identifying and targeting foreign buyers |
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Comparative Advantage
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aka Absolute Advantage
Defined as superior features of a country that provide it with unique benefits in global competition ex: labor, land, resources National Comparative Advantage EX: China - low labor cost production base India - IT workers |
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Competitive Advantage
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aka Differential Advantage
Defined as distinctive assets or competencies of a firm - derived from cost, size, or innovation strengths that are difficult for competitors to replicate or imitate EX of Firm Competitive Advantage Samsung - leaership in flat-panel TV Nokia's design & technology leadership in telecommunication |
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Classical National Trade Theories
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Mercantilism
Absolute Advantage Principle Comparative Advantage Principle Factor Proportions Theory International Product Cycle Theory |
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Mercantilism
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CLASSICAL TRADE THEORY
defined as the belief that national prosperity is the result of a positive balance of trade -maximize exports & minimize imports |
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Absolute Advantage Principle
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CLASSICAL TRADE THEORY
a country should produce only those products in which it has absolute advantage or can produce using fewer resources than another country For example if one unit of labor in Scotland can produce 80 units of wool or 20 units of wine; while in Spain one unit of labor makes 50 units of wool or 75 units of wine, then Scotland has an absolute advantage in producing wool and Spain has an absolute advantage in producing wine. |
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Comparative Advantage Principle
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CLASSICAL TRADE THEORY
defined as when it is beneficial for two countries to trade even if one has absolute advantage in the production of all products -relative efficiency a country can produce the product, not the absolute cost of production matters -specialize in what they produce the BEST and trade for the rest -countries can use scarce resources more efficiently |
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Limitations of Early Trade Theories
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-don't take into account the cost of international transportation
-gov't intervention: tariffs and import restrictions that can distort trade flows -scale economies-->additional efficiencies -today--> countries can access needed low-cost capital on global markets |
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Factor Proportions (endowments) Theory
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CLASSICAL TRADE THEORY
each country should produce and export products that intensively use relatively abundant factors of production & import goods that intensively use relatively scarce factors of production |
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Leontief Paradox
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CLASSICAL THEORIES
in accordance with factor proportions (endowments) theory, it suggested that countries can be successful in the export of products that require a less abundant resource |
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International Product Cycle Theory
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CLASSICAL THEORIES
each product and its associated manufacturing technologies go through three stages of evolution: -INTRODUCTION: inventor country enjoys a monopoly (profits) in both manufacturing and exports -GROWTH: product's manufacturing becomes more standard, other countries will enter -MATURITY: original innovator country will become a net importer of the product -today cycle from innovation--> maturity is much shorter, making it harder for the innovator country to sustain its lead |
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Contemporary Theories of Trade
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Competitive Advantage of Nations
Michael Porter's Diamond Model National Industrial Policy New Trade Theory |
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Competitive Advantage of Nations
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CONTEMPORARY THEORY
-suggests that governments can proactively implement policies to enhance a nation’s competitive advantage, beyond the natural endowments the country possesses by: stimulating innovation targeting industries for development providing low-cost capital other incentives |
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Michael Porter’s Diamond Model
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CONTEMPORARY THEORY
Sources of National Competitive Advantage 1. Firm strategy, structure, and rivalry – the presence of strong competitors at home serves as a national competitive advantage 2. Factor conditions – labor, natural resources, capital, technology, entrepreneurship, and know how 3. Demand conditions – the strengths and sophistication of customer demand 4. Related and supporting industries – availability of clusters of suppliers and complementary firms with distinctive competences |
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Industrial Clusters
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CONTEMPORARY THEORY
A concentration of suppliers and supporting firms from the same industry located within the same geographic area EX: Silicon Valley, IT in Bangalore India -can serve as an export platform for individual nations |
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National Industrial Policy
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CONTEMPORARY THEORY
Proactive economic development plan implemented by the public sector to nurture or support promising industry sectors with potential for regional or global dominance. -Public sector initiatives can include: Tax incentives Monetary and fiscal policies Rigorous educational systems Investment in national infrastructure Strong legal and regulatory systems |
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New Trade Theory
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CONTEMPORARY THEORY
*****not on powerpoint, but in the book The argument that economies of scale are an important factor in some industries for superior international performance – even without any clear comparative advantage possessed by the nation. -Some industries succeed best as their volume of production increases. -Example: the commercial aircraft industry has very high fixed costs that necessitate high-volume sales to achieve profitability. |
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Inernationalization Process Model
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-suggests a gradual, evolutionary path to internationalization
-slow and incremental nature of internationalization by the firm results from the uncertainty and uneasiness that managers have about cross-border transactions -predictable pattern of internationalization may include: the following stages: domestic focus pre-export stage experimental involvement active involvement committed involvement -no longer practical or realistic in today’s fast-paced, interconnected economy -today many firms, even young or without much experience, take bold steps to internationalize -indicative of this trend is the emergence of Born Global companies |
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FDI Based Explanations
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Monopolistic Advantage Theory
Internalization Theory Dunnings Eclectic Pardigm |
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Monopolistic Advantage Theory
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FDI Based Explanation
-FDI is preferred by MNEs because it provides the firm with control over resources and capabilities in the foreign market, and a degree of monopoly power relative to foreign competitors -Key sources of advantage proprietary knowledge patents unique know-how and skills sole ownership of other assets |
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Internationalization Theory
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FDI Based Explanation
explains the process by which firms acquire and retain one or more value-chain activities inside the firm - retaining control over foreign operations and avoiding the disadvantages of dealing with external partners implies control & ownership of resources in contrast to foreign market entry strategies (exporting, licensing etc.) that imply developing contractual relationships with external business partners |
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Dunning's Eclectic Paradigm
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FDI Based Explanations
-also called OLI paradigm -free conditions determine whether or not a company will internalize via FDI 1. Ownership-specific advantages: knowledge, skills, capabilities, relationships, or physical assets that form the basis for the firm's competitive advantage 2. Location-specific advantages: advantages associated with the country in which the MNE is invested, including natural resources, skilled or low cost labor, and inexpensive capital 3. Internationalization advantages: control derived from internalizing foreign-based manufacturing, distribution, or other value chain activities |
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Non-FDI Based Explanations: International Collaborative Ventures
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-Firms have increasingly utilized non-equity, flexible collaborative ventures in international market entry
defined as a form of cooperation between two or more firms through collaboration, firms can gain: -access to foreign partner's know-how -increase capital -distribution channels -marketing assets -and overcome government imposed obstacles Venture partners share this risk of their joint efforts and pool resources and capabilities to create synergy |
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Two types of International Collaborative Ventures
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Equity-based Joint Ventures are the formation of a new legal entity.
-in contrast to the wholly-owned FDI, the firm collaborates with local partners to reduce risk and commitment of capital Project-based Alliances do not require equity commitment from the partners but simply a willingness to cooperate in R&D, manufacturing, design, or any other value-adding activity. -narrowly defined scope of activities and timeline -provide greater flexibility |
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Networks & Relational Assets
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defined as the stock of a firm's economical beneficial long-term relationships with other business entities
EX: Guanxi in China Characterized by: -buyers and sellers become connected through ongoing exchanges of products and services -stable relationships develop as a result of continued interaction -mutually beneficial relationships prove advantageous reducing transaction costs -competitive advantage |
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Cultural Orientations that Influence Everyday Behavior
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Interpersonal exchanges - greeting & parting rituals
-how far apart to stand, what to say, whether to touch or smile -ceremonies may vary as a function of the age, gender, and status of the greeters Value-chain operations, such as product & service design -EX: red may be beautiful to the Russians but it is the symbol of mourning in South Africa Gift-giving rituals -inappropriate items such as knives or scissors imply cutting off the relationship or other negative sentiment -chrysanthemums are typically associated with funerals -handkercheifs suggest sadness |
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Reasons Culture Matters
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Developing products and services
Communicating and interacting with foreign business partners Screening and selecting partners Negotiating and structuring Interacting with customers Preparing advertising and promotional materials |
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Challenges created by cross-culteral differences
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Teamwork - What should managers do if foreign and domestic nationals don’t get along?
Lifetime employment - Workers in some Japanese companies expect to work for the same company during their careers; how should a foreign firm handle this? Pay for performance system - In China and Japan, a person’s age is important in promoting workers. Yet how do such workers perform when merit performance-based measures are used? Organizational structure - Preferences for centralized, bureaucratic structures may deter information sharing. Union-management relationships - European firms have generally evolved into a business culture in which workers enjoy a more equal status with managers. Attitudes toward ambiguity - If you are not comfortable working with minimum guidance or taking independent action, then you may have difficulty fitting into some cultures. |
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Manifestations of Cross-Cultural Risk
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Ethnocentric orientation: using our won culture as the standard for judging others
Polycentric orientation: a host country a mindset where the manager develops a greater affinity with the country in which she/he conducts business Geocentric orientation: a global mindset where the manager is able to understand a business or market without regard to country boundaries Mangers should strive to adopt a GEOCENTRIC orentation |
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Human Resources Management
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The following HR practices vary greatly among cultures:
Teamwork Lifetime employment Pay for performance system Informal communication Organizational structure Union-management relationships Attitudes toward ambiguity |
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National Culture
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Culture relates to a system of shared assumptions, ideas, beliefs, and values that guide human behavior
Appears in statements, actions, material items Culture is acquired and inculcated; acquisition of cultural norms and patterns is a subtle process Generation to Generation - embellishment and adaptation over time |
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Definitions of Culture
-Objective -Subjective |
Culture incorporates both objective and subjective elements.
Objective or tangible aspects of culture include tools, roads, television programming, architecture, and other physical artifacts. Subjective or intangible aspects of culture include norms, values, ideas, customs, and other meaningful symbols. |
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Hofstede
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culture as a ‘collective mental programming’ of people. The ‘software of the mind,’ or how we think and reason, differentiates us from other groups.
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Culture Evolves ______ ______.
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Over Time
Culture evolves within each society to characterize and distinguish its members from others. -It captures how the members of the society live: EX:how they feed, clothe, and shelter themselves. -It explains how members behave toward each other and with other groups. -It defines their beliefs and values, and how they perceive the meaning of life. |
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What Culture is NOT
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NOT right or wrong
-culture is relative. -there is no cultural absolute. -different nationalities simply perceive the world differently. NOT about individual behavior -culture is about groups. -it refers to a collective phenomenon of shared values and meanings. NOT inherited -culture is derived from the social environment -we are not born with a shared set of values and attitudes -we learn and acquire as the grow up. Noted - Not about what you & I do, but when we all get together and act the same way We aren’t born with values, we identify with the culture we are involved in. |
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Culture is _______.
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Learned
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Socialization
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The process of learning the rules and behavioral patterns appropriate to one's given society, i.e. cultural learning
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Acculturation
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The process of adjusting and adapting to a culture other than one's own, commonly experienced by expatriate workers
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Culture Makeup
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Visible Makeup or High Culture
-fine arts -literature -drama -classical music Makeup we are aware of; Folk Culture -Religion -Dress -Music -Etiquette -Courtship Makeup we are unaware of; Deep Culture -Family Relationships -Gender Rules -Nonverbal Commuinication -Concept of Beauty |
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Three Overlapping Layers of Culture
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National
Professional Corporate Professional & Corporate culture -grows as people are socialized into a profession and workplace -embedded in National cultures **In companies with a strong organizational culture, it is hard to determine where the corporate influence begins and the national influence ends.** |
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Metaphors
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One Approach to Interpret Culture
_Metaphors_ refer to a distinctive tradition or institution strongly associated with a society- a guide to deciphering attitudes, values, and behaviors. -American football - metaphor for distinctive traditions in US -Japanese garden - tranquility |
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Stereotypes
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One Approach to Interpret Culture
_Stereotypes_ are generalizations about a group of people that may or may not be factual, often overlooking real, deeper differences. -are often erroneous and lead to unjustified conclusions -are an easy means to judge situations and people. Examples US: argumentative, Japan - reserved & humble US: personal freedom, China - group oriented |
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Idiom
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One Approach to Interpreting Culture
An _idiom_ is an expression whose symbolic meaning is different from its literal meaning -a phrase that cannot be understood by simply knowing what the individual words mean. -Idioms exist in virtually every culture and are used as a short way of saying something else. EX: Simpsons |
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Low Context Cultures
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_Low-context cultures_ rely on elaborate verbal explanations, putting much emphasis on spoken words.
-get down to business first -expertise & performance-->valued -agreements emphasize trust -negotiations slow & ritualistic -central importance on the efficient delivery of verbal messages -very little, very direct; say what they mean & mean what they say |
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High Context Cultures
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A _high-context culture_ emphasizes nonverbal messages and use communication as a means to promote smooth, harmonious relationships.
-establish social trust first -personal relations & goodwill-->valued -agreements emphasize specific, legalistic contract -negotiations are efficient as possible -it is critical to notice nonverbal signs and body language. -Passive aggressive |
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Hofstede's Classification of National Culture
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1. _Individualism vs. collectivism_ refers to whether a person primarily functions as an individual or within a group.
2. _Power distance_ describes how a society deals with inequalities in power that exist among people. 3. _Uncertainty avoidance_ refers to the extent to which people can tolerate risk and uncertainty in their lives. 4. _Masculinity vs femininity_ refers to a society’s orientation based on traditional male and female values. 5. _Long-term vs short-term orientation_ -- not identified in his earlier study. This dimension describes the degree to which people and organizations defer gratification to achieve long-term success. |
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Objective Dimension of Culture
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_Objective dimensions_ - e.g., the tools, roads, and architecture unique to a society.
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Objective Dimensions of Culture: Material Productions
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-artifacts, objects, and technological systems that people construct to cope with their environments.
The most important technology-based material productions are the infrastructure related to energy, transportation, and communications systems |
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Objective Dimension of Culture: Creative expressions of culture
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include arts, folklore, music, dance, theater, and high cuisine
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Subjective dimension of culture
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values and attitudes, manners and customs, deal vs. relationship orientation, perceptions of time, perceptions of space, and religion
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Subjective: Values
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represent a person’s judgments about what is good or bad, acceptable or unacceptable, important or unimportant, and normal or abnormal.
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Subjective: Attitudes & Preferences
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are developed based on values, and are similar to opinions, except that attitudes are often unconsciously held and may not have a rational basis
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Subjective: Prejudices
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are rigidly held attitudes, usually unfavorable and aimed at particular groups of people
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Deal vs. Relationship Orientation
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Deal-oriented cultures- managers focus on the task at hand, are impersonal, typically use contracts, and want to just “get down to business.”
-Examples: Australia, Northern Europe, and North America Relationship-oriented cultures- managers value affiliations with people, rapport, and get to know the other party in business interactions; relationships are more important than the deal- trust is highly valued in business agreements. -Examples: China, Japan, Latin American countries- it took nine years for Volkswagen to negotiate an automobile factory in China. -Guanxi: refers to social connections in Chinese society -- relationships based on mutual benefits; reciprocal exchange of favors as well as mutual obligations |
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Manners & Customs
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Ways of behaving and conducting oneself in public and business situations.
-Informal cultures: egalitarian, in which people are equal and work together cooperatively. -Formal cultures: status, hierarchy, power, and respect are very important. Varying Customs: eating habits, mealtimes, work hours and holidays, appropriate behavior at social gatherings (handshaking, bowing, kissing), gift-giving (complex) |
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Perceptions of Time:
Long & Short Planning Horizon |
dictates expectations - planning, scheduling, profit streams, tardiness
Longer planning horizon - Japan: prepare strategic plans for the decade Shorter planning horizon - Western: strategic plans for several years |
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Perceptions of Time:
Orientation |
_Monochronic_ - rigid orientation to time in which the individual is focused on schedules, punctuality, time as a resource, time is linear, “time is money.”
_Polychronic_ - A flexible, non-linear orientation to time in which the individual takes a long-term perspective and is capable of multi-tasking; time is elastic, long delays are tolerated before taking action. |
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Religion
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_Religion_ is a system of common beliefs or attitudes concerning a being or system of thought people consider to be sacred, divine, or highest truth,
-as well as the moral codes, values, institutions, traditions, and rituals associated with this system. -Religion influences culture, and therefore business and consumer behavior. |
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Language
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The “_mirror_” or expression of culture, language is essential for communications,
-provides insights into culture. -linguistic proficiency facilitates cross-cultural understanding. Language has both verbal & _nonverbal_ (unspoken, facial expressions & gestures). Environment's Influence - The concept and meanings of a word are not universal, even though the word can be translated |
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Culture & the Services Sector
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most advanced economies, firms that offer services account for a greater share of FDI than manufacturing firms.
greater the cultural distance between the service producer and its customers, the more likely there will be cognitive and communication gaps. differences in language & natural character - same effect as trade barriers, FDI is vulnerable |
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Technology & Culture
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technology advances - key determinant of culture & cultural change-->more leisure time, computers, multimedia, and communications systems that encourage the convergence of global culture
"death of distance" -refers to the demise of boundaries that used to separate people -integrating effects of modern communications, information & transportation technologies -->more homogenized cultures internet also promotes the diffusion of culture due to rapidly growing number of internet users |
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Are cultures converging?
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little consensus
criticism -globalization=harmful to local cultures -artistic expressions & sensibilities being replaced by a homogeneous, "Americanized" culture -some think ^global communications =positive because it encourages the flow of cultural ideas, beliefs & vaules homogenization (or banalization) of culture - demonstrated by growing tendency of people in the world to consume watch the same movies, listen to the same music, drive the same cars, stay in the same hotels, eat Big Macs & drink Cokes MAYBE. |
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Managerial Guidlines For Cross-Cultural Success:
Guideline 1: Acquire ______ & ______ knowledge.... |
Guideline 1: Acquire FACTUAL and INTERPRETIVE knowledge about the other culture; and try to speak their language.
-GEOCENTRIC cultural mindset -_Cultural intelligence_ (CQ) measures a person’s capability to function effectively in situations characterized by cultural diversity -helpful in selecting optimal human resources. |
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Managerial Guidlines For Cross-Cultural Success:
Guideline 2: Avoid _____ ___ |
Guideline 2: Avoid cultural bias.
-Self-reference criterion: The tendency to view other cultures through the lens of one's own culture _Critical incident analysis_: a method for analyzing awkward situations in cross cultural interactions by developing empathy for other points of view. |
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Managerial Guidlines For Cross-Cultural Success:
Guideline 3: Develop __________ ____ |
Guideline 3: Develop cross-cultural skills.
-Cross-cultural proficiency is characterized by several personality traits. |
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